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Annual Report 1999
 

Annual Report 1999

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Tele2s Annual Report 1999

Tele2s Annual Report 1999

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    Annual Report 1999 Annual Report 1999 Document Transcript

    • NetCom Annual Report 1999 MCMXCIX A n n u a l R e p o r t 1999
    • Contents 1 1999 Highlights 2 President´s message 4 NetCom AB 10 Board of Directors 11 Senior Executives 36 18 12 Financial Review 13 Five Year Summary 14 NetCom Share Data 16 Tele2 AB Sweden 18 Mobile Telephony 21 25 22 Fixed Telephony 25 WAP 26 Internet 33 29 Broadband 30 Cable-TV 32 Tele2 A/S Denmark 34 Tele2 Norge AS 16 30 36 Other Operations Ritabell Datametrix Optimal Telecom 4T Solutions 40 Associated Companies 34 SEC Everyday.com 4 42 Report of Directors 44 Income Statements 45 Balance Sheets 47 Cash Flow Statements 48 Notes 26 22 72 Audit Report Back page Addresses Financial Calendar First Quarter Results May 8 Annual General Meeting May 25 Second Quarter Results August 15 41 Third Quarter Results November 6
    • 1999 Highlights • Inclusive of prepaid, Comviq added 362,000 gross new sub- scribers on an annualized basis for a total of 1,641,000. • 48% annualized growth in activated prepaid card customers in Sweden to 909,000. • Monthly mobile average revenue per subscriber (ARPU) in Sweden, excluding prepaid subscribers, increased by over 14% to SEK 418. • In March, the NetCom Board announced the appointment of Lars-Johan Jarnheimer as President and CEO of NetCom AB. • In June, NetCom announced a business reorganization initia- tive to cut costs to meet future increases in market compe- tition. The reorganization will create annualized cost savings of MSEK 80, effective January 2000. • In September, Everyday.com, NetCom’s joint venture with Modern Times Group (MTG), was launched, creating Scan- dinavia’s biggest Internet portal. Everyday.com offers free Internet, secure payments in addition to broad product content. • In October, NetCom announced a collaboration with Cisco to launch a new fiber optic ring as part of Tele2’s Internet back bone which will facilitate greater bandwidth. • In November, NetCom announced the sale of its 24.8% shareholding in its associate company, NetCom ASA, in exchange for a 17.8% stake in Société Européenne de Communication SA. • NetCom’s operations were not effected by the changeover to the new millennium. FINANCIAL SUMMARY SEK million 1999 1998 % Change Operating revenue 8,193 5,969 +37 Operating profit before depreciation and amortization 2,097 1,223 +71 after depreciation and amortization 1,142 518 +120 Profit after financial items 4,179 232 +1,701 of which profit on sale of shares in associated companies 3,228 — — excluding profit on sale of shares in associated companies 951 232 +310 Profit after taxes 3,769 67 +5,525 Earnings per share (SEK) (1) 36,29 0,64 +5,570 (1) Earnings per share figures are after taxes and full conversion. NetCom Annual Repor t 99 1
    • ” ...ensuring that NetCom is a highly efficient enterprise. Our customers must gain advan- tages from that efficiency, through prices and quality, at the same time as the interests of shareholders must also be satisfied, of course. ” A Message from the President of NetCom 1999 was a watershed year for NetCom. A massive, far- A look back sighted investment that was long in the red has broken In the mobile telephony field, the prepaid card Comviq through to profitability, thanks to dedicated hard work. Kontant kept up its rapid pace of expansion. Comviq I am thankful for the efforts that my predecessors and was one of the very first mobile telecom companies in my associates have made to bring us to this destination. Europe to invest aggressively in this technical solution, I assure you that our goal now is to further amplify which was developed in Portugal. The Swedish market NetCom’s earnings as quickly as possible. quickly welcomed the prepaid card. Actually, the other From the start, NetCom’s business concept was to two Swedish GSM operators were the only ones who squeeze prices. This remains essential to our company’s took their time before realizing this crying need among identity. For a growing number of customers, we are the consumers. Comviq has retained its strong position as company that offers at a lower price services of a quality market leader in this segment. During 1999, we also on a par with those of the old monopolists or, for that became the first Swedish operator to allow prepaid-card matter, the serious newcomers to the partially deregulat- customers to make calls while abroad. ed markets where we are active. Comviq subscriptions invoiced for service reported My task primarily consists of ensuring that NetCom outstanding growth, as did Tele2Mobil subscriptions for is a highly efficient enterprise. Our customers must gain business customers. advantages from that efficiency, through prices and qual- The Estonian mobile telecom operator Ritabell posi- ity, at the same time as the interests of shareholders tioned itself during the year as the price leader in its must also be satisfied, of course. market. This makes tough demands on our ability to explain Since Tele2 was founded, the Internet has been an our services to customers. It also makes tough demands essential business area. Tele2 pioneered the Internet in on the politicians in power and the government agencies Sweden at a time when the incumbent operator Telia supervising the slow process of deregulation in the tele- thought it a passing fad. Tele2 has supplied broadband com market. For consumers to genuinely benefit from capacity to companies for many years – since long competition, politicians and government agencies must before others coined the phrase “Broadband for every- show more resolution for deregulation. The will and the one!” Through Kabelvision, we can also supply such capacity for this have wavered recently, not only in capacity to households. Tele2 has good reason to stress Sweden but also in Norway and Denmark. this aspect of the company’s business more clearly in the NetCom’s various brands – chiefly Comviq GSM, future. The pioneer role may be a thing of the past, but Kabelvision, Tele2 and Tele2Mobil – have earned respect Tele2 remains a cutting-edge enterprise in both the busi- for their high quality combined with low prices. Behind ness and consumer markets, capable of marshaling this recognition lies a corporate culture that has learned exceptional expertise. to wield its tools well, to invest so that efficiency and In the area of fixed telephony, 1999 was a trying year. quality can be satisfied at extremely low cost. In Sweden, the chief ordeal was the telephone service This has created a proud corporate culture in which reform that included switching the international dialing the various brands have grown into one another during prefix to 00, replacing the old operator prefixes and the past few years, as the people working with the introducing preselect, by which customers could desig- brands have acted in an integrated organization. And nate a default domestic and international carrier. This that yielded outstanding efficiency gains. During the proved a complicated matter for customers and was past year, we saw similar effects, as staffing numbers poorly managed by the authorities. were reduced by 150 with no loss of quality. 2 NetCom Annual Repor t 99
    • Lars-Johan Jarnheimer (right) succeeded Anders Björkman as CEO of NetCom in March 1999. The transition to preselect caused the most animated reacted most vociferously against Tele Danmark’s pric- discussion during a period of unclear instructions from ing, which illustrates the gap between Telia’s actions in the regulatory bodies. Heightened competition was the Sweden and in a market where the company does not goal of the reform, itself part of the deregulation of hold the position of former monopolist. European telecom markets under the leadership of the European Union. The goal of former monopolists like The future Telia, Telenor and Tele Danmark was quite naturally to Telecom deregulation in Europe is a glacial process, minimize the effects of preselect (in Sweden, a sub- unfortunately. It will take many years before customers scriber can choose to make all calls except local calls enjoy a market in which the former monopoly compa- with a single operator). As reform loomed, a conflict of nies really are competitors, under the same conditions interest appeared that the operators themselves were as the new companies. The political structures in each powerless to solve. The National Post and Telecom country have a tendency to protect their old state- Agency, the Swedish Competition Authority and the owned enterprises to the bitter end. This is true of Swedish Consumer Agency must have a mandate and politicians as well as deregulation and competition the power to handle problems that arise. This was not authorities. the case in Sweden. In Denmark and Norway, on the In the three markets where NetCom has its principal other hand, it was considerably easier to implement the operations – Denmark, Norway and Sweden – prospects preselect reform. for the future are bright as long as the company keeps to The fact that Tele2 in Sweden had become such a sig- its pursuit of lower costs and the pricing philosophy that nificant rival to Telia caused special problems. Telia saw I mentioned in the beginning. The idea is to augment the reform as an opportunity to reset the clock to pre- operations in Denmark and Norway so that Tele2 cus- competition days; Tele2 should start from zero, they tomers there can also be offered mobile telephony in seemed to have reasoned. As the merger of Telia and one way or another. The crucial Internet market is Telenor and their pending stock exchange listing another field where Tele2 has been a pioneer and aggres- approached, political and regulatory authorities sively pursued new projects, such as www.everyday.com, appeared incapable of dealing with this conflict between a portal owned jointly with Modern Times Group Telia and its only genuine competition, Tele2. MTG AB. This market is seething with competition in Tele2 was forced to invest substantial sums in explain- every single country, which I find invigorating. NetCom ing the reform to customers and the public. Telia’s han- has never shrunk from an attractive market with intense dling of the reform after September 11, when the competition. On the contrary, that spurs the Company change took effect, also left much to be desired. Telia to perform even better. owns the telephone system (the “copper-wire network”) and is also the biggest competitive operator – a situation that is entirely unacceptable. The future will show to Lars-Johan Jarnheimer what extent EU demands for further deregulation are CEO fulfilled in a reasonable manner. In Denmark, Tele Danmark’s competitors have been able to use the tele- phone network all the way to the customer since the spring of 1999, but Tele Danmark’s pricing so far has made that reform a joke. Telia’s Danish subsidiary has NetCom Annual Repor t 99 3
    • The NetCom Group NetCom AB, formed in 1993, is a leading telecommu- Norway. Datametrix, which specializes in systems inte- nications company in the Nordic countries. The gration, 4T Solutions and Optimal Telecom are also part Company provides GSM cellular services, under the of NetCom. The Group offers cable television services Comviq and Tele2Mobil brands in Sweden, through its under the Kabelvision brand name. NetCom has a Ritabell subsidiary (Q-GSM) in Estonia and through the 17.8% stake in Société Européenne de Communication Tele2 brand in Lithuania. For public telecommunica- SA. The Company is listed on the Stockholm Stock tions, data communications and Internet access, Exchange, under NCOMA and NCOMB, and on the NetCom has the Tele2 brand in Sweden and the sub- Nasdaq Stock Market, under NECS. sidiaries Tele2 A/S in Denmark and Tele2 Norge AS in NetCom AB 48% 46.8% 100% 50% 17.8% Ritabell Tele2 AB (Estonia) (Tele2, Comviq and Kabelvision) Everyday.com SEC 100% Tele2 Tele2 A/S 4T Datametrix Optimal Projects Norge AS Denmark Solutions Telecom Poland 4 NetCom Annual Repor t 99
    • Business concept Based on customer needs, NetCom AB shall efficiently provide a high level of service when selling and delivering com- munication solutions for voice, data and images, to make its customers the most satisfied and loyal in the marketplace. Objectives NetCom AB shall be the leading telecom operator in the Nordic and Baltic region. The Company shall achieve solid, steady growth with improved profitability in both the business and consumer segments. Strategy • Based on its thorough knowledge of the marketplace, NetCom AB quickly detects trends and launches profitable communication solutions. • NetCom’s services are marketed under the Tele2 and Comviq brands. Tele2 is used primarily for the business mar- ket but even for fixed telephony and Internet access for private individuals. Comviq targets the consumer market for mobile telephony. Tele2 and Comviq are perceived as the price leaders. • By deploying new technologies at an early stage, NetCom generates fresh sources of revenue and boosts profitability. Profitability is ensured through cost-effective and flexible operations that adhere to clearly defined standards of quality. • Integrated services enable NetCom to better satisfy customer needs. Principles NetCom AB’s operations are based on three fundamental principles, intended to inform day-to-day activities. • Flexibility • Non pretentiousness • Cost awareness THE BUSINESSES IN BRIEF v v Tele2 AB offers mobile telephony, * Tele2 Norge AS has provid- * fixed telephony, Internet, data ed Internet and data com- communications and cable-televi- 76% munications services since 5% sion services in Sweden. The com- 1995 and fixed telephony pany’s services are marketed under since 1998. The company is the Tele2, Comviq and Kabelvision regarded as the private alterna- brands. Tele2 is used primarily for mobile telephony tive to the old state-owned monopoly. Tele2 Norge AS and data communications for the business market, serves businesses and private individuals. The company and fixed telephony and Internet services for private accounted for 5% of Group revenues in 1999. individuals. Comviq is used as a consumer brand v for mobile telephony. Tele2 uses the Kabelvision Other Operations includes * brand name in the cable-TV market. Tele2 AB Ritabell, which offers mobile accounted for 76% of Group revenues in 1999. telephony services in 8% Estonia; NetCom owns v Tele2 A/S Denmark has offered * 94.8% of Ritabell. Among fixed telephony, Internet and data the remaining businesses are the communications services in 11% operator Optimal Telecom; 4T Solutions, which Denmark since 1996. The compa- designs, markets and installs invoicing systems; and ny is the leading alternative operator Datametrix, which works with systems integration. in Denmark. It serves both business Companies in Other business accounted for 8% of customers and private individuals. Tele2 A/S of Denmark Group revenues in 1999. accounted for 11% of Group revenues in 1999. * Proportion of Group operating revenue in 1999. NetCom Annual Repor t 99 5
    • The NetCom Group Quality works to transfer voice, images, text, audio and video. The following quality guidelines apply to all activities IP is equally effective whether used on a mobile, fixed throughout the Group. or data network. “A vital means for achieving our goals is first-class The technology poses fresh challenges to telecom quality in everything we do. The basic foundation for operators. In particular, competition is coming from this is our principles and know-how. Our maxim is con- businesses such as software manufacturers, systems inte- tinuous improvement. The actual use of a product or grators and media content providers. IP has given these service must always meet the customer’s expectations. companies the ability to provide telecommunications We constantly place the customer at center stage, and services. our chief gauge of quality is his or her satisfaction. Our promises, our actions and our products must be per- Flexibility of small business ceived as embodying quality. Our customers must always Among the NetCom Group’s strengths is its success at feel confident in NetCom AB as a service provider.” combining the advantages of a small business – speed, flexibility and cost awareness – with the economies of Environmental policies scale available to big companies. In this market, it is not NetCom AB’s operations have only a limited impact on the big that beat the small but the fast that beat the slow. the environment. Nevertheless, customers increasingly In Sweden, NetCom offers businesses and consumers request the Group to confirm that its practices are as complete customized solutions as well as standardized environment-friendly as possible. The Group’s environ- services in fixed and mobile telephony, Internet, data mental policy states that environmentally certified prod- communications and cable-TV. ucts should be used whenever possible. In addition, every The Company has access to well-known brands, an effort should be made to manage waste generated by the extensive infrastructure and a broad customer base. Company’s offices in a sound environmental manner. Scrapped materials should be handled similarly. Finally, Telia controls access network purchasing decisions must take into account environ- One obstacle in Sweden is the legacy of the old telecom mental considerations. Mobile telephony in particular monopoly in the fixed telephony market. Telia owns the demands that the Group pay constant attention to envi- telecommunications network that was built by the public ronmental safety, keep up with research in Sweden and sector. This control of the access network, that is, the abroad, actively participate in discussions of health, the final link to the customer, guarantees Telia an effective environment and security and disseminate new findings monopoly on basic service subscriptions. A similar situa- through its web site. tion exists in Norway. The Swedish National Post and Telecom Agency The new IP standard (PTS) has proposed a change in the Swedish Telecom- Owing to the rapid growth of the Internet, the Internet munications Act that would open the national access protocol suite (IP, the Net’s basic language of communi- network for telephony to other telecom operators than cation) has become accepted as the standard communica- Telia. However, the proposed legislative changes leave tions protocol. And the spread of IP is spurring the con- several key issues unresolved. NetCom does not expect vergence of fixed telephony, mobile telephony and data any other operators to be able to compete commercially transfer. The protocol allows data communications net- until the second half of 2001, at the earliest. 6 NetCom Annual Repor t 99
    • H I S TO RY In Denmark and Norway, the ability of Tele2 compa- nies to offer complete solutions is restricted by their lack Late 1970s: Industriförvaltnings AB Kinnevik decides of mobile telephony operations. to enter the telecommunications market. 1981 Kinnevik starts its own analog mobile telephony Radiation warnings for cellular phones network. Now and then, warnings appear in the media about radi- ation from cellular phones and base stations. Such dis- 1980s: Kinnevik prepares to provide traditional voice cussions could impede the further expansion of mobile and data communications. telephony services. 1986 A satellite link for data traffic is established. NetCom offers complete solutions 1989 An agreement is signed with the Swedish National By offering complete solutions from all of the Group’s Rail Administration on a joint fiber-optic network. business areas to a greater extent than previously, 1989 Kinnevik is awarded a license to operate a nation- NetCom has major potential for boosting sales to new wide GSM network. prospects in Sweden. The long-term goal is to be able to offer complete solutions in every market. 1990 Tele2 AB is formed. Another spur to sales is NetCom’s ability to offer 1992 Comviq GSM is launched. existing customers services provided by other companies in the Group. Such collaboration can also boost the use 1993 The fixed telephony market in Sweden is deregu- of existing services. lated. Given the global nature of its operations, the 1993 NetCom Systems is formed to own and develop Company is well positioned to transfer know-how from the Kinnevik group’s telecommunications companies in one country to another, too. The Group has significant the Nordic countries. potential in the various business areas sharing their exper- tise more than at present. 1993 Kinnevik and Orkla set up NetCom ASA in Norway. NetCom Systems owns 25% of the company. Major corporate transactions in 1999 1995 NetCom Systems launches the precursor to Tele2 Higher stake in Ritabell, Estonia Norge. In January, NetCom acquired 90% of the share capital in Tele2 Eesti AS, formerly AS Levicom Cellular (CellCo), 1996 The shares of NetCom Systems are distributed to and 19% of OÜ Levicom Broadband (BroadCo). Tele2 Kinnevik shareholders. At the same time, these shares are Eesti has a 52% stake in Ritabell, the Estonian mobile listed on the Stockholm Stock Exchange’s O list. operator, and 100% of a Lithuanian GSM 1800 license. 1996 Through its subsidiary Tele2 A/S, NetCom The acquisition boosted NetCom’s holding in Ritabell, Systems becomes Tele Danmark’s first rival in the Danish from 48% to 94.8%. BroadCo’s business includes telecommunications market, breaking up a monopoly Internet services in Estonia and several cable-TV compa- that had lasted a century. nies in Estonia and Lithuania. 1997 NetCom Systems’ shares are listed on the Nasdaq Investment in Suomen Kolmegee Oy, Finland Stock Market. In March, NetCom’s Tele2 AB reached an agreement January 1, 1998: The Norwegian telecommunications with 41 Finnish Finnet companies to acquire 20% of market is deregulated. the shares and votes in Suomen Kolmegee Oy. Tele2 AB will be the largest single shareholder. Suomen Kolmegee 1998 Operations expand into the Baltic states through has been granted a nationwide license in Finland for the acquisition of 48% of Ritabell, a mobile telecom a third-generation mobile telephony network, using operator in Estonia. W-CDMA/UMTS. Besides constructing and operating 1998 NetCom Systems AB changes its name to the network, the company will sell capacity to service NetCom AB. providers. The company will have access to the infra- structure already managed by the Finnet companies. 1999 NetCom AB boosts its Ritabell holding to 94.8%. Thus, the investments required should be significantly 1999 Carrier preselect is introduced in Denmark, less than usual. Sales will be made to end-users through Norway and Sweden. the service providers. Tele2 AB is authorized to act as a service provider in Finland. 1999 NetCom AB sells its holdings in NetCom ASA to Société Européenne de Communication SA (SEC) in exchange for newly issued stock in SEC. Following the deal, NetCom AB owns 17.8% of SEC’s capital. NetCom Annual Repor t 99 7
    • NetCom AB Internet and radio licenses in Poland dures that proved valuable and a great aid to quality In May, NetCom received a nationwide Internet service assurance. Nevertheless, it became evident that the com- provider (ISP) license in Poland as well as a license to panies should establish their own priorities to achieve operate a wireless local loop (WLL) in several population objectives not covered by the ISO system. Thus, Tele2 centers. The ISP license, valid for 15 years with a renewal and Comviq decided to suspend preparations for ISO option, makes it possible for NetCom to offer Internet certification and instead develop their own quality-assur- access throughout the country. The WLL license is for ance systems better adapted to customer requirements. five years and can also be renewed. In the areas covered The essentials of their previous quality assurance work by the latter license, NetCom will be able to offer both have been preserved and expanded upon. The approach domestic and international data transmission as well as has become more consistent, with a sharper focus on telephony access for households and companies through processes which need improvement. Support systems are its own WLL network. Approximately 14 million people, now more closely linked to the NetCom Group’s or 36% of the Polish population, live in the regions intranet, the backbone of its internal communications. included in the license. The license was awarded to Also, all employees and consultants have been trained in In2loop Polska; NetCom, with a 49% stake, is the only quality-related issues. foreign shareholder in the company. In compliance with Danish telecommunications legis- lation, invoice procedures at Tele2 A/S in Denmark have SEC holding acquired through share swap obtained ISO 9002 certification. Tele2 Norge AS is con- To emphasize its European focus, NetCom AB, in ducting a process-oriented quality project targeting November, sold its stake in NetCom ASA to Société processes which need improvement. Européenne de Communication SA (SEC). For its 24.8% holding in NetCom ASA, the Company obtained Ongoing training new stock in SEC equivalent to 17.8% of share capital To strengthen the Group’s management corps, more than and votes. SEC’s activities span fixed telephony, mobile 100 managers from Swedish operations completed an telephony, the Internet, prepaid fixed telephone cards eight-day leadership training course. The objective was to and call centers. SEC operates in seven European coun- foster an attitude and approach among Company man- tries, markets with a total of some 240 million people. agers that would help them to motivate other employees. NetCom also has a management trainee program to No disruptions over millennium ensure a steady supply of competent leaders for the By means of comprehensive testing throughout 1999, future. Several new graduates are selected each year for NetCom AB made sure that all systems employed in the the year-long program. In three phases, participants gain Group’s business would successfully make the transition experience within the organization through hands-on to the 21st century. No problems arose at all. In addition work in sales, technology and the operations in Denmark to ensuring a smooth transition, much of the work was or Norway. worthwhile from other points of view. NetCom conducts training on an ongoing basis. For example, Swedish sales managers underwent advanced Reorganization lowers costs training in 1999. All new employees complete a two-day In June, NetCom AB carried out a comprehensive reor- basic course that covers NetCom’s business, goals, princi- ganization of its Swedish operations to better deal with ples and quality-assurance objectives. future competition and to hold down costs in the Group. About 150 positions were eliminated, just less than one- Employee bonus program third of which were permanent. The resulting savings NetCom AB sets salaries on an individual basis. Beyond will be at least SEK 80 million a year from 2000. the basic salary, every employee in the Group participates in a bonus system. The annual bonus can be as much as Quality assurance revised and reaffirmed 4% of wages. Bonuses are contingent upon the attain- Swedish Tele2 and Comviq previously pursued their ment of specific revenue, profitability and customer-satis- quality efforts in accordance with ISO standards. ISO faction objectives. The 1999 bonus was 1.0%, compared certification required a review of the companies’ proce- to 2.5% in 1998. 8 NetCom Annual Repor t 99
    • NetCom squeezes prices As in most countries, Swedish telephony services were long the reserve of a state-owned monopoly. The mobile telephony market was not dereg- ulated until the fall of 1992, when Comviq launched its GSM network. The market for fixed telephony service was formally deregulated in 1993. However, the Telia monopoly has lingered in several key segments. Price trends in competitive segments of the telephony market Mobile telephony Until Comviq GSM AB started in September 1992, a call from a mobile phone cost SEK 4.25 per minute. The same rate had applied since 1981. A Comviq call now costs as little as SEK 0.40 per minute, a decline of 91% since the market was opened. International calls via fixed telephony In 1993, Telia charged SEK 8.65 per minute for phone calls from Sweden to the United States. Now, Tele2 charges SEK 1.35 per minute for the same call, or 84% less. Fixed long-distance telephony Some long-distance calls for which Telia charged SEK 1.32 per minute in 1994 are now classified as local calls by Tele2, which charges SEK 0.20 per minute for them. The 85% disparity in prices is a direct result of competition. Price trends in segments where Telia faces little or no competition Local calls A local call that cost SEK 0.11 per minute day time through Telia in 1994 now costs SEK 0.23, up 109%. Service subscription fees Telia’s quarterly subscription fee for individuals went from SEK 217 in 1993, to SEK 315 in 1999. Lack of competition has allowed this 45% jump in price. Prices were effective in March 2000. NetCom Annual Repor t 99 9
    • Board of Directors Vigo Carlund Lars-Johan Håkan Ledin Sven Hagströmer (born 1946) has worked in Jarnheimer (born 1937) has an M.B.A. (born 1943) was president Kinnevik companies since president and CEO and an M.Sc. in Engineering. and chairman of the board of 1968, such as Partner Motor- (not a member of the Board) He worked for LM Ericsson Hagströmer & Qviberg from sågar and Svenska Motor AB, for many years before leaving its founding in 1980 until (born 1960) is an M.B.A. as president in the latter. In in 1987 to become president 1995. He is the chairman of He has been president and 1997, he became vice presi- of Millicom, where he is vice the boards of Investment AB CEO of NetCom AB since dent of Industriförvaltnings AB chairman of the board. Öresund and AB Custos and March 1999. He has held vari- Kinnevik (Kinnevik), and in Between 1995 and 1996, he has been a member of the ous positions at IKEA, Hennes May 1999 president. Carlund was president of NetCom Board of NetCom since 1997. & Mauritz and SARA Hotels has been president of Korsnäs Systems. Since 1996, Ledin Other board assignments: and served as president of ZTV since 1998. Member of the has been a member of the Acando, Arkivator, Bokförlaget a short while before joining Board of NetCom since 1995. board of SEC. He has been Atlantis, ProtectData, Quartz Comviq as vice president. a member of the Board of Pro and HQ.se. Marc J. A. Beuls Jarnheimer was president of NetCom since 1994. Comviq 1993–1997. He was (born 1956) has a B.Sc. in a member of executive manage- Holdings: 80,000 class B shares. Economics. He has been ment at Saab Automobiles with president of Millicom since Stig Nordin responsibility for the Nordic January 1998, and president countries, Russia and the Baltic (born 1943), M. Sc. of Banque Invik in Luxem- states and was president of Saab Engineering, has more than bourg since June 1997. Opel Sverige AB 1997–1998. two decades’ experience in the Beuls previously held execu- 1998–1999 he has been vice forest products industry. He tive positions at Generale president of Industri- joined Kinnevik in 1989 and Bank in Belgium. He is a förvaltnings AB Kinnevik and built up TV3 in London. Lars Wohlin member of the board of president of Investment AB Nordin became vice president Société Européenne de (born 1933), Ph.D. Econ., was Kinnevik. Board assignments: of Kinnevik in 1991, and Communication (SEC) and head of the Swedish Industrial MTG, SEC and Arvid Nord- from May 1992 to May 1999 became a member of the Research Institute 1973–1976. quist HAB. he was president. Since 1999, Board of NetCom in 1998. He served as Under-Secretary Holdings: 2,000 class B shares he has been president of Invik of State in the conservative gov- Jan Hugo Stenbeck and 48,000 options. & Co AB. He was president ernment 1976–1979 and as Chairman of the board of Korsnäs 1993–1998. a Governor of the Riksbank Member of the Board of (born 1942) is chairman of the (Swedish central bank) 1979– NetCom since 1993. Other boards of Kinnevik, Millicom, 1982. Between 1983 and 1996, board assignments: Kinnevik, Invik and MTG. He has been Wohlin was chairman of the Millicom and MTG. a member of the Board of board of the property company NetCom since 1993. Holdings: 10 class B shares and, Drott and president of the through relations, 4,878 class B Urban Mortgage Credit Holdings: 787,027 class A shares. shares. Corporation of Sweden. He has been a member of the Board of NetCom since 1996. 10 NetCom Annual Repor t 99
    • Senior Executives Lars-Johan Jarnheimer Johnny Svedberg Jörgen Latte Fredrik Berglund Born 1960. Born 1962. Born 1954. Born 1961. President and CEO of NetCom AB Vice president of Tele2 AB, Senior Vice President Marketing and sales manager and Tele2 AB from 1999. M.B.A. New markets. B.A. Mktg. and Chief financial at Tele2 AB. B.A. Mktg. Employed since 1992. Employed since 1990. officer of NetCom AB Employed since 1995. Holdings: 2,000 class B shares and Holdings: 220 class B shares since 1997. M.B.A. Holdings: 30,000 options. 48,000 options. and 4,000 options. Employed since 1992. Holdings: 200 class B shares and 42,000 options. Henrik Ringmar Kenneth Gustafsson Ebbe Jörgensen Born 1969. Born 1951. Born 1938. President of Tele2 Norge President of Tele2 A/S Denmark Executive vice chairman of AS. M.B.A. effective January 2000. Tele2 A/S Denmark effective Employed since 1998. Employed since 1993. January 2000. M.B.A. Holdings: 2,000 options. Holdings: 8,000 options. Employed since 1995. Holdings: 1,130 class B shares and 22,800 options. Jeanette Almberg Björn Lundström Roger Mobrin Lars-Erik Svegander Born 1965. Born 1965. Born 1968. Born 1941. Director customer service Networks manager Operations manager Human resources manager at Tele2 AB. M.B.A. at Tele2 AB. M.Sc. at Tele2 AB. Technical at Tele2 AB. Employed since 1995. Engineering. secondary school. Employed since 1991. Holdings: 1,000 options. Employed since 1991. Employed since 1995. Holdings: 1,500 options. Holdings: 1,000 options. Holdings: 1,000 options. NetCom Annual Repor t 99 11
    • Financial Review NetCom increased operating revenue 37% in 1999, to Operating profit after depreciation and amortization SEK 8,193 million. Operating revenue advanced strong- jumped 120%, to SEK 1,142 million. The operating ly in mobile telephony operations in Sweden and excep- margin after depreciation and amortization also tionally well in NetCom’s operations in Denmark and improved, to 13.9% (8.7%). Norway. Net interest income and other net financial items Mobile telephony in Tele2 AB in Sweden contributed totaled SEK 241 million (SEK 276 million). The SEK 3,909 million, up 32% (SEK 2,958 million in decline was primarily caused by lower interest rates 1998). Fixed telephony and Internet reported operating despite the increase in loans outstanding. The average revenue 18% better, at SEK 2,630 million (SEK 2,223 interest rate on outstanding debt dropped, to 4.8% million), while Cable-TV’s revenues declined 20%, to from 6.6%. SEK 110 million (SEK 137 million). Operating revenue Profit after financial items rose, to SEK 4,179 million in Tele2 A/S in Denmark surged 78%, to SEK 974 mil- (SEK 232 million). The increase was owing to better lion (SEK 546 million) and in Tele2 Norge AS 163%, profitability in operations and a profit of SEK 3,228 to SEK 444 million (SEK 169 million). Other opera- million from the sale of the Group’s 24.8% shareholding tions, which includes Optimal Telecom, 4T Solutions, in its associated company NetCom ASA. Profit after Datametrix and Ritabell, boosted operating revenue to financial items excluding the gain on the sale of shares SEK 696 million (SEK 197 million), up 253%. in the associated company was SEK 951 million for full- Operating profit before depreciation and amortiza- year 1999. tion climbed 71%, to SEK 2,097 million. The operating Profit for the year also rose, to SEK 3,769 million margin before depreciation and amortization increased, (SEK 67 million). The increase reflected improved prof- to 25.6%, from 20.5%, as a result of a sharp rise in the itability in NetCom’s operations and the gain on the sale profitability of NetCom’s Swedish fixed and mobile tele- of shares in the associated company. phony businesses and reduced losses in Tele2 A/S in Earnings per share increased, to SEK 36.29 (SEK Denmark and Tele2 Norge AS. 0.64). Profit for the year excluding the gain on the sale Mobile telephony within Tele2 AB boosted operating of shares in the associated company was SEK 541 mil- profit before depreciation and amortization 45%, to lion (SEK 67 million), and earnings per share excluding SEK 1,858 million (SEK 1,277 million). Operating that gain were SEK 5.21 (SEK 0.64). profit before depreciation and amortization for fixed NetCom’s total assets at December 31 were SEK telephony and Internet equaled SEK 466 million, up 14,693 million, reflecting a rise of 44%, compared to 77% from the profit of SEK 263 million in 1998. SEK 10,189 million at December 31, 1998, as a result Cable-TV reported an operating loss before depreciation of greater investment in core operations and company and amortization of SEK 8 million (SEK 2 million prof- acquisitions. it in 1998). The operating loss before depreciation and amortization for Tele2 A/S in Denmark totaled SEK 47 Parent Company million (SEK 115 million). Tele2 Norge AS reported an The Parent Company reported a profit after financial operating loss before depreciation and amortization of items of SEK 914 million (SEK 29 million loss in SEK 58 million (SEK 93 million). For Other businesses, 1998). The total included a capital gain of SEK 2,957 operating profit improved, to SEK 51 million (SEK 21 million on the sale of shares in NetCom ASA, a capital million loss in 1998). loss of SEK -1,912 million on a sale within the Group The cost of the stock option program for senior man- and SEK -19 million from losses on shares and partici- agement is based on the market price of NetCom shares. pations in associated companies. Total profit included The appreciation of the share during the year required increased provisions for option commitments to man- an increase of SEK 134 million in the provision for the agement equaling SEK -134 million (SEK -67 million), option program for 1999, compared to SEK 67 million necessitated by the dramatic appreciation of the in 1998. Company’s share price. Operating profit after Profit/loss after financial Operating revenues depreciation and items but before Capital expenditure amortization extraordinary items 8,000 SEK million 1,000 SEK million 4,000 SEK million 2,000 SEK million 750 3,000 6,000 1,500 500 2,000 250 4,000 1,000 1,000 0 0 2,000 -250 500 -500 -1,000 0 -750 -2,000 0 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99 12 NetCom Annual Repor t 99
    • DEFINITIONS Five-year summary Text in parantheses are adjustments that reflect full conversion of debentures. 1999 1998 1997 1996 1995 * Liquidty Income statement and balance sheet Cash and cash equivalents including items, SEK million unused credit facilities. Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,193 5,969 4,036 2,872 1,953 Net borrowing Interest-bearing liabilities (less convert- Operating profit/loss before ible debentures) less interest-bearing depreciation and amortization . . . . . . . . . . . . . . . . . . . 2,097 1,223 1,000 651 – 431 assets. Operating profit/loss after Investments depreciation and amortization . . . . . . . . . . . . . . . . . . . 1,142 518 392 254 – 728 Acquisitions and divestment of fixed assets and investments through financial Profit/loss after financial items . . . . . . . . . . . . . . . . . . . 4,179 232 – 37 29 – 1,456 leases and investments not qualifying as cash equivalents. Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002 3,269 3,156 2,276 – 910 Equity/assets ratio Shareholders’ equity (including the Shareholders’ equity, after full conversion . . . . . 7,002 3,269 3,193 2,923 – 910 convertible debentures) divided by Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,693 10,189 8,684 7,527 4,831 total assets. Return on shareholders’ equity Profit/loss after tax, less non-recurring Cash flow provided by operating activities . . . . . 1,771 990 411 610 – 759 items, minority share and standard tax Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,123 821 1,499 819 189 (and interest expense for convertible debentures after deduction of tax), Net borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 605 4,600 3,579 3,894 4,555 divided by average capital (including Net borrowing, after full conversion . . . . . . . . . . . 4,605 4,600 3,542 3,247 4,555 the convertible debentures). Investments, including financial leases** . . . . . . . . . 1,493 1,959 1,117 1,016 1,006 Return on capital employed Profit/loss after financial items, excluding non-recurring items and financial Key ratios, % expenses (excluding the interest Equity/assets ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 32 36 30 – 19 expense for convertible debentures) divided by average capital employed. Equity/assets ratio, after full conversion . . . . . . . 48 32 37 39 – 19 Capital employed Return on shareholders’ equity . . . . . . . . . . . . . . . . . 73.4 2.1 3.2 – 10,0 N/A*** Total assets, less provisions, minority Return on shareholders’ equity, interests and non-interest-bearing liabilities. after full conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.4 2.1 3.2 – 3.3 N/A*** Average interest rate Return on capital employed . . . . . . . . . . . . . . . . . . . . . . 43.6 6.7 4.8 1.3 – 24.5 Interest expence (excluding the interest Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 6.6 7.1 8.9 11.5 expense for the convertible debenture), divided by average interest-bearing liabil- Average interest rate, after full conversion . . . . 4.8 6.6 7.1 8.6 11.5 ities (excluding the convertible deben- tures). Per share data, SEK Profit/loss per share Profit/loss for the period (excluding the Profit/loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.29 0.64 0.50 2.80 – 44,107.40 interest expense for the converible Profit/loss per share, after full conversion . . . . . . 36.29 0.64 0.57 2.78 – 44,107.40 debentures, after deduction of tax), divided by the weighted avarage number from Tele2 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 1.10 – 1.24 – 0.46 – 0.12 – 28.15 of shares outstanding during the fiscal from Tele2 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . – 1.39 – 1.69 – 0.79 – 0.16 – year (that would result from full conver- sion of the convertible debentures). from associated companies . . . . . . . . . . . . . . . . . . 0.18 – 0.14 – 0.85 2.52 – 20,005.20 from sale of shares in associated companies . 31.08 – – – – Shareholders’ equity per share Shareholders’ equity (including the from Tele2 Sweden and convertible debentures) less minority other companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.52 3.71 2.67 0.54 – 24,074.05 interest, divided by the weighted average number of shares during the fiscal year Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.43 31.55 32.18 25.78 – 45,520.00 (that would result from full conversion Shareholders’ equity after full conversion . . . . . 67.43 31.48 30.86 28.70 – 45,520.00 of the converible debentures). Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.05 9.56 4.19 6.91 – 37,965.70 P/e ratio Share price divided by profit/loss per Cash flow after full conversion . . . . . . . . . . . . . . . . . . 17.05 9.53 3.97 5.99 – 37,965.70 share. Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – Cash flow per share Share price at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . 598.00 330.00 170.50 110.50 N/A* Is based on cash flow from operating activities before investing and financing P/E ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.48 512.92 344.43 39.40 N/A* activities. P/E ratio, after full converion . . . . . . . . . . . . . . . . . . . . . 16.48 514.17 298.12 39.81 N/A* Dividend per share Refers to the decided or suggested * Until NetCom was listed on the Stockholm Stock Exchange in 1996, it was a wholly-owned subsidiary of dividend for each year. Industriförvaltnings AB Kinnevik. ** Financial leases are included from January 1, 1997. *** Not applicable because of negative shareholders’ equity. **** The weighted number of A and B shares outstanding at December 31, 2000, was 103,850,246. NetCom Annual Repor t 99 13
    • NetCom Share Data Listing on the Stockholm Stock Exchange Cable & Wireless had been NetCom’s third largest NetCom’s A and B shares were first quoted on the shareholder, controlling 9.2% of the votes. In mid- Stockholm Stock Exchange’s O list on May 14, 1996, 1997, Invik & Co. AB converted its holding of con- when the stock was distributed to shareholders in vertible debentures in the Company. The conversion Industriförvaltnings AB Kinnevik. After the distribu- represented 6,700,000 B shares and expanded NetCom’s tion, Kinnevik held no shares in NetCom but retained shareholders’ equity by SEK 335 million. a convertible debenture corresponding to 25,555,555 During the second quarter of 1998, convertible shares. In 1996, Kinnevik sold shares obtained from debentures were redeemed for 755,555 class B shares. converting part of the loan to institutional investors and With this conversion, NetCom no longer had any out- Invik & Co. AB. standing convertible debentures, and since that date there has been no change in the number of shares. Listing on Nasdaq At December 31, 1999, NetCom AB had To attract interest in the United States for the 103,850,246 shares on issue and no outstanding Company’s shares and to increase liquidity in trading convertible debentures. outside Sweden, NetCom’s shares were listed on the One class A share represents 10 votes, and one Nasdaq Stock Market starting January 22, 1997. A B share one vote. month later, 2,000,000 new class B shares were issued. NetCom issued the shares with the aim of expanding its Shareholders circle of international shareholders and bolstering trad- At year-end 1999, NetCom had about 54,000 share- ing in its shares on Nasdaq. The proceeds from the holders, compared to about 56,000 one year previous. issue, totaling SEK 220 million, were applied mainly Institutional shareholders controlled 60% of the capital to ongoing capital expenditure, especially to develop and 74% of the votes at December 31, 1999. NetCom’s Danish and Norwegian operations. In conjunction with the issue, Industriförvaltnings AB Analysts who cover NetCom Kinnevik sold the majority of its remaining convertible Some of the analysts who cover NetCom are: debenture loan in NetCom, converted into 6,000,000 Ulf Hellzén, Swedbank, Peter Dahlander, Carnegie, B shares. Richard Rosenbacke, Enskilda Securities, Lena Hansson, Warburg Dillon Read, Peter Kurt Nielsen, Alfred Berg, Other debt instruments James Sawtell, Goldman Sachs and Johan Broström, In the spring of 1997, on two occasions Cable & Hagströmer & Qviberg. Wireless sold its shares in NetCom. At year-end 1996, Ownership structure, December 31, 1999 Current distribution Number Pctg. of Pctg. of Class A Class B Class A+B of votes capital votes Invik & Co AB ................................ 8,405,792 2,563,166 10,968,958 86,621,086 10.56 32.48 Afti AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,178,730 2,178,730 21,787,300 2.10 8.17 Brotherton Corporation NV . . . . . . . . . . . . . . 1,384,316 4,607,228 5,991,544 18,450,388 5.77 6.92 Förvaltnings AB Confidentia . . . . . . . . . . . . . . . 886,900 886,900 8,869,000 0.85 3.33 Stenbeck, Jan Hugo . . . . . . . . . . . . . . . . . . . . . . . . . . 787,027 787,027 7,870,270 0.76 2.95 Nordbankens Allemansfond Beta . . . . . . . . . 612,450 842,400 1,454,850 6,966,900 1.40 2.61 Chase Manhattan Bank . . . . . . . . . . . . . . . . . . . . . 21,300 3,762,647 3,783,947 3,975,647 3.64 1.49 Industriförvaltnings AB Kinnevik . . . . . . . . . . 60,000 3,290,000 3,350,000 3,890,000 3.23 1.46 State Street Bank & Trust Co. . . . . . . . . . . . . . 3,079,728 3,079,728 3,079,728 2.97 1.15 Livförsäkringsbolaget Skandia . . . . . . . . . . . . . 198 000 962,269 1,160,269 2,942,269 1.12 1.10 Total, ten largest shareholders ...... 14,534,515 19,107,438 32.39 61.66 Other shareholders ......................... 3,561,117 66,647,176 67.61 38.34 14 NetCom Annual Repor t 99
    • Share Price, Stockholm Stock Exchange Class B Share, The Affärsvärlden General Index Weekly Trading Volume, ‘000 shares weekly high/low 1,000 900 800 700 600 500 400 300 20,000 200 18,000 16,000 14,000 12,000 10,000 100 8,000 6,000 4,000 2,000 50 0 96 97 98 99 00 (c) SIX Share Price, Nasdaq Stock Market NetCom, weekly high/low Nasdaq Composite Index Weekly Trading Volume 110 100 90 80 70 60 250,000 50 200,000 40 150,000 30 20 100,000 10 50,000 50 0 97 98 99 00 NetCom Annual Repor t 99 15
    • Tele2 AB Sweden is a Swedish telecommunications company that sells and delivers, in a cost-effective manner with first-class service, profitable communication solutions to its customers. Tele2 AB 16 NetCom Annual Repor t 99
    • Mobile Telephony Operating revenue, SEK 3,909 million (2,958), +32% Operating profit before depreciation and amortization, SEK 1,858 million (1,277), +45% Fixed Telephony and Internet Operating revenue, SEK 2,630 million (2,223), +18% Operating profit before depreciation and amortization, SEK 466 million (263), +77% Cable-TV Operating revenue, SEK 110 million (137), -20% Operating profit before depreciation and amortization, SEK -8 million (2) T ele2 offers services in mobile telephony, fixed newsletters and brochures. Comviq has been a pioneer in telephony, the Internet, data communications cultivating customer loyalty, often broadening its efforts and cable-TV. The company provides every- to include other Tele2 businesses. In the Collect club, thing, from customized communications solutions for customers of Comviq, Tele2 and Kabelvision can collect large corporate groups, to standardized packages for indi- bonus points for services used. A certain number of viduals and small businesses. points entitles a customer to a discount on a particular The company’s services are marketed under the Tele2 product or service. and Comviq brands. Tele2 is used primarily for mobile telephony and data communications for the business H I S TO RY market but even for fixed telephony and Internet services for private individuals. Comviq is used as a brand for mobile telephony for consumers. Both brands are posi- 1981 Comvik AB commences operations in the Swedish tioned as flexible, customer-friendly price leaders. Tele2 market for analog mobile telephony. uses the Kabelvision brand name in the cable-TV market. 1986 Kabelvision HB begins operations. Complete range of services 1986 Tele2 commences operations under the name of Tele2 is the only telecom operator besides Telia that can Comvik Skyport AB. offer a complete line of services for mobile telephony, fixed telephony, the Internet, data communications and 1990 Comvik Skyport changes its name to Tele2 AB. cable TV. Technologies for mobile telephony, fixed tele- 1991 Tele2 AB starts providing data communications phony, Internet communication and data communica- services and is awarded a fixed telephony license. tion are converging, so the capability to provide total solutions constitutes a major competitive edge. More- 1991 Tele2 becomes the first Swedish company to offer over, customers show a growing desire to fulfill all of Internet access. their communications requirements through one supplier, and that favors Tele2. 1992 Tele2 offers domestic and international leased lines. 1992 Comviq GSM is the first Swedish company to Smoothly functioning customer care open a GSM network. Crucial to Tele2’s success is its close relationships with customers and its ability to respond quickly to new 1993 By dialing Tele2’s 007 prefix, businesses and pri- demands, preferences and market conditions by offering vate individuals can call abroad more cheaply than appealing solutions. through Telia. A well-run customer service operation is crucial to maintaining loyalty. Tele2 has an in-house support func- 1994 A similar service is introduced for long-distance tion for large corporate customers in fixed telephony, calls. Internet service and data communications. Individuals 1995 Internet use takes off. and small businesses turn to call centers, which are run by Transcom, a Kinnevik company that specializes in this 1997 Comviq launches its prepaid card. area. If a case turns out to be a technical fault that neither 1998 The prepaid card makes its breakthrough. Sales of support services nor the call center can resolve, it is the prepaid card rise dramatically. passed on to specialists at the company’s technical sup- 1999 The Swedish preselect reform allows people to port for customer care. choose their own phone company for domestic and Customers wishing to close their accounts are referred international calls. Number portability initiated for fixed to employees trained to handle such matters. telephony in metropolitan areas. Tele2 reaches out to its customers in a number of ways. They receive discount prices to various events and are kept informed of the latest developments through NetCom Annual Repor t 99 17
    • Tele2 AB Tele2’s mobile telephony operations grew apace in 1999, fueled by Tele2 AB Sverige new types of subscriptions and a sharp increase in the number of customers using prepaid cards. The Company expanded its share of the mobile telephony market. Mobile Telephony FAC TS I N B R I E F v Tele2 markets its cellular services under the Comviq and Tele2Mobil brands, which use the same GSM network. Comviq targets con- sumers, whereas Tele2Mobil aims solely at businesses. The mobile telephony services are to be perceived as price leaders. v Tele2 markets its cellular services through independent dealers who are autonomous retailers or distributors or members of a chain. The business market is also canvassed by the Company’s sales force and by tele- marketers. 18 NetCom Annual Repor t 99
    • N U M B E R O F C U S TO M E R S , M O B I L E T E L E P H O N Y 1,600,000 Quarterly data 1,200,000 800,000 400,000 Prepaid 0 Postpaid 98 98 98 98 99 99 99 99 1/ 2/ 3/ 4/ 1/ 2/ 3/ 4/ Q Q Q Q Q Q Q Q • Including prepaid card users, the number of Europolitan concentrates on business clients as well customers increased 28%, to 1,641,000. as private individuals who use their phones extensively. The company had 17% of the market. • At year-end, 909,000 customers used prepaid With 46% of the prepaid card market, Comviq has cards, an increase of 48%. a strong market position. • Prepaid card users accounted for 81% of new Prompt response to changing demand customers in 1999. Comviq’s and Tele2Mobil’s strengths include attractive prices, a broad customer base and well-known brand • Excluding prepaid card customers, subscribers names as well as the ability to quickly adapt to new cus- averaged 123 minutes calling time per month, tomer demands and market conditions. Their competi- up over 13%. tive edge is further enhanced by the capacity to provide comprehensive packages including mobile telephony, • Average monthly revenues for the same catego- fixed telephony and Internet services. Support systems ry rose some 14%, to SEK 418. are the weakest link. A major opportunity to bolster the mobile telephony O ne reason for higher revenue per customer was business will appear in 2000 when Sweden’s PTS offers that 1999 saw a breakthrough in the use of licenses to open networks for UMTS, the third-genera- short message service (SMS). Mobil Info users tion cellular standard. NetCom plans to apply for a have access to various SMS services – in addition to license. The PTS will announce the winners of the messaging – that are practical and entertaining. Share licenses towards the end of 2000. It is possible that the prices, last minute discounts on charter flights, sports fourth GSM-license will be issued. scores, directory assistance and decision making assis- The mobile telephony business can easily benefit from tance are all available. An automated name and address know-how in NetCom’s other businesses, for example by directory was launched in November. Customers have learning about corporate sales from the fixed-telephony access to all listings for the fixed network as well as num- business. bers for Comviq and Tele2Mobil subscribers. On average, Comviq subscribers sent five times as Advanced service offering many SMS messages a month in 1999 as they did in Comviq and Tele2Mobil develop new services as the 1998. For prepaid card users, the figure tripled. market makes its needs known. Comviq and Tele2 give the customers access to one of the world’s most sophisti- Expanded market share cated ranges of mobile phone services. The aim is always Mobile telephony penetration in Sweden is near the top to provide customers with advanced services, running the in world rankings. In 1999, according to PTS, some gamut from easy-to-use answering machines to more 63% of the population between 16 and 74 years of age complex applications like data and fax transmission over had cell phones. The sector is highly competitive. Besides the GSM network. Comviq and Tele2Mobil, Telia Mobile and Europolitan The most widely used premium services are the IQ have been in the GSM telephony market for several Svar and T2 Svar voice mailboxes. IQ Text and T2 Text years. In 1999, Tele1 Europe joined the fray. Instead of enable customers to send and receive SMS messages. IQ having its own infrastructure, Tele1 acts as a service E-post and T2 E-post serve a similar function for e-mail. provider. T2 Datanät and T2 Fax allow business customers to con- Comviq and Tele2Mobil had 34% of the Swedish tinue working wherever they may be. In addition to GSM market. working as usual with hand-held or personal computers With a market share of 49%, Telia Mobile is the and GSM telephones, customers can transmit and largest operator. Primarily due to its broad coverage, Telia receive faxes and data. Individuals have access to similar Mobile leads in small towns and rural areas. A good services. number of Telia Mobile customers still use NMT tech- Customer turnover (churn), excluding prepaid card nology, making them prospects for GSM services. customers, amounted to 24% for full year 1999. NetCom Annual Repor t 99 19
    • Tele2 AB Mobile Telephony Revamping subscription packages Positioning system for GSM handsets Comviq’s business concept is simple: Make mobile tele- In collaboration with CellPoint Systems, Tele2Mobil phony available to as many people as possible and at the launched Position, one of the first positioning system lowest prices. anywhere for GSM handsets, in November 1999. The Comviq has designed several different kinds of sub- system can pinpoint the location of a person or vehicle scriptions to suit varying customer calling patterns. carrying a mobile phone. It works indoors as well. A In 1999, this system was reorganized to further sim- password-protected web interface shows users a map plify matters for customers. The contracts are designed identifying the location of the GSM phones. Once the so that a customer can switch among five different service location has been determined, an SMS message is sent to subscriptions, as his or her calling behavior changes. Five the handset, which compiles data from nearby base sta- changes are allowed each year without incurring a charge. tions. The data is forwarded to a server, which calculates Customers have the choice of being billed for a subscrip- the coordinates and produces the map. A red ring encir- tion or paying up front for a prepaid card. Comviq’s five cles the position on the interface map. The phones are subscriptions are: basic with or without minutes (Grund equipped with a specially programmed SIM card. Freight and Grund med pott), discount evening with or without companies, home help and security companies are a few minutes (Joker med pott and Joker) and daytime with customers who can put such a system to good use. minutes (Dag med pott). Customers can choose between a contract that can be canceled at any time or one that is Roaming with operators abroad binding for 12, 18, or 24 months. The reworking of the The global GSM network is constantly expanding. subscription system cut the cost of recruiting new cus- A total of 323 operators in 128 countries have adopted tomers, particularly dealer commissions. the GSM standard. Tele2 AB has signed roaming agree- Comviq also offers prepaid cards for mobile phones. ments with 134 operators in 72 countries. Roaming Comviq Kontant, Sweden’s first prepaid card, was launch- enables Tele2 customers to use their Comviq or ed back in 1997. The success of the card was key to Tele2Mobil subscriptions in any of these locations. Comviq’s rapid growth. In 1999, Comviq introduced its Kontant Utland, Instant web-based enrollment which allows prepaid-card subscribers to make and Tele2 introduced new technology to simplify setting up receive calls outside Sweden. Handsets do not need to be new subscriptions. New accounts can be opened from programmed in any way. Instead of being debited to the a retail outlet over the Internet, allowing customers to prepaid card, international calls are billed to the user begin using their mobile phones right away. Some 2,000 back in Sweden. The charge for international calls are retailers will eventually have access to this software. based on the rate in that country. IQ Svar can also be used abroad, as can SMS and e-mail services. The network’s unique cell structure In terms of coverage as well as capacity, Comviq’s and Tele2Mobil offers business subscriptions Tele2Mobil’s networks expanded more rapidly in 1999 Tele2Mobil offers various subscriptions to businesses, than ever before. Both the 900 MHz and 1800 MHz all of them including the basics: voice mail (T2 Svar), networks far surpass the geographic coverage required T2 Plus, e-mail (T2 E-post), call forwarding and SMS by the National Post and Telecom Agency. Those regula- (T2 Text). T2 is intended primarily for callers who tions dictate that all cities with at least 10,000 residents average five minutes or less per day. T2 Max offers the and all roads classified as European highways in 1990 same service package but caters to those who tend to call must be covered. more. Tele2Mobil also has a prepaid card for businesses: The unique Super City cell structure provides better Tele2Mobil Kontant. In addition to lower calling rates, a coverage in metropolitan areas and permits Comviq and company with multiple subscriptions can also reduce its Tele2Mobil to expand capacity in a highly cost-effective basic monthly service charge. manner. Super City is patented in Sweden, and patents Business Zone is a new service that allows employees are pending abroad. at their place of work to make calls from their GSM Moreover, Tele2 has developed a new method for phones at rates on a par with fixed telephony. The virtual installing GSM 1800 capacity in the existing 900 MHz private network (VPN) service enables users to call num- network. Equipment for the 1800 MHz band is con- bers in the fixed or mobile network from a cell phone structed in cells already in place, making network expan- using speed dial numbers. sion both flexible and economical. In autumn 1999, this new capacity was installed in Stockholm, Gothenburg, Malmö and a few other metropolitan areas. The process will continue throughout 2000. 20 NetCom Annual Repor t 99
    • During 1999, construction continued on the common agreement with Tele2, which comprises 27,000 subscrip- antenna system for GSM coverage in the Stockholm sub- tions, is the biggest in Sweden for mobile telephony. Taxi way, a joint effort of Sweden’s mobile telecom operators Stockholm, the biggest cab company in Sweden and a and the Greater Stockholm Public Transport Company Tele2 customer since 1993, also renewed its contract, for Limited. All 50 underground stations will have coverage 2,700 subscriptions. by the end of 2000. Poolia, a staffing company, gave the nod to Tele2Mobil Together with the other mobile telephone operators a to provide mobile phone service to its 2,000 consultants. similar GSM antenna system was installed in the tunnels So far, around 300 of them have new GSM subscrip- of Arlandabanan, the new high-speed railway connecting tions. Proffice, a rival of Poolia, signed a two-year agree- downtown Stockholm and Arlanda International ment in May for a total of 4,000 subscriptions, worth Airport. roughly SEK 12 million annually. Tele2 is installing repeaters on Swedish State Railway Canon chose a Tele2 wireless solution to serve its trains. As of 1999, all first-class coaches were fully entire Swedish operation. Tele2 will provide 600 GSM equipped. Work on second-class coaches will proceed in subscriptions to start off. The agreement allows employ- 2000. ees to call any of the company’s cell phones free-of- charge. GPRS requires nominal investment Orkla picked Tele2 to provide a complete solution for The market for telephony services using wireless applica- fixed telephony, mobile telephony and data communica- tion protocol (WAP) is likely to reach critical mass in tions throughout its Swedish operations. The contract 2000. WAP gives cell-phone users partial access to the comprises 1,500 mobile subscriptions. Internet. Network capacity must be sufficient to bear the The Swedish Motor Vehicle Inspection Company increased traffic. Hence, Comviq’s and Tele2Mobil’s net- switched from Telia to Tele2Mobil. About 400 subscrip- work will be upgraded to handle general packet radio ser- tions are included. vices (GPRS), a method of packaging data so that it can be transmitted at rates faster than with previous tech- Cellular subscribers calling more nologies. GPRS requires comparatively minor investment The number of call minutes per subscriber should keep in the network. growing in 2000, fueled by traditional calling as well as data traffic. Data communications will benefit from Advances in the business market greater use of WAP services. Tele2Mobil continued to gain ground with all types of Administrative services that can be performed over a business customer in 1999. In terms of number of sub- cell phone by accessing various databases will one day scriptions the business market grew 30%. boost data traffic to even greater heights. The City of Stockholm and the Stockholm County Council renewed their contract in January. The two-year MARKETING In a television commercial for Comviq Kontant that attracted much hear what it sounds like when someone does a cannonball from the attention, a person at a swimming pool left his telephone turned on highest diving platform at the pool. The clip closes with “Lotta talk. and in the bleachers so that a friend on the other end of the line could Not much money.” NetCom Annual Repor t 99 21
    • Tele2 AB Tele2 continued to grow rapidly in 1999. The preselect reform carried out in September considerably boosted traffic volumes for the company. At the same time, the reform drew attention to rates, pushing them down across the board. The interconnect agreement concluded with Telia in December 1998 expanded margins on fixed telephony. Fixed Telephony FAC TS I N B R I E F v Tele2’s fixed telephony operations offer international, long-distance, and local tele- phony, permitting individuals to call around the world more cheaply. Low rates and attractive volume discounts can mean major savings for business customers. v Tele2’s fixed telephony services are market- ed by the company’s sales force, telemar- keters and through dealers. While sales- people zero in on large and medium-sized companies, dealers focus on individuals and small firms. Tele2 has altogether about 2,000 dealers. 22 NetCom Annual Repor t 99
    • N U M B E R O F C U S TO M E R S , F I X E D T E L E P H O N Y 1,000,000 Quarterly data 800,000 600,000 400,000 200,000 0 98 98 98 98 99 99 99 99 1/ 2/ 3/ 4/ 1/ 2/ 3/ 4/ Q Q Q Q Q Q Q Q • Total fixed telephony customers rose 23%, from Tele2 is the leading alternative operator 691,000 to 852,000. Tele2 is the leading alternative operator in the Swedish fixed telephony market dominated by Telia. The sector • The preselect reform was a major success for has close to 30 competing operators. Tele2. Notwithstanding deregulation of recent years, Telia retains a monopolistic grip on several key segments. In • As a result of the reform, revenues rose sharply 1998, the total market was worth around SEK 25 billion. in the autumn. According to a survey made by Öhrlings Pricewaterhouse- Coopers, assignment given by PTS, Telia had a 90% T he preselect reform implemented in Sweden on market share. Tele2’s share was around 5%. September 11 gave people an option for the first Deregulation has convinced many operators to enter time ever in terms of which company to use for the Swedish market. Nevertheless, they still accounted long-distance and overseas calling. As a result of the for a modest 5% of the market altogether. Telenordia, reform, Tele2’s customer no longer need to dial a prefix GTS, Sonera, MCI WorldCom and Tele1 are a few or use a smart box to place their calls via Tele2. prominent names. Telia repeatedly tried to obstruct the reform. For Telia enjoys major advantages thanks to its control over example, several times the company balked at registering the Swedish telecom network, whose creation was financed and activating Tele2’s preselect customers. A person who by society at large. Given that Telia owns the access net- has been activated calls directly through Tele2 by default work – the final link to the customer – it has a virtual – without having to dial the 9502 prefix. monopoly on subscription fees. It had 98% of that Rates continued to move south in the wake of the market, a market worth SEK 8.6 billion in all. publicity generated by the reform. In conjunction with For similar reasons, there is no competition in the the reform, Tele2 extended its lowest-rate guarantee to market for local calls. Such calls totaled SEK 5.7 billion include all local, long-distance and international calls as in 1998. Telia had a 93% share of the all national calls, well as calls to mobile phones. As a result of the guaran- down from 96% the year previous. Tele2 had around 3% tee, rates fell for calls within the same area code and calls of the national calls in 1998. at night to adjacent area codes. In competitive segments, Tele2 has scored major suc- 00 was introduced as the universal international dial- cesses. Tele2’s share of international calls was roughly 18%. ing prefix on September 11. Although Tele2’s old 007 prefix was discontinued, customers can now use 9502. Customer interaction fuels growth The preselect reform had a considerable positive Among Tele2’s strong suits are its strong brand, its devel- impact on volumes. opment of economical services in close collaboration with customers and access to its own infrastructure. Number portability paved the way for new markets One threat is growing competition as new operators Number portability was introduced in metropolitan areas enter the market. The potential for cultivating customers on July 1. This allows any direct subscriber to retain his is greatly enhanced by Tele2’s ability to offer solutions or her telephone number when switching service integrating fixed telephony, mobile telephony, Internet provider, as long as the area code is the same. and data communications services. Tele2 is striving to Portability also applies to calls that are free-of-charge, expand knowledge transfer and the sharing of experience that is, calls to Tele2’s 0200 and Telia’s 020 numbers, between countries. The company’s advanced technical which spawned a new and attractive market. Previously, expertise enables it to rapidly develop new services. much effort and expense was involved in changing an established toll-free number. Now that companies can Inexpensive directory assistance switch operators and retain their toll-free numbers, Tele2 Tele2 offers fixed telephony to consumers and businesses is highly optimistic about wooing new customers to this at attractive prices with a wide range of associated ser- service. vices. For example, individuals can choose the Nära & Kära (near & dear) discount package for frequently NetCom Annual Repor t 99 23
    • Tele2 AB Fixed Telephony called numbers. Mobil VPN offers discount rates for calls addition, Tele2 has its own network in several cities in between a company’s cell phones or between one of the southern and central Sweden as well as in Copenhagen company’s offices and one of its cell phones. Tele2Svar is and Oslo. an integrated voice mail system for both fixed and Tele2 owns submarine cables to Denmark, Finland mobile telephones. and Latvia and has invested in two transatlantic cables to Though the company has had a directory assistance carry international traffic. The company also has satellite service since 1995, it has not been promoted a great deal. links to Asia. In other words, Tele2’s overseas traffic is To comply with the new European standard prefix for not dependent on Telia. directory assistance, 118, Tele2’s domestic assistance was switched to 118 201 and its international service to 118 Orkla picked Tele2 202. It is the only complete alternative to Telia’s directory In June, Tele2 signed an agreement with Orkla to pro- assistance. Both the 118 201 and 118 202 services are vide a complete pan-Nordic solution. The contract cov- less expensive than Telia’s corresponding services. ers all outgoing fixed telephony, all mobile telephony for With Dubbellinjen, customers can receive calls while units in Sweden and data communications services. The connected to the Internet even on a single account. They order is worth around SEK 36 million. Tele2 won the can also call over the Internet using IP telephony. In contract for three reasons: its extensive organization in February, Tele2 began offering Dubbellinje to all Internet the Nordic countries, its wide range of services and an users, regardless of operator. attractive price. By choosing a single supplier, Orkla is Click2Call allows a customer to call directly from web looking at considerable savings. sites. A click of the mouse places a call to the company In November, Borås Municipality concluded a two- without the user having to write down the number or year agreement for fixed and mobile telephony with even log off. Tele2 worth SEK 9.5 million. When Rädda Barnen (save the children) held its Extensive network televised Barn 2000 fund-raiser on November 19, Tele2 Tele2 has an agreement to use the National Rail Admin- paid Telia’s charges for the toll calls made by viewers who istration’s network capacity through 2017. It is also col- wanted to donate money. As a result, 100% of the dona- laborating with Svenska Kraftnät, a power utility network, tions went directly to Rädda Barnen. Moreover, Tele2 on the construction of a parallel backbone network in donated SEK 100 to Rädda Barnen for every new prese- central Sweden with black fiber and high capacity. In lect customer it recruited during the period November 19–30. In December 1999, the City of Gothenburg signed a three-year agreement with Tele2 for fixed and mobile MARKETING telephony. The value of the order is estimated at SEK 80–100 million. A general agreement was also concluded in December with the Swedish Agency for Administrative Develop- ment covering fixed, mobile and IP telephony. As a Snart ringer result, government agencies, county councils, munici- palities and public service corporations will be able to du lika enkelt streamline and cut costs on their telecommunications med det billigare usage. Government agencies and public organizations throughout Sweden can connect to Tele2 either as a alternativet. preselect customer or by directly hooking up to the company’s nationwide fiber-optic network. Som ett led i avregleringen av Europas telemarknad TELE2 TELIA Sverigesamtal vard. 08-18 0,32 0,38 är det nu dags för alla svenska hushåll och företag Sverigesamtal övr. tid 0,18 0,20 att välja vem de ska ringa med i framtiden. Efter- Still winning market shares Samtal till Tele2Mobil- och som avregleringen innebär att det blir lika enkelt att Comviq-nätet, vard. 08-18 3,00 4,31* Samtal till Tele2Mobil- och ringa med Tele2, det billigare alternativet (du slipper Comviq-nätet, övr. tid 2,00 2,88* slå 007 före telefonnumret efter den 11 september), Samtal till övr. mobilnät vard. 08-18 3,70 4,31* är valet kanske inte så svårt? Samtal till övr. mobilnät Du som redan är Tele2-kund, kommer att få information i brevlådan. Du som inte är Tele2-kund och vill ringa billigare ansluter dig kostnadsfritt till oss på 0200-25 25 25 eller www.tele2.se/forval övr. tid * Gäller till samtliga mobilnät. 2,50 2,88* Startavgift på 50 öre per samtal för Tele2 resp. 40 öre per samtal för Telia tillkommer. Priserna är angivna i kronor per minut och inklusive moms enligt aktuella prislistor per den 31/3 -99. Tele2 expects to win an even greater share of the Swedish fixed telephony market. Telia, which is currently up around 90%, is likely to fall to 50% in the next four or Tele2 – en del av NetCom AB LIKA ENKELT FAST BILLIGARE five years. Tele2’s goal is to substantially boost its market share. In the run up to September 11, the start of Tele2 plans to intensify its concentration in the carrier preselect reform, Tele2 compared its Scandinavia in 2000. Collaboration with the Danish and prices with those of Telia’s, telling Swedes, Norwegian operations will be beefed up, such as in joint “Soon you can call just as easily with the product development. cheaper alternative.” 24 NetCom Annual Repor t 99
    • WAP Wireless application protocol (WAP) technology makes parts of the Internet accessible to cell phones. The application can be regarded as the first step toward a full-fledged cellular Internet. T he prevailing technology for mobile telephony limits what can appear on a mobile phone’s display, so WAP will not be able to reproduce web sites as they appear on computer screens. The two chief constraints are the physical size of the display and the current transmission capacity (bandwidth) of cellular networks. Paring down the data Images in particular contain more data than can be downloaded at present from a web site to a cell phone in GLOSSARY a reasonable length of time. WAP, which closely resem- bles IP, is the result of a joint project by mobile phone manufacturers, systems suppliers and computer com- Gateway: A computer that links different networks. panies aimed at overcoming these difficulties. WAP permits the translation of hypertext markup language GPRS: General Packet Radio Service. A new technology (HTML) – the Internet’s programming language – into that permits high-capacity data transfer in cellular mobile telephony’s wireless markup language (WML) networks as well as immediate connection. standard, as well as the filtering out of images. HTML: HyperText Markup Language, the program- Another way of putting it is that WAP pares down the ming code on which web sites are based. data on which a web site is based so that it can be trans- mitted to a cell phone. Above all, special WAP web sites IP: Internet Protocol. The basic code regulating the (written in WML) will exist side-by-side with sites based transmission and reception of data between Internet ser- on traditional HTML. vers. Only units equipped with WAP readers, designed to WAP: Wireless Application Protocol. Code regulating interpret WML, will be able to receive such data. After the transfer of data from the Internet and advanced major delays in deliveries from manufacturers, sales of mobile telephony services to cell phones. The protocol is such handsets are expected to take off in 2000. an open specification and is continually revised by the The process of creating a WAP web site is relatively WAP Forum, in which more than 140 companies are easy, so a wide range of suppliers will be able to quickly members. The founders included Ericsson, Nokia and develop new services for their customers. Initial applica- Motorola. tions will be limited to words and simple graphics. Stock trading, ticket reservations, banking and news services are WAP reader: Program that interprets WML for a WAP initially estimated to be of high customer demand . phone; works in the same was as a traditional web browser. Web browser: : Computer program, such as Netscape or GPRS speeds up data communications Internet Explorer, that interprets HTML and displays a Many experts argue that WAP telephony will have a web site on the screen. breakthrough when GSM networks are upgraded to handle GPRS, a new technology that permits more rapid WML: Wireless Markup Language. A means for coding data transfer and allows a cell phone to remain linked to web sites so that they can be displayed on a mobile the network even when it is not being used for a call. phone display. Because users spend less time connected, data communi- cations services can be provided in GSM networks at a lower cost. NetCom Annual Repor t 99 25
    • Tele2 AB Antalet kunder som utnyttjar Tele2’s Internet services fortsatte att The total number of users of Tele2:s Internettjänster continued rising öka i snabb takt while subscription feespå Internetabonnemang fort- briskly in 1999, under 1999. Priserna continued downward. sattecompany was sjunka. Tele2 lanserade som första större aktör The däremot att the first major Internet service provider (ISP) in Internetanslutning utan abonnemangsavgift, Free2Connect. Sweden to offer free access: Free2Connect. Internet and Data Communications Services FAC TS I N B R I E F v Tele2’s Internet offering includes dial-up modem services and dedicated lines. The two modem services, Connect2Internet and Free2Connect, are aimed at consumers and companies, while dedicated Internet access are intended primarily for businesses. The other offerings are data communications ser- vices and web hosting. v Tele2’s Internet services are marketed to pri- vate individuals through consumer electronics retailers, with whom Tele2 has an extensive dealer network covering all of Sweden. Free2Connect is also distributed through cus- tomer bonus clubs, co-op marketing with other companies, gas stations, and various other retail outlets. Dealers take care of sales to small businesses. Tele2 has its own sales force to recruit large and medium-sized busi- nesses. 26 NetCom Annual Repor t 99
    • N U M B E R O F C U S TO M E R S , I N T E R N E T 1,000,000 Quarterly data 800,000 600,000 400,000 200,000 0 98 98 98 98 99 99 99 99 1/ 2/ 3/ 4/ 1/ 2/ 3/ 4/ Q Q Q Q Q Q Q Q • At year-end, Tele2 had 536,000 dial-up Internet Tele2 has identified a number of areas in which it can customers, an increase of 27% from year-end 1998. strengthen its product range and thus win more of the market for dial-up access. Also, the collaboration with • Growth was attributable to Tele2Internet’s solid the Everyday.com portal, developed last autumn, is a key position in the market and the launch of competitive tool. In Everyday.com, Tele2 offers its dial-up Free2Connect. Internet customers access to a new, first-class start page. Higher sales to the business sector are well within • Even premium services like Dubbellinjen, which reach through the design of new products that will attract makes it easier to use the Internet, spurred customers, small enterprises in particular, as well as more growth. cross-sales with the fixed and mobile telephony opera- tions. Tele2 is fortunate in having its own pan-Nordic • The company kept gaining ground in the busi- infrastructure plus local coverage through its subsidiaries ness market for data communications and web in Norway and Denmark. hosting. Choice of Internet subscriptions I nternet usage in Sweden is among the highest in the Tele2 offers private individuals several kinds of Internet world. A survey by market researchers Sifo Interactive subscriptions: Connect2Internet, Connect2Internet found that 3.67 million people aged 12–79 in ISDN and Connect2Internet Kabel. Connect2Internet Sweden, that is, 51.7% of the population in those age includes 10 e-mail addresses and disk space for a private groups, used the Internet in December 1999. web site. Connect2Internet ISDN provides higher trans- Telia, Spray and Telenordia are some of Tele2’s compe- fer rates than an ordinary modem yet costs less than a titors in the consumer market for dial-up service. In dedicated line. Connect2Internet Kabel provides a dedi- recent years, several others have begun offering Internet cated line with high capacity. access with no subscription fee. In October, Tele2 respon- Then there is Free2Connect – with no subscription fee. ded with Free2Connect, a no-fee, top-quality service. Dubbellinjen allows customers to receive calls and use Telia, Telenordia and WorldCom are key competitors the Internet simultaneously on a single telephone line. in the business sector. In addition, a number of systems In February, Tele2 began offering Dubbellinjen to all integrators offer both data communications and Internet Internet users, regardless of ISP. services, either on their own or in collaboration with others. Solutions for companies big and small Lower rates for loyal customers Tele2’s Internet, data communications and web hosting In the first quarter of 1999, Tele2 began to offer lower services can be adapted to the needs of any business, rates to individuals with dial-up Internet subscriptions from the smallest to the largest. when they opened a fixed telephony account as well. As a Lan2Internet is intended for companies that make result of the effort, by year-end approximately 38% of tough demands on the quality and capacity of their Internet customers had switched their telephony service Internet connection. A router located on-site at the com- to Tele2. The company aims to boost this figure in 2000. pany hooks the customer up to Tele2’s infrastructure. For small businesses, Lan2Internet ISDN offers higher trans- Familiar brand name fer rates than an ordinary modem but is less expensive Tele2’s biggest asset in the Internet market is the experti- than a dedicated line. se and experience it has accumulated since 1991, when it In recent years, Tele2 has forged a solid position in the became the first company to offer Internet subscriptions market for data communications. The company’s in Sweden. In the Internet and data communications sec- Lan2Lan service provides the means of integrating geo- tors, the brand is now familiar, with a reputation for graphically widespread corporate networks into a single superb quality, extensive capacity and competitive rates. internal network. The technology is easily adaptable to The greatest threat to dial-up Internet operations is changes in customer needs. Premium services offer custo- the fact that ever more companies are offering subscrip- mers higher grades of service, operational logs, encryp- tions free of charge. tion and various backup options. The unique SNIX ser- NetCom Annual Repor t 99 27
    • Tele2 AB Internet and Data Communication Services vice permits direct links to institutions such as banks and visited frequently and uninterrupted access must be gua- the postal giro system. ranteed. Talk2Lan, launched in April, enables businesses to Companies have the option of locating their servers utilize existing data communications networks instead of at Tele2 facilities to ensure optimum reliability of opera- ordinary phone lines, making for more efficient internal tions. Tele2 collaborates with several Internet consultants telephony. and agencies. Global managed private line (GMPL) was designed for companies that make exceptional demands on inter- Cutting-edge infrastructure national voice and data communications. It provides a With its extraordinary bandwidth, Tele2’s backbone dedicated and monitored digital line for international network – Swipnet – is among the most advanced in the transfer of voice, data and images. world. The capacity of the network is key to Tele2’s goal An international private line (IPL) links a company of providing households with high-speed Internet con- to its alliance partners, customers, distributors and local nections. offices virtually worldwide. A national private line (NPL) In October, Tele2 and Cisco launched a fiber-optic works in a similar manner within the country. network utilizing a new ring configuration that permits extremely high transfer rates. The ring is part of Swipnet. Web hosting ensures reliable operation The fiber-optic network serves Tele2’s Internet users in As an alternative to having its own servers for its web Stockholm and indirectly in the rest of the country, with sites, a business can take advantage of Tele2’s web hosting transmission capacity for broadband connections. service. Monitored 24 hours a day, web hosting servers are connected to Tele2’s infrastructure, which has the More companies turning to Tele2 greatest Internet capacity in Scandinavia. Nordiska Värme Sana AB (NVS), a wholly owned sub- In 1999, web hosting was expanded to include three sidiary of the construction company NCC, signed a separate services: Web Light for businesses that are just three-year data communications contract worth an esti- starting out on the Internet, Web FP for those with more mated SEK 26 million. NVS will employ Lan2Lan to traffic and Web Gold in those cases where web sites are link 51 offices into a single data network. In addition, all 70 NVS offices in Sweden will be hooked up to Tele2’s fixed telephony network. The agreement includes 500 Tele2Mobil subscriptions as well as Internet services. Eurest and SSP, one of Sweden’s largest institutional and restaurant suppliers, entered into a three-year MARKETING Lan2Lan agreement worth SEK 6.8 million. The package consists of some 50 dedicated connections to the compa- ny-wide data network, a dozen ISDN accounts and a central Lan2Internet link guaranteeing uninterrupted Tele2 – en del av NetCom AB. Internet access. A Lan2Internet package provides the computer center at the University of Umeå with one of Tele2’s highest capacity Internet connections. Its capacity has gone from an initial 2 Mbps in 1996, to 28 Mbps today. Semcon, an IT consulting company, picked a Lan2Lan solution to link its highly decentralized opera- tions, comprising more than 100 departments. VÄRDE CA 199 KR/ÅR. Abonnemanget har 5 st e-postadresser, 10 MB i utrymme för egen hemsida, möjlighet att eftersända e-post och mycket mer. Market grows apace Nu kan du ha ett förstklassigt internetabonnemang med extremt Visst vore det väl kul att inte bara få e-post när du sitter på The robust expansion of the entire market is likely to persist in 2000. Tele2’s recent product launches should hög tillgänglighet utan att betala ett öre i abonnemangsavgift. jobbet? Och att de handlar om något annat än möten och Det enda du betalar för är den tid du är uppkopplad på nätet. rapporter? Har du redan tillgång till internet och vill testa vad Och då kommer vi osökt in på nästa glädjeämne, nämligen minut- vi går för är det bara att gå in på www.tele2.se/free2connect taxan. För närvarande tar vi bara 11,5 öre på kvällar och helger, och ladda ner abonnemanget. Annars ringer du bara och 23 öre på vardagar. Startavgiften är 40 öre. Tack vare den 0200 - 24 24 24 så skickar vi en CD med vårt internet- höga tillgängligheten tutar det dessutom sällan upptaget när du abonnemang på posten. Du kan också hämta en CD hos ska koppla upp dig, plus att du mycket snabbt får upp bild, text och ljud när du väl är ute på nätet. någon av våra återförsäljare. Välkommen till Tele2. convince more customers to rely on Tele2 as its one-stop Internet utan abonnemangsavgift. Beställ nu på 0200-24 24 24 eller hämta på www.tele2.se/free2connect . . . . . Du kan också hämta en CD hos någon av våra återförsäljare: Thorn City Stormarknad GEAB Teknikmagasinet SIBA El-Giganten, m.fl. ISP and web services provider. Demand for data communications services is also Tele2 was the first major operator in Sweden expected to remain buoyant. Fueling this trend is the to offer Internet access with no subscription fee: fact that reliable data communications are becoming a Free2Connect. Each free subscription has five prerequisite for competing successfully in today’s world. e-mail addresses, server space for a home page, Outsourcing to subcontractors should be an increasingly the option of forwarding e-mail and much frequent phenomenon. more. 28 NetCom Annual Repor t 99
    • Broadband Far from being a new technology, broadband is a generic term for various high-speed data transfer applications. Broadband connections do not require special fiber-optic cables, despite what many people might imagine. T he concept includes local area networks (LANs), Tele2 offers multiple options cable-TV networks, Ethernet and optical fiber. Tele2 offers a series of options for Internet access via Tele2 provides a range of broadband services, via broadband: via the cable-TV network, a LAN or genuine data communications networks, cable-TV networks and wireless broadband. LANs. The cable-TV network usually employs coaxial cable to transfer data. Hence, only minor adaptations are nee- Bottlenecks stifle capacity ded to the existing cable-TV infrastructure. Rates have One of the myths surrounding broadband is that it is nothing to do with the connect time or traffic. The user more than 300 times faster than an ordinary analog is always on-line. The capacity is shared with other users modem. Theoretically speaking, this is possible. How- of the LAN all the way to the point of access to the ever, the end-user cannot achieve such high speeds when Internet’s backbone network. accessing the Internet. Although capacity is very great The LAN can be hooked up to an ISP via a dedicated within a building or a residential area, it is often conside- line just as the cable-TV network might. Transmission is rably less on the links to the actual Internet servers. symmetric and takes no time to establish a connection. Thus, connections to the Internet’s backbone network Although capacity varies, it is easy to upgrade to higher represent a bottleneck for many users. Furthermore, the speeds. Users share the available capacity. The cost of this capacity available is a function of how many people are type of access is relatively high. on the same connection. Tele2 gives the user access to Tele2 intends to offer wireless broadband to small one of world’s most modern Internet backbone network enterprises. Tele2’s efficient solution offers customers a with a very high capacity. leased line, Internet access and broadband capacity. The leased line will keep the customer continuously on-line. Overhaul not required The connection is a data link with availability and per- The networks already found in many buildings normally formance on a par with a dedicated line. Tele2’s access will not need to be overhauled to handle broadband package also offers e-mail and news groups as well as the applications. For example, most cable-TV networks are option of web hosting, which enables customers to wholly adequate for the task. However, an individual user publish their company web sites on a server directly con- will be limited by the number of users and the connec- nected to the Internet. tion to the Internet’s backbone network. In broadband, Tele2 AB offers several capacities using Fiber-optic cable is not necessarily the cheapest means wireless technologies, from 64 kbps to 2 Mbps. Upgrades to broadband access. The cost depends on the location of require no new hardware. Future improvements on the the building and the condition of existing infrastructure. technology will enable many times the capacity of today. Thus, it will be more expensive in low populated rural Systems with transfer rates of 11 Mbps are already being areas than in the big cities. Tele2 has successfully installed tested. various broadband solutions. Most important is that the arrangement fit the needs and limitations of the property. New services still on the test pad GLOSSARY Broadband is often portrayed as heralding a host of new applications. Many of them are still at the experimental Bit: The fundamental unit of data transfer, either a 1 or a 0. stage. The most common services avaiable now are high- Gbps (gigabits per second): 1 Gigabit = 1,000,000,000 speed Internet access, e-mail and file transfer and web bits (one billion bits). site construction. In the future, web-based telephony, television, video and music will also be offered. kbit/s: (kilobits per second): 1 kbit = 1,000 bit. LAN (local area network): A series of computers linked Broadband in the real world together, often within a single building. In Linköping, Tele2 has worked with Stångåstaden, the municipal housing company, to provide around 500 Mbps (megabits per second): 1 Megabit = 1,000,000 bits (one million bits). households with very-high-speed access to the Internet over an Ethernet LAN. The households can also watch Symmetrical data transmission: A connection that television or listen to the radio on their computers via IP, offers the same data rate to and from the user. or they can play games over the LAN. Also via Kabel- Antonym: Asymmetrical data transmission. vision’s Cable-TV network, Tele2 provides a great amount of households with high-speed access to the Internet. NetCom Annual Repor t 99 29
    • Tele2 AB Kabelvision’s cable-TV network enables Tele2 to offer its customers attractive television content, Internet access and IP telephony. Cable-TV FAC TS I N B R I E F v Tele2’s cable-TV business is marketed under the Kabelvision brand. Kabelvision is Sweden’s largest private cable-TV operator. The business area is responsible for the dis- tribution of TV channels and works with ViaSat, which provides an attractive range of channels and manages individual subscrip- tions. v An in-house sales force reaches out to prop- erty owners and consumers through telemar- keting as well as direct marketing. 30 NetCom Annual Repor t 99
    • N U M B E R O F C U S TO M E R S , C A B L E - T V 200,000 Quarterly data 160,000 120,000 80,000 40,000 0 98 98 98 98 99 99 99 99 1/ 2/ 3/ 4/ 1/ 2/ 3/ 4/ Q Q Q Q Q Q Q Q • At year-end, 321,000 (321,000) households More towns hook up were hooked-up to Kabelvision´s network. A number of towns and residential areas were two-way upgraded to the high-speed cable in 1999. In collabora- • The business area offered Internet access via tion with Lycksele Bostäder, 1,100 families in the com- cable-TV access in Stockholm, Sundbyberg, pany’s housing properties gained access to cable-based Lidingö, Katrineholm, Lycksele, Sandviken, Internet. Eskilstuna, Västerås, Hallstahammar and Sandvikenhus is now providing the service to 1,300 Jönköping. tenants, with 3,200 more slated for 2000. Pagoden Fastigheter offered the package to around I n 1998, Kabelvision began collaborating with Viasat. 2,500 households in the cities of Västerås and Eskilstuna. The brand was re-positioned, and a new program In December 1999, 154 apartments in the Bjurhovda- offering was launched, so customers now have a toppen area became the first in all of Västerås to have much more attractive choice than previously. In 1999, broadband Internet access. Pagoden’s remaining Västerås the business area concentrated on recruiting new cus- tenants will be given the same option in 2000. tomers. By year-end the number of subscribers had Tele2 will develop a network for Ringsjö Energi’s data increased by 10% to 148,000. and telecommunications working with the utility com- pany Ringsjö Energi and the property management Deregulated market company Eslövs Bostäder AB. Tele2 won the contract The Swedish cable-TV market is totally deregulated, to provide service over the network, so tenants of for with no special license requirements. Since the instance Eslövs Bostäder will have the option of accessing mid-1990s, the market has grown slowly. Competition the Internet via their cable-TV system. Ringsjö Energi’s has been fierce largely because of a glut of participants. customers will also be offered inexpensive Tele2 telepho- Kabelvision’s rivals include Sweden Online, Telia and ny services. Stjärn-TV (in Stockholm only). Kungsklippan in Stockholm, with 1,010 apartments A number of new broadband operators have also Sweden’s second largest HSB tenant-owner association, emerged, including Bredbandsbolaget, which promises picked Tele2 as its broadband supplier, despite the fact a solution aimed at property owners. that HSB’s central office had already signed an agreement with Bredbandsbolaget. What tipped the scales in favor Important part of broadband initiative of Tele2 was the company’s extensive experience with Tele2’s cable-TV network is vital to NetCom’s broadband broadband solutions and the fact that the price/perfor- initiative, which gives customers a series of options for mance mix suited the needs of the association’s members accessing TV stations, the Internet and IP telephony. best. The cables were installed primarily in 1987–1991. To accommodate telephony as well as Internet access, they General agreement in Mälardalen have been enhanced over the past few years through the In January 2000, the Swedish Property Owners Asso- use of municipal fiber networks. Already in 1998 broad- ciation in Mälardalen entered into a general agreement band services were offered in Stockholm. In 1998, with Tele2 for cable-TV access with broadband Internet Internet access via the cable-TV network underwent for the roughly 35,000 households in housing owned by trials. These employ two-way cable modems, enabling the association's members. huge increases in transfer rates in both directions, so called return path. Todays Internet access has transfer Continued upgrading rates around ten times the speed of an ordinary modem. Kabelvision will continue to two-way upgrade its network to high-speed Internet requirements in 2000. By the end of the year, around 40 of the 78 towns and residential areas in which the business area has networks will provide this option. NetCom Annual Repor t 99 31
    • In August, for the first time Tele2 A/S reported an operating profit before depreciation and amortization. The chief factors were increased traffic following the preselect reform on January 1, 1999, and lower direct costs. Tele2 A/S Denmark • At year-end 1999, Tele2 A/S had approximately reached 70,000 by year-end. The company captured 697,000 customers, up 65% on the year. market shares and solidified its position as Denmark’s second largest fixed telephony operator and ISP. • The number of fixed telephony customers rose 54%, from 274,000, to 421,000. Fixed preselect and lowered interconnect charges Carrier preselect for fixed telephony began in Denmark • The number of Internet subscribers surged 85%, on January 1, 1999. Since that time, roughly 30% of from 149,000, to 276,000. Tele2 A/S prefix customers have signed up for the Automatisk 10 01 service. Automatisk 10 01 customers T ele2 A/S aims to have the market’s most satisfied generate more than three times as much traffic as those and loyal customers. Børsen, the Danish financial who prefer to dial the 10 01 prefix. newspaper, conducted a survey of customer satis- State-owned Tele Danmark lowered its interconnect faction and loyalty in the Danish telecom sector. Tele2 fee 5% in the summer. Largely thanks to the preselect A/S and its get2net Internet service came in first. The reform and fee cut, in August Tele2 A/S reported an ope- company’s own surveys also indicate that 10 01 (fixed rating profit before depreciation and amortization for the telephony) and UNI2 customers are highly loyal and first time. satisfied. Since spring 1999, Tele Danmark’s competitors have been able to use the telecom network all the way to the Expanded market shares subscriber. However, the company’s pricing policy makes The Danish telecom market was characterized by even it impossible for competitors to offer their services on heavier competition during the year. Several new opera- competitive terms. tors emerged, and competition stiffened in the business segment. In the second half of the year, Tele2 A/S made a Agreement with SKI massive initiative to win more business customers. It was Much public sector procurement in Denmark is regula- a success. The total number of business customers ted by Statens og Kommunernes Indkøbsservice (SKI, the government and municipal purchasing service). In August, Tele2 A/S signed an agreement with SKI making it the first new telecom provider to be classified as an FAC TS I N B R I E F “official supplier for the public sector.” One feature of the agreement is the offer of a flat rate, that is, all calls between the public agencies that subscribe to Tele2 A/S v Tele2 A/S offers fixed telephony, Internet and data communications services as well as are free-of-charge. The company is the first telecom ope- mobile telephony via interconnect agree- rator in Denmark to offer a flat rate. ments. Business customers are recruited for fixed telephony by an in-house sales force, No-fee Internet via telemarketing agencies and through tele- In the spring, a nationwide campaign offered Danish phone system installers and brokers. households no-fee get2net subscriptions. Around the same time, a new Internet portal opened with improved v Internet services for business are marketed under the UNI2 brand by an in-house sales content and new interactive options. organization and through computer dealers. UNI2 shored up its position as Denmark’s leading Private customers for fixed telephony can supplier of sophisticated Internet and data communica- subscribe to Tele2 in writing, on the Internet tions services to large companies. A comprehensive e- or by phone. Since the launch of the get2net commerce package has helped UNI2 establish a position no-fee subscription, the number of dealers in the web hosting market. In the spring, UNI2 devoted has dropped sharply. Rather, get2net is bun- a campaign to positioning itself as a purveyor of secure dled with other services and products. and stable Internet services. In the second half, several 32 NetCom Annual Repor t 99
    • N U M B E R O F C U S TO M E R S , F I X E D T E L E P H O N Y A N D I N T E R N E T 800,000 Quarterly data • Operating revenue, SEK 974 million (546), +78% 600,000 • Operating profit before 400,000 depreciation and amortization, SEK –47 million (–115) 200,000 Internet 0 Fixed Telephony 98 98 98 98 99 99 99 99 1/ 2/ 3/ 4/ 1/ 2/ 3/ 4/ Q Q Q Q Q Q Q Q large companies in financial and insurance services and Accord could cut interconnect fees other sectors signed contracts with Tele2 A/S for security In September, the Danish government proposed an services and high-speed connections. accord on telecommunications policy, including a model by which Tele Danmark will calculate its interconnect Covers Denmark fees. If the Folketinget (parliament) votes in favor of the On August 1, Tele2 A/S became a nationwide operator. accord in early 2000, interconnect fees will plummet. From that date, companies and private consumers on the The proposal also suggests a schedule for awarding licen- Jutland peninsula were allowed to call locally via Tele2 ses for fixed wireless access (FWA), GSM and UMTS. A/S. Since its founding, the company has chosen to With an FWA license, Tele2 A/S could provide telepho- adjust its service offering to available network capacity. ny and Internet services to consumers and businesses By August 1999, capacity was sufficient to justify provi- over a wireless access network. A GSM or UMTS license ding this service to households and businesses in Jutland. would permit Tele2 A/S to offer mobile telephony service Tele2 A/S signed number portability agreements with using its own network. other telecom companies, permitting customers to keep During the next couple of years, the company will be their phone numbers when switching operator. particularly intent on boosting cross-selling between Subscribers began taking advantage of this option in telephony and Internet customers. November. Tele2 A/S also began offering preselect services for mobile telephony. Tele Danmark Mobil’s customers can save money right away by dialing 10 01. Calls abroad are MARKETING the first to be included. Customers have access to Info 1818, the only alterna- tive directory assistance in Denmark. The service was expanded in 1999 to include mobile numbers in the leading operators’ networks. The combination of this enhancement and preselect for fixed telephony substan- tially boosted use of Info 1818 during 1999. Reorganization In the second half of 1999, Tele2 A/S revamped its orga- nization to enhance its growth potential and boost effici- ency. The focus of the organization was redirected from “product” to “process,” as the sales and marketing organi- zation was realigned according to sales channels. Expanded capacity Initially, Tele2 A/S only purchased capacity in Tele Danmark’s network. Now the company has built its own infrastructure to compete for bigger corporate clients. In collaboration with Powercom, Tele2 A/S constructed a trunk network offering direct hook-ups for businesses with heavy telephony and data communications usage. Internet capacity was expanded considerably during 1999 to handle expected growth in 2000. In its marketing, Tele2 A/S Denmark emphasizes that the company is the less expensive alternative to the state-owned Tele Danmark. NetCom Annual Repor t 99 33
    • Tele2 Norge AS grew extremely fast in 1999, more than doubling the number of fixed telephony and Internet customers. On June 1, Norway introduced preselect for fixed telephony, lifting traffic volumes and revenues. Tele2 Norge AS • At December 31, Tele2 Norge AS had 289,000 Tele2 Norge AS also conducted campaigns to inform fixed telephony customers, 121% more than the customers with Connect2Internet subscriptions who use 131,000 one year previous. another telecom operator to connect to the Internet that Tele2’s rates are lower. • The number of Internet subscribers increased 178%, from 63,000 to some 175,000. Standardized package and customized solutions The business market saw a number of mergers and take- • Operating revenue rose 163%, to SEK 444 million. overs in 1999. Moreover, several new operators entered the market. Stiffer competition in the data communica- • Operating profit before depreciation and amortiza- tions segment reduced prices. For telephony, businesses tion was SEK -58 million (SEK -93 million). increasingly desire access to dedicated lines to avoid going through Telenor. O n June 1, preselect was introduced for fixed Tele2 Norge AS provides everything from standardized telephony in Norway. Hence, Tele2 Norge’s packages for small businesses, to customized solutions for customers no longer need to dial the 1502 pre- large companies with heavy traffic and exacting demands. fix if they sign up for the Automatisk 1502 (A1502) ser- In 1999, the company strengthened its position as a sup- vice: The A1502 service dials 1502 for them. The reform plier of advanced network solutions. substantially boosted traffic in Tele2’s network. It has scored major successes with its “home package,” At the same time, Tele2 Norge launched Norgestakst, a Connect2Internet subscription for corporate and public allowing A1502 customers to call long-distance anywhere employees who have an office at home. The Norwegian in Norway at local rates. Departments of Defense and Justice and the multinatio- The pre-reform marketing effort turned out to be hig- nal Pripps/Ringnes are a few major clients who offer the hly successful. The main theme was, “You don’t have to service to their own employees. dial 1502 any more just to save money with Tele2’s low prices.” The campaign provided objective information Tele2 Norge: The private alternative about the repercussions of the reform, how customers The state-owned incumbent operator Telenor and Enitel, could sign up for A1502 and that Tele2 Norge was im- which acquired Telia Norway in December, are the big- plementing local rates on calls anywhere in the country. gest operators in the fixed telephony and Internet mar- kets. Moreover, several new operators joined the fray in Several successful campaigns 1999. In September–October, a sales campaign offered Tele2 As the acknowledged private alternative, Tele2 Norge Total, no-fee Internet service, as part of a preselect packa- AS has benefited from the protracted and ultimately ge. The offer was a great success, attracting 24,000 new unsuccessful attempt by Telenor and Telia AB to merge. customers. The company won additional market shares in 1999. In addition to the big operators, several small firms are FAC TS I N B R I E F active in the fixed telephony market, along with a num- ber of brokers focusing on the business market. Tele2 v Tele2 Norge AS offers fixed telephony, Norge AS’s 289,000 fixed telephony customers represent Internet and data communications services. about 15% of the market. Fixed telephony services are marketed by Four main operators dominate the Internet market: the company’s sales organization and through Tele2 Norge, Telenor, Enitel and Sense Communications. telemarketers as well as other external chan- In addition, there are some 20 smaller ISPs. Tele2 Norge nels. A nationwide network of dealers sells AS has about 20% of the market, an improvement from Dial-up Internet, with the company’s own 1998, making it Norway’s second largest ISP. sales organization also selling to large com- panies and government agencies. Data com- munication services are sold by Tele2 AS’s own personnel. 34 NetCom Annual Repor t 99
    • N U M B E R O F C U S TO M E R S , F I X E D T E L E P H O N Y A N D I N T E R N E T 500,000 Quarterly data • Operating revenue, 400,000 SEK 444 million (169), +163% 300,000 • Operating profit before depreciation and amortization, 200,000 SEK –58 million (–93) Internet 100,000 0 Fixed Telephony 98 98 98 98 99 99 99 99 1/ 2/ 3/ 4/ 1/ 2/ 3/ 4/ Q Q Q Q Q Q Q Q Rates generally proceeded downwards in 1999, as distance telephony has been leased from Telenor, while long-distance and international fixed telephony declined the existing infrastructure has been used for international about 20%. However, Internet rates were essentially traffic, curbing capital investment required. Unit costs unchanged. At the same time, ISP pricing is rapidly shif- for long-distance infrastructure have fallen dramatically ting, as price breaks are offered in the evenings and at in recent years because Tele2 Norge AS is now leasing night. more capacity and is using alternative suppliers. In 1999, the company invested to extend capacity, Prompt response to changing market situation enhance operating reliability and check costs by exploi- Tele2 Norge AS’s strong suits include competitive rates ting economies of scale. Through capital expenditure on and a small, flexible and cost effective organization that data networks and servers, along with a new telephone can quickly adapt to a changing market. The quality of exchange, total capacity has followed the increase in traf- its services clearly surpasses that of its competitors. An fic volumes, which more than quadrupled in 1999. additional asset is extensive know-how, along with insight into sales and marketing. The company’s offering Eyeing mobile telephony has a solid technological base. Tele2 is examining its options for breaking into the Tele2’s Scandinavian companies are working on greater Norwegian mobile telephony market. By providing collaboration, in product development, for example, to mobile telephony Tele2’s highly visible brand name broaden the sharing of know-how and experience betwe- would be strengthened. en countries. Tele2 Norge’s goal for 2000 is to build on its reputa- Tele2 Norge AS has also identified major potential for tion as the main alternative to Telenor. The mobile telep- higher revenues in cross-sales between its various business hony and Internet markets are likely to see a steady flow areas. The launch of mobile telephony services would of new products and services. Tele2 Norge plans to meet turn the company into a complete supplier, giving it even the competition with an expanded range at competitive more of a competitive edge. prices. Low start-up costs Since its inception, in line with customer growth, Tele2 Norge has focused on the construction of telephone exchanges and Internet capacity. Capacity for long- MARKETING Since its inception, Tele2 Norge AS has been advanced as the private, cheaper alternative to the state-owned incumbent Telenor. With the company’s Nære&Kjære (near & dear) service, customers get a 15% discount on calls to any 15 telephone numbers they may choose. NetCom Annual Repor t 99 35
    • • Operating revenue, SEK 696 million (197), +253% Other • Operating profit before depreciation and amortization, SEK 51 milion (-21) Operations Ritabell Following a sluggish first half, the second half of the year saw recruitment of new customers accelerate on the back of new services and marketing campaigns that established Ritabell as a price leader. • In January, NetCom increased its stake in Ritabell, from 48% to 94.8%. • Marketing was aimed at positioning Ritabell as the price leader • At year-end 1999, Ritabell had some 56,000 customers, an advance of 30%. I n January, NetCom acquired 90% of AS Levicom Cellular, now Tele2 Eesti AS, which owns 52% of Ritabell and 100% of a GSM 1800 license in Lithuania. The deal boosted NetCom’s stake in Ritabell, from 48% to 94.8%, making it a full-fledged subsidiary. Around the same time, NetCom acquired 19% of the capital in OÜ Levicom Broadband, which encompasses several participants in the Estonian and Lithuanian cable-TV markets as well as Internet operations in Estonia. The total purchase price was USD 58.6 million. Three Estonian licenses Three GSM 900 licenses have been awarded in Estonia: Ritabell, Estonia Mobile Telephone (EMT) and Radio- linja (Finland). EMT is owned by Telia of Sweden, Sonera of Finland and the Estonian state. EMT and Radiolinja date back to 1995. FAC TS I N B R I E F On April 28, 1997, Ritabell launched Q-GSM as the third alternative in the market. Ritabell was the first ope- rator to court the mass market with attractive packages, v The Estonian company Ritabell markets its mobile telephony services, aimed at private including subsidized handsets, that made it easier and consumers as well as small and medium-sized less expensive to sign up for service. The effort proved businesses, under the Q-GSM brand. The ser- so successful that at the six-month mark, Q-GSM vices, which are to be perceived as price lead- accounted for roughly 35% of all new subscriptions. ers, are sold through Ritabell’s own Q-Shops In February 1998, Ritabell became the first operator chain and non-exclusive dealers. Also, prepaid to introduce a prepaid card. cards can be purchased at gas stations and newsstands. Finally, the company has a sales 25% market penetration force that reaches out to prospective business Around 25% of all Estonians had cell phones at the end customers. of 1999, compared to 23% at the start of the year. 36 NetCom Annual Repor t 99
    • N U M B E R O F C U S TO M E R S , M O B I L E T E L E P H O N Y, R I TA B E L L 80,000 Quarterly data 60,000 40,000 20,000 Prepaid 0 Postpaid 98 98 98 98 99 99 99 99 1/ 2/ 3/ 4/ 1/ 2/ 3/ 4/ Q Q Q Q Q Q Q Q Growth has been curbed by a weak domestic economy in Economic upturn should spur market the wake of Russia’s difficulties. In a long-term perspective, As the Estonian economy improves in 2000, the market growth has been breakneck. At the beginning of 1997, is expected to grow more rapidly. only 6% of the population had a mobile telephone. Through new product launches, additional premium EMT has some 60% of the GSM market. Radiolinja services, increased focus on price leadership and broader is second, at around 21%, followed by Ritabell, with coverage, Ritabell expects to carve out fresh market share approximately 19%. These percentages were fairly stable in 2000. In particular, the company will zero in on the throughout 1999. business sector, where it sees outstanding potential. Ritabell has about 50% of the prepaid card segment. Q-GSM is a strong brand name Q-GSM is a strong brand name for Ritabell. The com- pany has a flexible, customer-oriented organization and maintains a brisk pace of marketing. Ritabell has a com- petitive edge by virtue of NetCom’s experience in Sweden, Norway and Denmark. The greatest challenges MARKETING it faces are a rigid invoicing system and poorer coverage than EMT – not to mention growing competition, par- ticularly in the prepaid card segment. Among the oppor- tunities are broader distribution of subscriptions through Ritabell’s own stores. Its widespread network of prepaid card dealers provides a stable foundation for further expansion in the market. Additional extension of network Ritabell has its own network, which covers territory that is home to about 90% of the Estonian population. In 2000, network capacity and coverage will be extended further. Favourable reception for new subscription packages Ritabell offers several different subscription packages for consumers and businesses under the Q-GSM brand as well as prepaid card packages. The basic packages include premium services such as SMS, voice mailbox and call forwarding. In collaboration with Tele2, Ritabell is revamping its SMS service to provide information such as stock prices, weather forecasts and sports scores. The new prepaid card package launched in October offers calling rates 10% below EMT’s. The marketing effort, based on a comparison of Ritabell’s and EMT’s rates, was favourably received. In November, a new sub- scription was promoted along similar lines. The aim is to show that Q-GSM customers get more for their money. Largely due to the two sales efforts, customer recruit- ment improved in the second half of 1999. Ritabell’s marketing aims to position Q-GSM as the price A new business subscription that utilizes a bonus leader. An advertisement with the heading “You’ve been points system, by which discounts vary with call volume, robbed” compared Q-GSM’s low prices with the higher was also launched in the autumn. prices of EMT, a competitor partly owned by the state. NetCom Annual Repor t 99 37
    • Other Operations Leading supplier of proprietary systems Datametrix In Norway, Datametrix is a leading supplier of complex solutions for voice and data communications used within a single company, for LANs and wide-area networks Datametrix continued to grow rapidly (WANs). Datametrix delivers complete systems to private in 1999, as external sales represented enterprise and government agencies. The systems com- prise equipment, consultants’ services, operation, mainte- a growing percentage of the total. nance and training. Demand for this type of solution and expertise is expanding in all Nordic markets. P reviously, Datametrix in Sweden primarily sold other manufacturers’ equipment. Since the merger Not quiet on the broadband front with NätTeknik, the company has been evolving Datametrix has some 50 in-house broadband technicians into a complete supplier of integration services. in Sweden. In concert with a few selected subcontractors, Datametrix is active in customer relationship manage- they make the company a leading provider of services for ment (CRM), Internetworking, Internet communication cable modems and wireless access solutions. services and broadband access, fields for which the com- pany offers services in consulting, operations and system External sales rising integration. As Datametrix scores new successes in the marketplace, the percentage of sales to NetCom companies steadily Market’s foremost CRM systems declines. In 1999 around 70% of Datametrix Sverige’s In the CRM field, call centers represent a rapidly grow- sales came from customers outside the NetCom Group, ing market that demands integrated data communica- compared to around 56% in 1998 and only 29% in tions and telecom solutions. In mid-1999, around 70,000 1996. In the other Nordic countries, external customers people were employed at call centers throughout the represent more than 80% of total sales. Nordic region. Independent forecasts suggest that number will triple in the next four years. In less than 18 months, Datametrix has installed more than 30 call centers com- prising more than 3,000 agents in all. Consequently, the company is one of the leading Nordic suppliers of com- prehensive systems for call centers. FAC TS I N B R I E F Internet security applications v In the Internet Communication Services area, Data- In 1998, NetCom acquired the Datametrix metrix focuses on effective security applications for the companies, which have been in Scandinavia Internet. Its service offering includes solutions for virtual since 1976. The Group already had private networks (VPNs) and managed security services NätTeknik, working with design, sales, (MSS). VPN enables a company to link geographically installation, operation and maintenance of widespread offices in a secure and cost-effective manner. software systems for public and private net- works. In 1999, Datametrix Svenska AB and As more sensitive strategic data is accessible over internal NätTeknik AB merged and were renamed company networks, security issues are increasing signifi- Datametrix AB. Thanks to its background, cant for Internet-based communications solutions. MSS the company has an extensive office and is a “total concept” in which the company operates, service network in Sweden, Norway, monitors and updates a customer’s firewalls. Denmark and Finland. Optimal Telecom Smart Box finds the cheapest rate Optimal Telecom’s customers can pay the lowest rates available by employing a Smart Box, which they plug Optimal Telecom has offered attractively into their telephone outlet. The device contains a tiny priced fixed telephony services since computer that compares the rates offered by Telia, Tele2 and Telenordia, the three biggest operators in the autumn 1998. The company enjoyed Swedish market. It can also keep up with changes in strong growth in 1999. rates, to guarantee the cheapest tariff at any time. Since September 11, when the preselect reform was A ppealing services and successful marketing cam- implemented for fixed telephony in Sweden, Smart Box paigns have substantially boosted the number functions have been installed directly in the telecom of callers using Optimal Telecom. network. The device now works on all of a customer’s 38 NetCom Annual Repor t 99
    • phones, regardless of how they are connected. Dereg- Infrastructure ulation has applied to long-distance and international Optimal Telecom is a service provider, which means it calls as well as calls to mobile phones. To obtain the has no infrastructure of its own. Rather, the company lowest price for a local call, the customer still has to purchases capacity in existing networks. physically install the Smart Box. Otherwise, local calls are automatically routed through Telia. Smart Box for Internet The Smart Box for Internet works much like the tele- phony version, ferreting out the cheapest local rate among Telia, Tele2 and Telenordia. The subscription requires no FAC TS I N B R I E F special equipment and is installed from a CD-ROM. The modem dials Optimal Telecom’s modem pool. Rate v Optimal Telecom provides private individuals changes are noted immediately. Smart Box for Internet with low rates on fixed telephony and carries no subscription fee. Internet services. v Customer bonus programs and athletic clubs are the primary sales channels. 4T Solutions Since December 1997, Tele2 AB has run a billing system for GSM prepaid cards that was developed by 4T Solutions. Since that time, Tele2 AB has ordered four Since its founding in 1997, 4T Solutions additional systems. Since installing its first system in has grown quickly and is now preparing a August 1998, Tele2 Europe has purchased five more. Beyond sales of the systems themselves, 4T Solutions broad marketing initiative in the European generates revenues through license fees and support ser- market. vices paid by the operators. I f telecom operators are to be paid efficiently and Rapidly growing market expeditiously, they must have an invoicing system The market for billing systems has mushroomed in that can handle a wide array of services, is flexible recent years, as more people have acquired cell phones and can be easily adapted as new services and packages and operators have provided more sophisticated services. emerge. Annual European sales of billing systems are in the billions of kronor. To take advantage of this trend, Next-generation billing system 4T Solutions has created its own marketing organization 4T Solutions offers operators high-quality, cost-effective for external sales. The target group is small and medium- billing systems. The company has produced the next- sized operators throughout Europe. The company’s generation Convergent Billing System, which is easier to growth and marketing are based on thorough knowledge use and more flexible than systems currently available. of the opportunities and challenges operators face – as The system can handle and support a wide range of well as solid business know-how. applications that operators offer, including GSM, prepaid Its chief rivals are systems and software companies cards, Internet service and fixed telephony. 4T solutions such as Keenan (acquired by Lucent), Amdoc, Logica, anticipates customers will increasingly demand support EHPT, LHS and Sema. for IP-based invoicing. Another spur to market growth will be new customers, such as power utilities, eager to Sharply higher F A C T S I N B R I E F sales make the most of spreading deregulation in their own markets. v A wholly owned NetCom company, 4T Solutions develops invoicing systems for telecommunications service providers. NetCom Annual Repor t 99 39
    • In November, NetCom AB sold its holding in NetCom ASA, the Norwegian telecom operator, to Société Européenne de Communication SA (SEC) in exchange for new shares in SEC. Associated Companies SEC I n a transaction valued at DEM 800 million, tions in the past year, including C 3, the European NetCom AB and SEC carried out a stock swap. For equivalent of the Everyday.com portal, prepaid cards its 24.8% holding in NetCom ASA, the Company for fixed telephony, and Intellinet, a fixed service with obtained new shares in SEC representing 17.8% of the a lowest-price guarantee. share capital. The Company is listed on the Stockholm Stock NetCom AB’s stake in NetCom ASA dated from the Exchange, Nasdaq in New York and the exchanges in founding of the Norwegian company in 1993. Since Luxembourg and Frankfurt. then, NetCom ASA had entered the Norwegian market for fixed telephony, thereby becoming a direct competi- Kinnevik controls majority in SEC tor to Tele2 Norge AS. The stock transaction was executed through a non-cash issue, by which NetCom AB was compensated with new Greater emphasis on Europe shares in SEC. Following the deal, NetCom AB owns The deal sharpens NetCom’s European focus and en- 17.8% of SEC’s capital and votes. Industriförvaltnings hances its prospects for sustaining the current vigorous AB Kinnevik holds 41.0% of the capital and 44.8% of growth rate. SEC does business in seven European the votes in SEC, and Millicom International Cellular countries. The Norwegian market has only 4 million SA has 29.6% of the capital and 32.6% of the votes. people, but 230 million live in the areas of Europe that The remaining 11.6% are publicly traded, having been SEC covers. Also, SEC offers a broader spectrum of distributed to Kinnevik’s shareholders in 1998. services, including fixed telephony, mobile telephony, Internet access and prepaid cards for fixed telephony. SEC enjoys large customer base SEC subsidiaries include: Tele2 Europe, a regional At year-end, SEC had about 2.9 million customers, and international telecom operator in the Netherlands, up more than 288% on the year. Cellular subscribers Germany, Switzerland, Austria, France, Italy and increased by 113% to some 77,000. Revenues totaled Luxembourg; Transcom Europe, specializing in customer DEM 607.1 million and SEC reported a loss after tax service; Tango, a GSM 900/DCS 1800 mobile operator of DEM 446.9 million. in Luxembourg; 3C Communications, a company that markets telephony and Internet services provided from public telephones and Internet terminals; and Transac, a company providing data processing for card transactions, invoices and the like. SEC has started several new opera- FAC TS I N B R I E F v SEC offers fixed telephony, mobile telephony and Internet services as well as prepaid cards for fixed telephony. The Group operates in seven European countries through its sub- sidiaries Tele2 Europe, Transcom Europe, Tango, 3C Communications and Transac. 40 NetCom Annual Repor t 99
    • At December 1, 1999, the new Internet portal Everyday.com was launched in Sweden. Before year-end, the portal had also had a preliminary release in France and the Netherlands. At the start of 2000, Norway joined. Everyday.com A t December 1, 1999, the new Internet portal Accessible for all visitors to the site are domestic and Everyday.com was launched in Sweden. Before international news, financial information, entertainment year-end, the portal had also had a preliminary and sports, chat rooms, personal ads, games, a complete release in France and the Netherlands. At the start of TV guide for Europe and a five-day weather forecast 2000, Norway joined. down to the municipal level in Sweden. Before the end of the first quarter of 2000, Everyday Since its inception, the portal has featured e-tail out- was also available in Denmark, Austria and Estonia. lets such as the Everyday Music Store, which offers some By opening in seven countries within the span of three 70,000 CDs. months, it has become Europe’s fastest-growing Internet portal. Further launches have started in Italy, Switzerland Leading in Streaming Video and Germany. During the first month it was marketed via TV, radio, newspapers and banner ads, Everyday.com became Dominant Internet portal established in Sweden as the leading site with Streaming Everyday Webguide AB, the company that runs Video, which allowed users to see the latest editions of Everyday.com, is jointly owned by Modern Times Group TV3 Direkt and ZTV Nytt as well as the preceding MTG AB and NetCom AB. The goal is for week’s episode of the soap opera Vita lögner (White Everyday.com to become the dominant Internet portal in Lies). During millennium celebrations, users were able Scandinavia and a major player on the European portal to access Historiens ljus (Light of history), by the popular scene. writer Herman Lindqvist, and TV3’s marathon broadcast The means will be to make the most of the strengths of celebrations around the world – both as moving ima- of each group: MTG has content on the World Wide ges at Everyday.com. Web as well as expertise and power in mass media and Everyday is operated by Everyday Webguide in the marketing. NetCom is the leading Internet operator in core markets of MTG and NetCom, while franchises the Nordic countries, serving 987,000 Internet subscri- have been signed for the rest of Europe with Société bers at December 31, 1999. Européenne de Communcation (SEC), which has Since the latter half of December, customers in operational responsibility for start-ups and day-to-day Sweden have been offered Everyday.com as their start business. page. Subscribers in Norway had the same possibility SEC had 3,000,000 subscribers at December 31, from the end of January. 1999, 33% more than at the end of the preceding quarter. These are served mainly by Tele2 Europe. A number of free services Everyday.com offers SEC’s customers the Internet portal As a portal, Everyday.com offers membership at no cost. as well as no-fee Internet access and free e-mail. This includes free web-based e-mail, free SMS messaging directly from a PC on-line, electronic postcards, book- marks and an address book all accessible from any com- puter connected to the Internet. Internet users can join the Everyday.com portal for free. Members can access free web-based e-mail, use an SMS messaging service directly from their com- puters and send electronic postcards. NetCom Annual Repor t 99 41
    • Report of Directors The Board of Directors and President present the annual In 1999, the Group continued to extend its networks, and report for NetCom AB (publ), company registration number investment activity kept a brisk pace. In 1999, a total of SEK 556410–8917, for fiscal 1999. 1,203 million (1998: SEK 1,546 million) was invested in opera- tions. In addition, other companies were acquired in 1999 for Report of the directors a total of SEK 513 million (1998: SEK 414 million). Class A and class B shares in NetCom AB (“NetCom”) have NetCom enjoyed ongoing strong growth in its business. been quoted on the O list of the Stockholm Stock Exchange Operating revenue advanced 37% during 1999, to SEK 8,193 since 1996 (NCOMA and NCOMB), and through American million. Operating revenue for mobile telephony in Sweden depositary receipts (ADRs) on the Nasdaq National Market rose dramatically, and NetCom’s operations in Denmark and since 1997 (NECS). Norway enjoyed exceptionally strong growth. Operating profit increased some 71% before depreciation Operations and amortization and 120% after.The operating margin before Formed in 1993, NetCom AB is a leading telecommunications depreciation and amortization improved in 1999, from 20.5% company in the Nordic countries, Baltic states and Poland. to 25.6%; the operating margin after depreciation and amorti- During the year, the Group conducted business in the zation went from 8.7% to 13.9%. Better performance resulted following areas. primarily from much higher profitability in mobile telephony and reduced losses by Tele2 in Norway and Tele2 in Denmark. Mobile GSM services The cost of the stock option program for senior executives is in Sweden through Tele2 AB (with the Comviq and Tele2Mobil based on the market price of NetCom shares.The apprecia- brands), in Estonia through AS Ritabell (with the QGSM tion of the shares in 1999 required an addition of SEK 134 brand), in Lithuania through UAB Tele2 and in Finland through million (1998: SEK 67 million) million to provisions for option a 20% holding in Suomen Kolmegee Oy. Until the associated commitments. company NetCom ASA was divested in November 1999, Profit/loss on shares and participations in associated com- mobile telephony was also conducted in Norway. panies includes a capital gain of SEK 3,228 million attributable to the divestment of the associated company NetCom ASA in Fixed telephony, data communications and Internet service Norway. in Sweden through Tele2 AB (with the Tele2 brand) and Net interest expense and other financial expenses equaled Optimal Telecom AB, in Denmark through Tele2 A/S and in SEK –241 million in 1999, compared to SEK –276 million in Norway through Tele2 Norge AS. NetCom also owns 17.8% 1998.The decline was primarly caused by lower interest rates of Société Européenne de Communication SA, which conducts despite an increase in borrowings.The average interest rate telephony business in central Europe. Datametrix is NetCom’s on outstanding debt dropped, from 6.6% to 4.8% during the unit for systems integration. 4T Solutions is NetCom’s unit for year. Profit after financial items reached SEK 4,178 million in developing billing systems for telephony.Through its 50% hold- 1999, compared to a loss of SEK 232 million in the preceding ing in Everyday Webguide (Everyday.com), the Company pro- year. vides an Internet portal with accompanying services. Tax expense for the year rose, from SEK –165 million, to SEK –412 million, as a result of healthy profit growth in the Cable-TV service Group. Profit for the year jumped, from SEK 67 million, to in Sweden through Tele2 AB (with the Kabelvision brand) and SEK 3,769 million, and earnings per share equaled SEK 36.29, in Estonia and Lithuania through a 19% holding in Levicom compared to SEK 0.64 for the preceding year. Broadband. During the last years, NetCom has achieved solid growth in revenue and profitability. 1999 1998 1997 1996 1995 1994 Operating revenue 8,193 5,969 4,036 2,872 1,953 882 Operating profit/loss 1,142 518 392 254 – 728 – 480 Profit/Loss after financial items 4,178 232 – 37 29 – 1,456 – 951 1999 profit after financial items includes a nonrecurring item of SEK 3,228 million attributable to capital gains from the divestment of the associated company NetCom ASA. 1996 profit included a nonrecurring gain of SEK 316 attributable to the issue of new shares in the associated company NetCom ASA. 42 NetCom Annual Repor t 99
    • Report of Directors Tele2 AB enjoyed a steady influx of mobile telephony cus- Also in November 1999, NetCom AB acquired the remain- tomers in 1999. During the year, the number of mobile tele- ing 50% of Trade2 AB, bringing its stake up to 100%.Trade2 phony customers rose 28%, to 1,641,000, including 909,000 conducts business related to electronic data transfer. prepaid card customers, 48% better than in 1998. Ritabell AS Several purchases and sales of shares in Group-companies had 56,000 customers for mobile telephony, representing an were executed within the NetCom Group at December 31, increase of 30% in 1999. 1999. At year-end,Tele2 AB had 852,000 customers for fixed tele- phony, up 23% in 1999, and 536,000 Internet customers, up Outlook 27%.Tele2 A/S in Denmark had 421,000 customers for fixed No events occurred in 1999 or in 2000 to date to give man- telephony at year-end, representing growth of 54%, and agement reason to expect anything other than continued 276,000 Internet customers, up 85%. At year-end,Tele2 in healthy growth in telephony and Internet service. Cable-TV Norway had 289,000 fixed-telephony customers, up 121% networks in Sweden, which cover all markets, are being for 1999, and 175,000 Internet customers, up 178%.The sub- upgraded for high-speed Internet traffic in areas demonstrat- scriber base for cable-TV grew 10%, to 148,000 at year-end. ing such customer demand. The Group continuously develops new services. In March, Comviq launched a new, flexible type of subscription so that Significant events after year-end customers no longer need to commit to a specific period for In January, uniform tariffs were introduced for domestic fixed their phone service. In September, the Internet portal telephony, and in February NetCom became the first mobile Everyday.com was launched, a joint effort of NetCom and operator in Sweden to offer a bonus for prepaid card cus- Modern Times Group (MTG). Everyday.com is Scandinavia’s tomers when they receive calls from the Company’s cus- biggest Internet portal, offering everything from free Internet tomers who have contracts for mobile service. service to a broad range of products and secure payments systems. In October, NetCom announced that it would collab- Work of the Board of Directors orate with Cisco Systems Inc. to introduce a new fiber-optic In 1999, NetCom’s Board of Directors held six meetings at ring as part of Tele2’s Internet initiatives.The new technology which minutes were taken.The Board of Directors has a fixed enables broader bandwidth with limited additional investment. set of procedures for its own tasks and established instruc- In June, NetCom presented a reorganization proposal tions for the President. aimed at reducing costs and dealing with stiffer competition in the future.The new organization entails staff cutbacks of 150 Other persons, which will yield annual savings of about SEK 80 mil- In March 1999, the Board announced that Lars-Johan lion from January 2000. Jarnheimer would succeed Anders Björkman as president of NetCom AB. Acquisitions NetCom’s operations were not effected by the changeover During the first quarter of 1999, NetCom boosted its holding to the new millennium. in Ritabell, from 48% to 94.8%, by acquiring shares in Tele2 Eesti AS (formerly AS Levicom Cellular) and OU Levicom Parent Company Broadband. NetCom acquired 90% of the share capital in The Parent Company performs functions and conducts cer- Tele2 Eesti AS, which owns 52% of the share capital in Ritabell tain development projects common to the Group.The appre- and 100% of a DCS 1800 license in Lithuania. At the same ciation of the company’s share price in 1999 increased provi- time, NetCom acquired 19% of the capital in Levicom sions for option commitments for senior executives SEK 134 Broadband, which encompasses several participants in the million (1998: SEK 67 million). Estonian and Lithuanian cable-TV markets as well as Internet operations in Estonia. Proposed appropriation of earnings In March 1999, NetCom announced the acquisition of 20% The Group has retained earnings of SEK 2,242 million.The of the shares and 15% of the votes in Suomen Kolmegee Oy, Board proposes a provision of SEK 29 thousand to the making NetCom the single largest shareholder in the compa- Group’s restricted reserves. ny. Suomen Kolmegee Oy has obtained one of the four cur- rent licenses for third generation mobile telephony networks, The following funds are at the disposal of the Parent based on W-CDMA/UMTS, in the Finnish market.The compa- Company’s Annual General Meeting. ny expects the mobile network to start up in about three years. Balance brought forward SEK 581,005,921 In November 1999, NetCom announced the divestment of Profit for the year SEK 914,154,523 its 24.8% holding in NetCom ASA in Norway to Société Total SEK 1,495,160,444 Européenne de Communication SA (SEC) in exchange for new shares in SEC. Following the deal, NetCom AB owned The Board of Directors and President propose that SEK 17.8% of SEC's capital. SEC, a leading alternative telecom 1,495,160,444 be carried forward to the accounts for the year operator in Europe, conducts business in seven countries. 2000. NetCom Annual Repor t 99 43
    • Consolidated Income Statements R Group Parent Company SEK thousands Note 1999 1998 1999 1998 Operating revenue................................................................................................ 1 8,193,036 5,969,081 10,032 5,898 Cost of services sold ........................................................................................ 2 – 4,402,892 – 3,497,502 — — Gross profit .......................................................................................................................... 3,790,144 2,471,579 10,032 5,898 Selling expenses ........................................................................................................ 2 – 2,074,837 – 1,604,071 — — Administrative expenses .............................................................................. 2 – 651,466 – 462,726 – 40,811 – 29,522 Options issued to management ........................................................ 29 – 134,300 – 66,900 – 134,300 – 66,900 Other operating revenue ............................................................................ 3 213,303 189,920 — 73 Other operating expense ........................................................................... 4 -835 – 9,319 — — Operating profit ............................................................................................... 5 1,142,009 518,483 – 165,079 – 90,451 Share of profit/loss in associated companies Profit/loss on shares and participations in associated companies ....................................................................... 6 49,725 – 9,929 – 19,165 – 581 Divestment of associated companies ........................................ 7 3,227,889 — — — Profit/loss on financial investments Profit/loss on shares in Group companies ........................ 8 — — 1,044,936 — Profit/loss on other securities and receivables classified as fixed assets......................................................................... 9 – 1,710 277 49,658 103,809 Other interest revenue and similar income .................... 10 30,623 17,288 8,059 1,359 Interest expense and similar costs ............................................... 11 – 270,247 – 294,371 – 4,404 – 44,193 Profit after financial items ...................................................................... 4 178,289 231,748 914,005 – 30,057 Appropriations Change in reserve for exchange rate differences ... 12 — — 149 – 190 Tax on profit for the year .......................................................................... 13 – 411,523 – 165,400 — — Minority interest ................................................................................................................ 2,363 270 — — Profit for the year.................................................................................................... 3,769,129 66,618 914,154 – 30,247 Earnings per share................................................................................................. 28 36.29 kr 0.64 kr Earnings per share, after full conversion .............................. 28 36.29 kr 0.64 kr 44 NetCom Annual Repor t 99
    • Consolidated Balance Sheets B Group Parent Company SEK thousands Note 31 Dec 1999 31 Dec 1998 31 Dec 1999 31 Dec 1998 ASSETS Fixed assets Intangible assets Capitalized start-up costs .......................................................................... 14 279,421 326,243 — — Capitalized license fees .................................................................................. 14 104,251 104,045 416 555 Goodwill .............................................................................................................................. 14 1,920,947 1,256,637 — — Total intangible assets.......................................................................................... 2,304,619 1,686,925 416 555 Tangible assets Buildings and land................................................................................................... 15 15,934 956 — — Machinery and other technical plant ......................................... 15 5,832,197 5,229,411 — — Equipment, tools and installations .................................................. 15 185,898 112,204 422 616 Fixed plant under construction ......................................................... 15 132,980 261,728 143 — Total tangible assets ................................................................................................ 6,167,009 5,604,299 565 616 Long-term financial assets Shares in Group companies .................................................................... 16 — — 1,481,354 3,811,317 Receivables from Group companies........................................... 17 — — 847,236 1,071,248 Shares and participations in associated companies.... 18 – 1,571 550,570 – 1,746 419 Receivables from associated companies ............................... 19 5,740 — — — Other long-term holdings of securities ................................. 20 3,541,475 390 3,541,085 — Other long-term receivables ................................................................. 21 58,399 2,342 19,811 — Deferred tax benefit .......................................................................................... 13 — 232,715 — — Total long-term financial assets .......................................................... 3,604,043 786,017 5,887,740 4,882,984 Total fixed assets ....................................................................................................... 12,075,671 8,077,241 5,888,721 4,884,155 Current assetsr Materials and supplies Finished goods and merchandise ............................................................... 34,309 30,674 — — Total materials and supplies ..................................................................... 34,309 30,674 — — Current receivables Accounts receivable ........................................................................................... 22 1,470,666 1,017,900 1,002 877 Current tax benefits ..................................................................................................... 387 184 — — Receivables from Group companies ..................................................... — — 3,812 3,599 Other receivables .................................................................................................. 23 29,786 95,497 284 7,409 Prepaid expenses and accrued revenues ............................. 24 661,655 534,364 759 501 Total current receivables ................................................................................. 2,162,494 1,647,945 5,857 12,386 Short-term investments ....................................................................................... 25 4,384 — — — Cash and cash equivalents ............................................................................. 25 416,873 433,261 7,449 148,009 Total current assets.............................................................................................. 2,618,060 2,111,880 13,306 160,395 Total assets................................................................................................................. 26 14,693,731 10,189,121 5,902,027 5,044,550 NetCom Annual Repor t 99 45
    • Consolidated Balance Sheets B Group Parent Company SEK thousands Note 31 Dec 1999 31 Dec 1998 31 Dec 1999 31 Dec 1998 EQUITY AND LIABILITIES Shareholders’ equity ................................................................................ 27 Restricted equity Share capital ................................................................................................................... 28 519,251 519,251 519,251 519,251 Restricted reserves ........................................................................................................ 4,241,472 3,701,609 3 478,970 3,478,970 Total restricted equity .......................................................................................... 4,760,723 4,220,860 3,998,221 3,998,221 Non-restricted reserves/retained losses Retained losses..................................................................................................................... – 1,527,538 – 1,018,537 581,006 611,253 Profit for the year ............................................................................................................ 3,769,129 66,618 914,154 – 30,247 Total non-restricted reserves/retained losses................. 2,241,591 – 951,919 1,495,160 581,006 Total shareholders’ equity ....................................................................... 7,002,314 3,268,941 5,493,381 4,579,227 Minority interest ........................................................................................................ 1,012 1,539 — — Untaxed reserves Reserve for exchange rate differences.............................................. — — 598 747 Total untaxed reserves................................................................................... — — 598 747 Provisions Deferred tax liability .......................................................................................... 13 139,245 — — — Options issued............................................................................................................ 29 235,900 101,600 235,900 101,600 Total provisions ............................................................................................................ 375,145 101,600 235,900 101,600 Long-term liabilities Interest-bearing Liabilities to financial institutions .................................................... 30 4,756,936 4,796,521 21,000 116,000 Liabilities to Group companies..................................................................... — — 1,807 — Bank overdraft facility ...................................................................................... 25 8,171 4,851 — — Other liabilities .......................................................................................................... 31 74,710 — 2,985 — Total interest-bearing liabilities .................................................... 4,839,817 4,801,372 25 792 116,000 Non-interest-bearing Other liabilities .................................................................................................................... 14,941 821 — 55 Total non-interest-bearing liabilities............................................ 14,941 821 — 55 Total long-term liabilities .......................................................................... 4,854,758 4,802,193 25,792 116,055 Current liabilities Interest-bearing Liabilities to financial institutions .................................................... 30 174,502 164,177 116,000 160,000 Other liabilities .......................................................................................................... 31 73,654 74,997 2,946 74,997 Total interest-bearing liabilities .................................................... 248,156 239,174 118,946 234,997 Non-interest-bearing Accounts payable .............................................................................................................. 790,074 740,786 1,260 1,593 Current tax liabilities................................................................................................... 225 473 — — Liabilities to Group companies..................................................................... — — 159 23 Other liabilities .......................................................................................................... 32 189,717 124,835 1,105 247 Accrued expenses and prepaid revenues............................ 33 1,232,330 909,580 24,886 10,061 Total non-interest-bearing liabilities............................................ 2,212,346 1,775,674 27,410 11,924 Total current liabilities ................................................................................... 2,460,502 2,014,848 146,356 246,921 Total shareholders’ equity and liabilities ..................... 14,693,731 10,189,121 5,902,027 5,044,550 PLEDGED ASSETS AND CONTINGENT LIABILITIES Pledged assets ...................................................................................................... 34 405,199 87,909 409,996 3,503,435 Contingent liabilities ............................................................................... 35 None None 322,953 720,060 46 NetCom Annual Repor t 99
    • Consolidated Cash Flow Statement K Group Parent Company SEK thousands Note 1999 1998 1999 1998 Operating activities Operating profit ............................................................................................................... 1,142,009 518,483 – 165,079 – 90,451 Adjustment of income/expense items that do not generate cash flow from operating activities Depreciation and amortization............................................................. 955,245 704,604 333 362 Capital losses/gains on sale of machinery, other technical plant .................................................................................... 5,361 – 89 — — Financial leases .............................................................................................................. – 15,955 – 17,802 — — Exchange rate differences..................................................................................... 10,327 – 4,526 6,736 – 565 Interest received ................................................................................................................ 26,593 18,320 3,997 2,391 Interest paid.............................................................................................................................. – 292,313 – 237,953 – 6,736 – 378 Financial expenses paid ............................................................................................ – 19,386 – 25,725 – 307 – 1,251 Tax received.............................................................................................................................. 214 181 — — 1,812,095 955,493 – 161,056 – 89,892 Change in working capital Materials and supplies ................................................................................................ 1,789 – 15,708 — — Accounts receivable ...................................................................................................... – 453,307 – 357,702 – 125 426 Other current receivables ................................................................................... 12,495 133,718 7,125 468 Prepaid expenses and accrued revenues........................................ – 132,736 – 206,043 – 258 – 236 Intercompany accounts, short-term ...................................................... — — – 78 – 2,583 Accounts payable .............................................................................................................. 2,431 188,479 – 333 – 3,651 Other current liabilities........................................................................................... 61,712 67,815 858 – 6,212 Accrued expenses and prepaid revenues ...................................... 332,342 157,022 14,825 – 8,380 Provisions ..................................................................................................................................... 134,300 66,900 134,300 66,900 – 40,974 34,481 156,314 46,732 Cash flow provided by operating activities 1,771,121 989,974 – 4,742 – 43,160 Investing activities Acquisition of intangible assets .................................................................... – 6,537 – 10,863 — – 693 Sale of intangible assets ........................................................................................... 407 3,133 — — Acquisition of tangible assets .......................................................................... – 1,146,587 – 1 457,425 – 143 – 325 Sale of tangible assets ................................................................................................. 4,485 9,190 — 5,225 Acquisition of shares in Group companies, excl cash ...................................................................................................................... 16 – 236,894 – 413,935 – 26,373 – 319,577 Sale of shares in Group companies, excl cash ...................................................................................................................... 16 107 — – 12,738 — Acquisition of other long-term holdings of securities ..... – 40,476 — – 31,317 — Sale of other long-term holdings of securities ...................... 12,844 — — — Lending to Group companies ......................................................................... — — – 8,376 91,213 Payments received from Group companies ............................... — — 180,000 — Other long-term lending........................................................................................ – 19,811 — – 19,811 — Payments received on other long-term lending................... — 28,714 — 28,714 Cash flow from investing activities ............................... 26 – 1,458,150 – 1,841,186 81,242 – 195,443 Financing activities Proceeds from loans from credit institutions ......................... 806,179 1,533,423 21,000 350,997 Amortization of loans from credit institutions ..................... – 1,053,358 – 830,510 – 234,997 — Amortization of other interest-bearing liabilities .............. – 75,066 — – 3,008 — Amortization of loans from Group companies .................... — — – 55 — Cash flow from financing activities ......................................... – 322,245 702,913 – 217,060 350,997 Net change in cash ................................................................................................ – 9,274 – 148,299 – 140,560 112,394 Cash at beginning of year ........................................................................... 25 433,261 579,048 148,009 35,615 Adjustment for exchange rate differences ........................ 25 – 2,730 2,512 — — Cash at end of year .................................................................................... 25 421,257 433,261 7,449 148,009 For additional cash flow information on transactions that had no net effect on cash flow, see Note 36. NetCom Annual Repor t 99 47
    • Notes General accounting principles and changes in 1999 panies’ shareholders’ equity, which is part of the Group’s In 1999, NetCom modified its accounting routines to conform restricted equity. In the event of losses, the participation in the to recommendation RR 8 of the Swedish Financial Accounting loss is deducted from non-restricted equity. Standards Council, Reporting the effects of changes in exchange If the Group’s participation in the undistributed earnings of an rates. Accordingly, goodwill from the acquisition of subsidiaries associated company increases or decreases because of a share or associated companies should be calculated in the foreign issue, the loss or gain is reported in the consolidated income unit’s currency. For purposes of comparison, the figures for statement under “Profit/loss on shares and participations in 1998 have been restated based on the new accounting principle. associated companies.” However, if the one-off effect is substan- The recommendation does not have a retroactive effect on tial, the amount is reported under “Non-recurring items.” NetCom concerning the reversal of accumulated exchange dif- Goodwill on consolidation attributable to a non-Swedish asso- ferences attributable to companies divested in previous years. ciated company is reported as an asset in the foreign currency. See also Note 27. These values are translated applying the same principles as for From 1999, NetCom is reporting deferred tax benefits attrib- the associated companies’ income statements and balance sheets. utable to associated companies among Shares and participations in associated companies, instead of in Deferred tax benefit, as in Minority interests previous years. For purposes of comparison, the figures for Minority interests includes the share of net profit or loss and 1996–1998 have been restated based on the new accounting shareholders’ equity in consolidated subsidiaries to which share- principle. See also Note 27. holders outside the Group are entitled. Assets and liabilities in subsidiaries are valued based on the accounting principles applied by the Parent Company. Receivables and liabilities of Swedish and non-Swedish subsidiaries denominated in foreign currencies Consolidated accounts The receivables and liabilities of Group companies that are The consolidated financial statements include the accounts of denominated in foreign currencies have been translated into the Parent Company and all companies in which the Parent Swedish kronor using the closing rate. Company controls, directly or indirectly, more than 50% of the Gains or losses on foreign exchange in international transac- votes. tions related to regular operations are included in the income The consolidated accounts were prepared based on the pur- statement under “Other operating revenues” and “Other oper- chase method, which means that the Parent Company’s pur- ating expenses,” respectively, while differences in financial receiv- chase cost of shares in each subsidiary is charged against that ables and liabilities are reported among financial items. Note 27 subsidiary’s acquisition value, in other words, the subsidiary’s summarizes the exchange rate differences charged directly to shareholders’ equity (including the equity component of shareholders' equity and the differences that affected profit/loss untaxed reserves) at the time of acquisition based on a market for the year. appraisal of the subsidiary’s net assets. Consequently, the Long-term lending to/borrowing from NetCom’s foreign Group’s shareholders’ equity includes only that part of each operations is regarded as a permanent part of the Parent subsidiary’s equity that has been earned after acquisition. Company’s financing of/borrowing from foreign operations, and The difference between the purchase cost of shares in a sub- thus as an expansion/reduction of the Parent Company’s invest- sidiary and the market value of that subsidiary’s net assets at ment in the independent foreign operation, the lending/borrow- the time of acquisition is allocated to the subsidiary’s assets if ing is translated at the historical rate of exchange if the borrow- the book values were less than the market values.Any amounts ing is denominated in the foreign company’s currency. in market value exceeding book value are reported as goodwill. The current method is used to translate the accounts of for- Valuation principles eign subsidiaries. Consequently, the exchange rate on the closing Assets and liabilities have been valued at their purchase cost date (closing rate) is used to translate items in the balance unless otherwise specified. sheet, while items in the income statement are translated using the average exchange rate for the year (average rate). Fixed assets All of NetCom’s companies are regarded as independent for- Intangible and tangible fixed assets are reported net after eign operations, so that exchange rate differences arising from deductions for accumulated amortization and depreciation translation are charged directly to shareholders' equity. according to plan. Depreciation and amortization according to When an independent foreign operation is divested, the accu- plan is based on the acquisition value of the asset and the esti- mulated exchange rate differences attributable to the divested mated useful life. operation, which were previously charged directly to share- Note 2 presents depreciation and amortization schedules for holders' equity, are reported in Net assets in Group companies fixed assets and reasons for amortizing certain intangible fixed divested in the income statement. assets over a period longer than five years. Reporting associated companies Intangible assets An associated company is any company in which the Group’s Capitalized start-up costs holding is regarded as long-term and entitles the Group to at Operating expenses and general overhead incurred while net- least 20% but no more than 50% of the votes in the company. works are being started up are booked as assets and amor- Associated companies are reported using equity accounting. tized over 5–13 years. Accordingly, the book value of shares in each associated compa- ny as reported in the consolidated balance sheet corresponds Capitalized license fees to the Group’s participation in the associated company’s share- The Company holds a number of licenses issued by the Swedish holders’ equity plus any residual goodwill on consolidation.The National Post and Telecom Agency for the supply of various ser- Group’s participation in associated companies’ earnings after vices. Based on a contract between Industriförvaltnings AB financial items is reported in the income statement under Kinnevik ("Kinnevik") and Tele2 AB,Tele2 is entitled to exercise “Profit/loss on shares and participations in associated compa- Kinnevik's license from the National Rail Administration. nies” with amortization of acquired goodwill. Participation in Capitalized expenses for these rights are amortized over the associated companies’ actual tax paid and deferred tax liabilities duration of the contract. or benefits is reported in the income statement under “Tax on profit/loss for the year” and in the balance sheet in “Shares and Goodwill participations in associated companies.” Profits earned by an Goodwill is defined as the difference between the purchase cost associated company after acquisition that have not been distrib- of shares or assets acquired and the market value of net assets. uted are allocated to the equity component of associated com- Goodwill is amortized on a straight-line basis over 5–20 years. 48 NetCom Annual Repor t 99
    • Notes Tangible assets Revenue from IQ Spar and Kontantkort prepaid cards is Machinery and technical plant recognized at the time of sale, when provisions are also made Machinery and technical plant includes equipment and machines for future expenses. intended for use in operations, such as network installations. The acquisition value includes direct expenses attributable to Marketing expenses the construction and installation of networks. Expenditure for advertising and other marketing activities is Extensions and improvements that increase value are capital- charged on an ongoing basis. ized, while expenses for repairs and maintenance are charged to income as they arise. Costs of developing new services The Group conducts ongoing development to produce new Equipment, tools and installations services in the field of telecommunications. Development costs Equipment comprises assets used in administration, sales and for new services are expensed. operations. Estimates and approximations Leases Some items in the consolidated accounts are based on esti- In the consolidated accounts, leases are classified as either finan- mates and approximations. Actual results could differ from cial or operating leases. A lease is considered financial if all eco- those estimates. nomic risks and benefits associated with ownership of the asset have been transferred, to a material degree, to the lessee; other- Corporate income tax wise, the lease is an operating lease. For financial leases, each Consolidated profit or loss for the year is charged with the tax asset is entered as a tangible fixed asset, and a corresponding on taxable income for the year (“Tax paid”) and with estimated liability is entered on the liabilities side of the balance sheet. In tax charges or credits for temporary differences (“Deferred the income statement, the cost of the lease is divided into a tax”). A temporary difference is a provision to appropriations depreciation portion and an item in interest expense. made by an individual company or any other item that merely alters the time when an item is considered taxable or entitling Receivables the company to a deduction. Receivables have been reported in the amount expected to be The calculation of deferred tax benefits in the Group has paid. taken into account the Group’s loss carry-forwards to the extent that it is expected they can be used in the foreseeable Materials and supplies future. Deferred tax benefits and deferred tax liabilities are net- Inventories of materials and supplies are valued at the lesser of ted only among units having the same domicile for tax purposes. purchase cost and market value.The requisite provisions are The tax effects of Group contributions paid and received are made for obsolescence. reported in the individual companies as a tax expense or tax revenue in the income statement (”Tax paid”) and charged to Revenue recognition retained losses or earnings. Revenue from telephony, cable-TV and other services and prod- ucts is recognized at the time the service/product is supplied to the customer. Number of employees Avg. no. employees 1999 of whom, men, % 1998 of whom, men, % Parent Company: Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 100 2 100 Total avg. No. of employees in Parent Company . . . . . . . . . . . . . . . . . . . . . . 2 100 2 100 Group: Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990 72 861 72 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 65 74 66 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 72 114 68 Baltic States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 51 — — Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 38 3 33 Total avg. No. of employees in Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 364 69 1 052 71 Costs of personnel 1999 1998 Salaries and Social security of which Salaries and Social security of which remuneration expenses pension expense remuneration expenses pension expense Parent Company: Board and President 9,317 5,053 1,604 5,345 2,372 452 Other employees 1,242 1,005 478 1,286 691 220 Total Parent Company 10,559 6,058 2,082 6,631 3,063 672 Group: Board and President 15,504 6,916 2,001 10,597 2,913 567 Other employees 487,237 165,913 28,729 372,260 141,472 22 718 Total Group 502,741 172,829 30,730 382,857 144,385 23,285 NetCom Annual Repor t 99 49
    • Notes Group Parent Company SEK thousands 1999 1998 1999 1998 Salaries and remuneration: Board and President: Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,579 6,446 9,317 5,345 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,267 2,924 — — Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,893 1,227 — — Baltic States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765 — — — 15,504 10,597 9,317 5,345 Other employees: Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,415 294,884 1,242 1,286 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,010 29,761 — — Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,252 46,930 — — Baltic States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,438 — — — Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,122 685 — — 487,237 372,260 1,242 1,286 Total salaries and remuneration: . . . . . . . . . . . . . . . . . . . . . 502,741 382,857 10,559 6,631 of which, bonuses: Board and President: Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 132 1,000 — Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 70 — — Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 159 — — Baltic States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 — — — Total bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,539 361 1,000 — In 1999, in addition to remuneration stated above, provisions SEK 3,580 thousand during the period January–March 1999 equaling SEK 7.5 million (1998: SEK 7.7 million) were made for (1998: SEK 4,005 thousand). bonuses to senior executives in the Group plus social security In the case of termination of employment by NetCom AB, the expenses of SEK 2.5 million (1998: SEK 2.5 million).The alloca- President is entitled to salary for a period of notice of no less tion of the amount will be determined in 2000. than six and no more than 18 months, and other persons in The Chairman of the Board of NetCom AB, Jan Hugo Company management are entitled to no less than six and no Stenbeck, received compensation from the Group in 1999 in the more than 24 months’ salary. No other severance compensation form of a director’s fee totaling SEK 270 thousand (1998: SEK will be paid to Company management on termination of employ- 270 thousand) and the preceding year a consultant’s fee of USD ment besides the salaries specified above. 200 thousand. Directors’ fees paid to other Members of the Pensions are paid based on a general pension insurance plan. Board equaled SEK 1,575 thousand (1998: SEK 1,090 thousand). In 1997, a decision was made to execute an incentive program The President of NetCom AB, Lars-Johan Jarnheimer, received for senior management in the NetCom Group (as per Note 29). salary and remuneration during the period April–December Of the options representing a total of 500,000 shares in 1999 from NetCom AB totaling SEK 3,892 thousand.Anders NetCom AB, options corresponding to a total of 48,000 shares Björkman, during his term as President of NetCom AB, received were for Lars-Johan Jarnheimer, the Company’s President. 50 NetCom Annual Repor t 99
    • Notes Auditors Group Parent Company (SEK thousands) 1999 1998 1999 1998 Pricewaterhouse Coopers Audit assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,248 1,820 100 104 Other assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,239 3,540 598 422 3,487 5,360 698 526 KPMG: Audit assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 60 60 60 Other assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8 — 8 60 68 60 68 Other auditors Audit assignments ............................................ 228 — — — 228 — — — Total fees and reimbursement ........................ 3,775 5,428 758 594 Audit assignments refer to the evaluation of the annual report and bookkeeping records as well as the administration by the President and Board of Directors. All other work is Other assignments. Financial risks Credit risk represents the accounting loss that would be international operator.This account is calculated in special draw- reported at the closing date if counterparties completely failed ing rights (SDRs) but invoiced and paid in US dollars.The Group to fulfill their contractual obligations. even purchases goods and services, to a limited degree, using The Group limits its credit risk exposure to accounts receiv- foreign currencies. At December 31, 1999, the net of all interna- able by continuously assessing the creditworthiness of cus- tional call traffic, roaming traffic, and purchases made in foreign tomers. Because the Group has a heterogeneous base of cus- currencies was a liability roughly equal to SEK 263 million. Note tomers, comprising both private individuals and businesses, 27 specifies how exchange rate differences for the year have credit risks are limited. No individual customer represents more affected profit and been charged directly to shareholders' equity. than 10% of the Group’s operating revenues.The Group makes Interest rate risk has been limited by varying the period of fixed provisions for possible credit losses, and such losses have interest on loans outstanding, as described in Note 30.Tele2’s remained within the estimates of management. In 1999, credit borrowings carry floating interest rates.To manage the risk of losses were less than 1% of sales. rising interest rates,Tele2 has signed agreements with several Because the Group’s operations are chiefly in the Nordic different banks to cap the rate for a large portion of its borrow- countries, it has limited exposure to foreign exchange fluctua- ings.Tele2 has agreements to receive compensation if the STIBOR tions.The fixed telephony operations and mobile telephony rate for one month or three months on certain settlement operations entail foreign exchange risk in conjunction with dates exceeds 3.45% (for a nominal amount of SEK 2,200 mil- international call traffic and roaming traffic, which means that a lion) or 5.95% (for a nominal amount of SEK 1,350 million). liability or a claim arises between the NetCom Group and the The agreements are valid until 2001. NetCom Annual Repor t 99 51
    • Notes Note 1 Operating revenue Group Net sales by company 1999 1998 Tele2 AB: Mobile telephony 3,909,227 2,957,478 Fixed telephony and Internet 2,630,188 2,223,267 Cable-TV 104,709 136,830 6,644,124 5,317,575 Tele2 Norge AS 444,312 169,473 Tele2 A/S, Denmark 973,740 545,761 Other Group companies 711,237 202,673 Elimination of sales within the Group – 580,377 – 266,401 Total net sales by company 8,193,036 5,969,081 Group Parent Company Net sales by geographic market 1999 1998 1999 1998 Sweden......................................................................................................................................................................................................... 6,599,964 5,226,477 10,032 5,898 Norway........................................................................................................................................................................................................ 504,492 198,399 — — Denmark.................................................................................................................................................................................................... 974,700 541,614 — — Baltic states............................................................................................................................................................................................. 103,799 — — — Other countries ............................................................................................................................................................................... 10,081 2,591 — — Total net sales by geographic market 8,193,036 5,969,081 10,032 5,898 The geographic market is the country in which a company conducts the majority of its business. Group Parent Company Operating revenue by business area 1999 1998 1999 1998 Mobile telephony ............................................................................................................................................................................ 4,000,681 2,949,037 — — Fixed telephony and Internet .......................................................................................................................................... 4,071,228 2,858,142 — — Cable-TV ................................................................................................................................................................................................... 121,127 161,812 — — Group-wide; Parent Company ....................................................................................................................................... — 90 10,032 5,898 Total operating revenue by business area 8,193,036 5,969,081 10,032 5,898 Of the Parent Company's total purchases and sales measured in Swedish kronor, 3.3% of operating expenses and 100% of sales pertained to other companies in the Group. Note 2 Depreciation, amortization and write-downs for the year Group Parent Company 1999 1998 1999 1998 Depreciation/amortization/write-downs included in operating profit/loss: Capitalized start-up costs ............................................................................................................................................. – 51,679 – 47,672 — — Capitalized license fees..................................................................................................................................................... – 7,391 – 6,389 – 139 – 138 Goodwill ............................................................................................................................................................................................. – 128,522 – 85,017 — — Buildings and land .................................................................................................................................................................... – 508 — — — Machinery and other technical plant .............................................................................................................. – 711,613 – 532,267 — — Equipment, tools and installations....................................................................................................................... – 55,532 – 33,259 – 194 – 224 Total depreciation, amortization and write-downs by asset category – 955,245 – 704,604 – 333 – 362 Geographic breakdown of depreciation, amortization and write-downs Sweden ................................................................................................................................................................................................. – 716,211 – 567,457 – 333 – 362 Norway ................................................................................................................................................................................................ – 25,612 – 17,654 — — Denmark ............................................................................................................................................................................................ – 67,893 – 40,464 — — Baltic States..................................................................................................................................................................................... – 25,707 — — — Other countries ........................................................................................................................................................................ – 640 – 37 — — Group depreciation/amortization....................................................................................................................... – 119,182 – 78,992 — — Total depreciation, amortization and write-downs by geographic market – 955,245 – 704,604 – 333 – 362 52 NetCom Annual Repor t 99
    • Notes Group Parent Company 1999 1998 1999 1998 Depreciation, amortization and write-downs for the year by business area: Mobile telephony ..................................................................................................................................................................... – 329,101 – 272,860 — — Fixed telephony and Internet ................................................................................................................................... – 442,415 – 288,730 — — Cable-TV ............................................................................................................................................................................................ – 64,214 – 63,660 — — Group-wide; Parent Company ................................................................................................................................ – 333 – 362 – 333 – 362 Group depreciation/amortization....................................................................................................................... – 119,182 – 78,992 — — Total depreciation, amortization and write-downs by business area – 955,245 – 704,604 – 333 – 362 minority interest in Tele2 AB and the outstanding option in Comviq GSM AB Estimated useful life Group Parent Company is amortized over 20 years. Goodwill that arose in 1998 with the acquisi- Intangible assets: tion of the Datametrix, Ritabell and Trade2 companies will also be amor- tized over 20 years.The depreciation period is based on the long-term, Capitalized start-up costs 3–13 years — strategic importance determined at the time of each acquisition.The reor- Capitalized license fees 2–25 years 5 years ganization of the Group in 1997, by which the Swedish operations were Goodwill 5–20 years — essentially assembled in a single company, is a step towards facilitating the Tangible assets: development of combined services across operational boundaries, which is Land improvements 10 years — one example of the strategic significance of these acquisitions. Goodwill arising from the acquisition of customers in mobile telephony Machinery and other technical plant 2–25 years — and the acquisition of the UNI-C Internet operations is amortized over 10 Equipment, tools and installations 3–20 years 3–5 years years, which is based on the estimated strategic value of the customer base and operations, respectively. Other goodwill is amortized over five years. Depreciation/amortization according to plan is based on the acquisition value of each fixed asset and its estimated useful life. Capitalized start-up costs primarily pertain to the construction of net- works for mobile telephony which are amortized over 13 years, based on the estimated average useful life of investments in infrastructure. Note 4 Other operating expenses Capitalized license fees primarily pertain to the right to utilize transmis- Group sion capacity in the National Rail Administration’s trunk network.The amor- tization period of 23 years is based on the duration of the contract. 1999 1998 Goodwill that arose upon the original acquisition of Comviq GSM AB and Divestment of fixed assets – 19 – 172 Tele2 AB as well as other acquisitions before 1996 is amortized over 10 Exchange losses in business operations – 816 – 9,147 years. Goodwill that arose in 1996 with the purchases of the outstanding Total other operating expenses – 835 – 9,319 Note 3 Other operating revenue Group Parent Company 1999 1998 1999 1998 Rental of capacity and antenna installations.................................................................................................. 120,959 121,875 — — Divestment of fixed assets ............................................................................................................................................... 558 261 — — Sales of mobile telephone equipment ................................................................................................................ 5,572 3,762 — — Administrative services ........................................................................................................................................................ 38,157 16,521 — — Exchange gains in business operations .............................................................................................................. 2,060 848 — 73 Consulting and project revenue ................................................................................................................................ 23,952 22,072 — — Other revenue.................................................................................................................................................................................... 22,045 24,581 — — Total other operating revenue 213,303 189,920 — 73 Note 5 Operating profit/loss Group Parent Company Operating profit/loss by geographic market 1999 1998 1999 1998 Sweden......................................................................................................................................................................................................... 1,495,768 864,703 – 165,079 – 90,451 Norway........................................................................................................................................................................................................ – 78,696 – 110,659 — — Denmark.................................................................................................................................................................................................... – 114,412 – 155,581 — — Baltic States ............................................................................................................................................................................................ – 33,274 — — — Other countries ............................................................................................................................................................................... – 8,195 – 988 — — Group depreciation/amortization .............................................................................................................................. – 119,182 – 78,992 — — Total operating profit/loss by geographic market 1,142,009 518,483 – 165,079 – 90,451 NetCom Annual Repor t 99 53
    • Notes Group Parent Company Operating profit/loss by buisness area 1999 1998 1999 1998 Mobile telephony ......................................................................................................................................................................... 1,511,472 1,004,317 — — Fixed telephony and Internet........................................................................................................................................ – 16,978 – 253,992 — — Cable-TV................................................................................................................................................................................................ – 68,224 – 62,399 — — Group-wide; Parent Company..................................................................................................................................... – 165,079 – 90,451 – 165,079 – 90,451 Group depreciation/amortization .............................................................................................................................. – 119,182 – 78,992 — — Total operating profit/loss by business area 1,142,009 518,483 – 165,079 – 90,451 Note 6 Profit/loss on shares and participations in associated companies Group Parent Company 1999 1998 1999 1998 Share of earnings 79,165 25,109 – 19,165 – 581 Amortization of goodwill acquired – 29,440 – 35,038 — — Total profit/loss on shares and participations in associated companies 49,725 – 9,929 – 19,165 – 581 Profit/loss on share and participations Holding Group Parent Company in associated companies: 31 Dec 99 31 Dec 98 1999 1998 1999 1998 NetCom ASA, Norway — 25% 70,699 – 1,173 — — Ritabell, Estonia 95% 48% – 1,809 – 8,175 — — Gamla Stans Millennium 25% 25% – 19,165 – 581 – 19,165 – 581 Total share of profit/loss in associated companies 49,725 – 9,929 – 19,165 – 581 In January 1999, NetCom increased its holding in Ritabell, from 48% to In November 1999, NetCom sold its 24.8% shareholding in NetCom ASA 94.8%, by acquiring shares in Tele2 Eesti AS. NetCom purchased 90% of to Société Européenne de Communication SA (SEC) in exchange for new the shares in Tele2 Eesti AS, which owns 52% of the share capital in shares in SEC.The share of earnings, SEK 70,699 thousand, reflects Ritabell.The share of losses, SEK –1,809 thousand, refers to the month of NetCom’s interest in the company up to the time of sale. January. NetCom ASA Ritabell 1999 1998 1999 1998 Contribution of each associated company to colsolidated profit/loss: (11 months) (12 months) (1 month) (3 months) Profit/loss in each associated company 359,444 108,491 – 368 – 6,865 Participation in profit/loss 89,286 27,144 – 177 – 3,295 Amortization of goodwill – 27,808 – 30,158 – 1,632 – 4,880 New issues by associated companies, NetCom’s share of the additional capital 9,221 1,841 — — Contribution to profit/loss in the NetCom Group 70,699 – 1,173 – 1,809 – 8,175 The share of profits/losses in NetCom ASA for the first 11 months are based on NetCom ASA’s earnings to September 30, 1999, plus two-thirds of the earn- ings announced by NetCom ASA for the third quarter of 1999. Note 8 Profit/loss on shares in Group companies Parent Company 1999 1998 Note 7 Divestment of associated companies Capital gain on the sale of Comvik International AS 2,957,334 — Group Capital loss on the sale of 1999 1998 Tele2 AB – 1,912,398 — Divestment of NetCom ASA 3,227,889 — Total profit/loss on shares Total divestment of in Group companies 1,044,936 — associated companies 3,227,889 — In November 1999, NetCom sold its 24.8% shareholding in NetCom ASA In November, the Parent Company divested shares in its wholly owned sub- to Société Européenne de Communication SA (SEC) in exchange for new sidiary Comvik International AS, which owns 24.8% of the shares in shares in SEC. NetCom ASA, which is listed on the Norwegian stock exchange. In the The sale was executed by the wholly owned holding company Comvik Group, the capital gain is reported as Divestment of associated companies. International AS, which owned shares in NetCom ASA, so the Parent See also Note 7. Company reports its capital gain in “Profit/loss on shares in Group compa- At December 31, NetCom sold all shares in Tele2 AB to the Group com- nies” in the income statement. See also Note 8. pany Tele2 Holding AB.The sale was priced at the tax-effective purchase cost, resulting in a capital loss for the Company. 54 NetCom Annual Repor t 99
    • Notes Note 9 Gains/losses on other securities and receivables classified as fixed assets Group Parent Company 1999 1998 1999 1998 Interest, Group .................................................................................................................................................................................. — — 51,392 104,274 Interest, external receivables............................................................................................................................................ 304 277 278 277 Exchange rate differences .................................................................................................................................................... – 2,014 — – 2,012 – 742 Total gains/losses on securities/receivables as fixed assets – 1,710 277 49,658 103,809 Note 10 Other interest revenue Group Parent Company 1999 1998 1999 1998 Interest on bank deposits .................................................................................................................................................... 26,283 18,043 3,719 2,114 Exchange rate differences on short-term financial assets ........................................................... 4,340 – 755 4,340 – 755 Total other interest revenue 30,623 17,288 8,059 1,359 Note 11 Interest expense and similar costs Group Parent Company 1999 1998 1999 1998 Interest, Group .................................................................................................................................................................................. — — — – 39,557 Interest on loans.............................................................................................................................................................................. – 230,815 – 252,729 – 6,289 – 1,757 Interest on convertible debentures ......................................................................................................................... — – 836 — – 836 Interest on financial leases................................................................................................................................................... – 13,607 – 8,065 — — Interest on other liabilities.................................................................................................................................................. – 15,641 – 2,912 – 447 – 1,391 Exchange rate differences on financial liabilities....................................................................................... 6,103 – 3,771 2,639 932 Other financial expenses....................................................................................................................................................... – 16,287 – 26,058 – 307 – 1,584 Total interest expenses and similar costs – 270,247 – 294,371 – 4,404 – 44,193 Note 12 Appropriations, other Parent Company 1999 1998 Reversal from/Provisions to foreign exchange reserve 149 – 190 Total appropriations 149 – 190 NetCom Annual Repor t 99 55
    • Notes Note 13 Tax on profit/loss for the year and deferred tax liability/benefit Group Tax expense for the year 1999 1998 in relation to earnings before tax: SEK thousands % SEK thousands % The difference between the Group’s tax expense and the tax expense based on the actual tax rate consists of the following components. Profit/loss before tax and minority interest.................................................................................................. 4,178,289 231,748 Tax as per current tax rate in: Sweden, Norway, Finland................................................................................................................................................ – 1,227,446 28.0 – 114,449 28.0 Denmark ............................................................................................................................................................................................ 46,177 32.0 59,686 34.0 Estonia ................................................................................................................................................................................................... 12,204 26.0 — — Other countries ........................................................................................................................................................................ 4,504 31.7 510 35.0 – 1,164,561 27.9 – 54,253 23.4 Tax effects of: Non-tax effects (Group adjustments) ........................................................................................................... 31,171 – 0.7 – 27,007 11.7 Permanent differences....................................................................................................................................................... 828,831 – 19.8 – 1,804 0.8 Loss carry-forwards: Loss for the year not utilized ................................................................................................................................ – 94,304 2.3 – 97,302 42.0 Losses carried forward from previous years not included in loss for the year ............................................................................................................................ – 12,660 0.3 14,966 – 6.5 Tax expense for the year and effective tax rate – 411,523 9.8 – 165,400 71.4 Group The Non-tax effects (Group adjustments) item of SEK 31 million in 1999 was chiefly attributable to the tax effect of gains from the sale of associated com- Deferred tax liability/benefit 31 Dec 99 31 Dec 98 panies totaling SEK 67 million and to amortization of goodwill totaling SEK - In untaxed reserves – 396,810 – 13,017 33 million. In value of unutilized loss carry-forwards 257,565 245,732 The permanent differences item in 1999 for all material purposes relates Total deferred tax to the tax effect of the Parent Company’s gain on the divestment of NetCom liability/benefit – 139,245 232,715 ASA, SEK 828 million, which has not been reported for taxation for the rea- sons specified to the right. Unutilized loss carry-forwards include temporary differences The item Loss for the year not utilized refers to foreign operations. Geographic breakdown of Group Tax on profit/loss for the Group deferred tax liability/benefit 31 Dec 99 31 Dec 98 year by geographic area: 1999 1998 Deferred tax benefit: Current tax expense: Sweden 257,565 240,397 Sweden –1 — Estonia — 2,757 Norway — 157 Holland — 1,811 Holland 215 24 Other countries — 767 214 181 Deferred tax liability: Deferred tax expense Sweden – 396,810 – 13,017 resulting from temporary differences: Total Sweden – 369,255 – 163,127 deferred tax liability/benefit – 139,245 232,715 Norway – 37,170 – 7,631 The accounting principle for deferred tax in associated companies was Estonia – 2,757 2,757 changed with a retroactive effect of SEK 164,670 thousand, so deferred Holland – 1,811 1,811 tax for NetCom ASA is reported in Shares and participations in associated companies instead of in Deferred tax, as previously. Other countries – 744 609 Deferred tax benefits are reported only for the portion of loss carry-for- – 411,737 – 165,581 wards that are anticipated could be used in the near future. One effect of Total tax on profit/loss for the year – 411,523 – 165,400 this is that accumulated losses in Tele2 A/S in Denmark and Tele2 Norge AS in Norway are valued at zero. The tax authorities have challenged loss carry-forwards in NetCom AB corresponding to SEK 170 million (1998: SEK 181 million) in deferred tax revenue.Those loss carry-forwards have been reported at their full amounts. The shares in NetCom ASA sold were actually exchanged for shares in SEC, so a postponement will be obtained for the tax-effective capital gain. Because NetCom exercises control over whether or not the profit will be brought forward for taxation, no tax effect from the sale has been charged in the accounts. A divestment of SEC shares outside the NetCom Group would incur taxes for NetCom of SEK 828 million. 56 NetCom Annual Repor t 99
    • Notes Note 14 Intangible assets Group Parent Company Group Start-up Capitalized Goodwill Total Capitalized 31 Dec 99 expenses license rights license rights Acquisition value at Jan. 1 ........................................................................................................ 761,321 133,154 1,512,056 2 ,406,531 693 Acquisition value in acquired companies .............................................................. 9,926 1,904 — 11,830 — Investment for the year.............................................................................................................. — 6,537 458,582 465,119 — Divestment and retirement................................................................................................... — -37 — – 37 — Reclassified items ............................................................................................................................... — — 382,273 382,273 — Translation difference for the year ............................................................................... – 2,685 – 847 – 51,260 – 54,792 — Acquisition value 768 562 140,711 2,301,651 3,210,924 693 Accum. depreciation/amortization at Jan. 1........................................................ – 435,078 – 29,109 – 255,419 – 719,606 – 138 Accumulated depreciation/amortization in acquired companies – 3,474 — — – 3,474 — Depreciation/amortization for the year ................................................................. – 51,679 – 7,391 – 128,522 – 187,592 – 139 Divestment and retirement................................................................................................... — 3 — 3 Translation difference for the year ............................................................................... 1,090 37 3,237 4,364 — Accumulated depreciation/amortization – 489,141 – 36,460 – 380,704 – 906,305 – 277 Book value 279,421 104,251 1,920,947 2,304,619 416 A change in accounting principles for calculating goodwill on consolidation Shares and participations in associated companies to Goodwill, in conjunc- denominated in the currency of foreign companies resulted in a retroactive tion with the shareholding in Ritabell increasing from 48% to 94.8%.This change of SEK 15,947 thousand net in previous years’ figures for goodwill. year’s investment in goodwill totaling SEK 459 million is primarily attribut- The reclassification for the year was for rebooking SEK 382 million from able to this successive acquisition. Note 15 Tangible assets Group Buildings Machinery, Under construction 31 Dec 99 & land Technical plant Equipment Fixed plant Total Acquisition value at Jan. 1 ...................................................................................................................... 956 7,311,051 251,767 261,728 7,825,502 Acquisition value in acquired companies ............................................................................ 15,773 81,767 44,464 57,090 199,094 Investment for the year ........................................................................................................................... — 845,280 47,667 289,200 1,182,147 Divestment and retirement................................................................................................................. — – 6,697 – 2,384 — -9,081 Reclassified items ............................................................................................................................................. — 427,276 49,433 – 476,709 — Translation difference for the year ............................................................................................. — – 26,015 – 5,348 1,671 – 29,692 Acquisition value 16,729 8,632,662 385,599 132,980 9,167,970 Accum. depreciation/amortization at Jan. 1...................................................................... — – 2,081,640 – 139,563 – 2,221,203 Accumulated depreciation/amortization in acquired companies ........... – 293 – 13,019 – 7,791 – 21,103 Depreciation/amortization for the year ............................................................................... – 202 – 711,613 – 55,532 – 767,347 Write-downs ........................................................................................................................................................ – 306 — — – 306 Divestment and retirement................................................................................................................. — 399 1,914 2,313 Reclassified items ............................................................................................................................................. — — — — Translation difference for the year ............................................................................................. 6 5,408 1,271 6,685 Accumulated depreciation/amortization – 795 – 2,800,465 – 199,701 – 3,000,961 Book value 15,934 5,832,197 185,898 132,980 6,167,009 Parent Company Under construction 31 Dec 99 Equipment Fixed plant Total Acquisition value at Jan. 1 ......................................................................................................................................................................................................... 1,083 — 1,083 Investment for the year............................................................................................................................................................................................................... — 143 143 Acquisition value 1,083 143 1,226 Accum. depreciation/amortization at Jan. 1 ......................................................................................................................................................... – 467 – 467 Depreciation/amortization for the year .................................................................................................................................................................. – 194 – 194 Accumulated depreciation amortization – 661 – 661 Book value 422 143 565 NetCom Annual Repor t 99 57
    • Notes Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Total capitalized interest expenses in fixed assets ................................................................................ 151,914 151,914 — — Financial leases All assets related to financial leases signed since 1997 have been included in the consolidated accounts.The following table contains these values and values for assets under financial leases but which have not been restated in the consolidated accounts, that is, those pertaining to leases signed before January 1, 1997. Group Book value assets Assets not booked 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Machinery and other technical plant Acquisition value.............................................................................................................................................................................. 267,022 151,176 154,773 154,773 Accumulated depreciation/amortization ........................................................................................................... – 40,345 – 7,690 – 28,584 – 21,785 Book value 226,677 143,486 126,189 132,988 Tax-assessed value: The tax-assessed value of the Group’s land in Sweden equaled SEK 936 thousand (1997: SEK 936 thousand). Note 16 Shares in Group companies Parent Company 31 Dec 99 Acquisition value at Jan. 1 3,542,366 In 1999, NetCom divested shares in its wholly owned subsidiary Comvik Investment for the year 1,263,603 International AS, which owns 24.8% of the shares in NetCom ASA, which is Divestment – 3,324,615 listed on the Norwegian stock exchange. In addition, NetCom has carried out an internal restructuring of the com- Acquisition value 1,481,354 panies in the Group and in conjunction with this sold its shares in Tele2 AB Accumulated write-ups at Jan. 1 268,951 to the Group company Tele2 Holding AB. Divestment – 268,951 Accumulated write-ups — Total shares in Group companies 1,481,354 Shares in Group companies Number 31 Dec 99 31 Dec 98 Company, reg. no., reg’d. Office of shares Holding, % Par value Book value Book value Trade2 (Sweden) AB, 556469-7836, Stockholm .......................................................... 1,001 100 SEK 100,000 15,035 1,040 Belmus BV, 33261289,Amsterdam, Holland .................................................................... 15 100 NLG 15,000 330,552 317,476 AS Ritabell, 10069046,Tallinn, Estonia ............................................................................... 48 — — In2loop Polska Sp. So.o,Warsaw, Poland .............................................................................. 49 49 PLN 49,000 250 61 Web Communication BV,Amsterdam, Holland .......................................................... 400 100 NLG 40,000 170 — Tele2 Polska Sp,Warsaw, Poland............................................................................................... 100 — — Comvik International Norge AS, 954393232, Oslo, Norway...................... — — 447,000 NetCom ASA, 965361413, Oslo, Norway................................................................... — — — Tele2 Dax Net A/S, dormant company ................................................................................. — — 108 NetCom Luxembourg Holding AB, 556580-7905, Stockholm.................. 100 SEK 100,000 104 — NetCom Luxembourg SA, Luxembourg ............................................................................. 100 EUR 35,000 1,135,243 — Everyday Holding AB, 556579-7718, Stockholm .................................................. 100 — — Stenblocket i Fruängen AB, 556058-8500, Stockholm........................... 100 — — Everyday Webguide AB, 556182-6016, Stockholm ................................................... 50 — — Tele2 Holding AB, 556579-7700, Stockholm ................................................................... 100 — — Tele2 AB, 556267-5164, Stockholm ...................................................................................... 100 — 3,045,632 Tele2 Sweden SA, Luxembourg .......................................................................................... 100 — — 4 T Solutions Holding AB, 556580-2690, Stockholm ......................... 100 — — 4 T Solutions AB, 556164-6281, Stockholm ........................................... 100 — — Optimal Telecom Holding AB, 556580-7855, Stockholm .............. 100 — — Optimal Telecom AB, 556440-1924, Stockholm ................................ 100 — — X-Source Holding AB, 556580-2682, Stockholm.................................... 100 — — X-Source AB, 556290-2238, Stockholm...................................................... 100 — — Datametrix Sverige Holding AB, 556580-7871, Stockholm ....... 100 — — 58 NetCom Annual Repor t 99
    • Notes Shares in Group companies Number 31 Dec 99 31 Dec 98 Company, reg. no., reg’d. Office of shares Holding, % Par value Book value Book value N.I.U Nätteknik Inst & U-h AB, 556539-4870, Stockholm... 100 — — Tele2 Norge Holding AB, 556580-8143, Stockholm............................ 100 — — Tele2 AS Norge, 974534703, Oslo, Norway........................................... 100 — — Tele3 Norge AS, 932100975, dormant company ........................ 100 — — Tele2 Danmark Holding AB, 556580-8028, Stockholm.................... 100 — — Tele2 A/S,A/S221234, Copenhagen, Denmark ..................................... 100 — — Tele2 Eesti AS, 10262238,Tallinn, Estonia.......................................................... 90 — — AS Ritabell, 10069046,Tallinn, Estonia ............................................................ 52 — — Levi & Kuto Latvia, 000307707, Latvia .......................................................... 100 — — UAB Tele2, 1147164, Lithuania ............................................................................... 100 — — UAB Levi & Kuto Kaunas, 1149679, Lithuania .................................... 100 — — UAB Levi & Kuto Klaipeda, 1150061, Lithuania................................. 100 — — Datametrix Norway AS, 975993108, Oslo, Norway .......................... 100 — — Datametrix Danmark A/S, 39419, Copenhagen, Denmark......... 100 — — Datametrix OY, 378548, Helsinki, Finland ....................................................... 100 — — OY Interloop AB, Helsinki, Finland .......................................................................... 100 — — Interloop AB, 556284-7565, Stockholm............................................................. 100 — — NetCom GSM Sverige AB, 556304-7025, Stockholm....................... 100 — — Åkersberga KV AB, 556326-3192, Österåker, Sweden .................... 100 — — Halmstads KV AB, 556380-6115, Halmstad, Sweden ......................... 100 — — Skaraborgs Kabel-TV AB, 556483-6467, Mariestad, Sweden .... 60 — — Hallstahammar KV KB, 916580-7912,Västerås, Sweden ............... 90 — — Kopparstaden KV KB, 916583-0564,Västerås, Sweden .................. 80 — — Nelab KV KB, 916597-8983,Västerås, Sweden......................................... 80 — — Comviq GSM AB, 556450-2606, dormant company .......................... 100 — — Call2Web AB, 556403-7983, dormant company..................................... 100 — — Swipnet AB, 556411-9401, dormant company........................................... 100 — — SCD AB, 556353-6829, dormant company.................................................... 99.97 — — Comviq Broadband AB, 556405-6678, dormant company ......... 100 — — Datametrix Svenska AB, 556041-1307, dormant company ........ 100 — — Kalmar Kabelvision AB, 556244-2466, dormant company .......... 100 — — Tele1 A/S, 955780132, Oslo, Norway .................................................................... 100 — — Danu Wireless Security Ltd, Ireland....................................................................... 100 — — Tele2 Sweden Ltd, England, dormant company.......................................... 100 — — Total shares in Group companies 1,481,354 3,811,317 Acquisition and divestment of subsidiaries during the year: Group The Group’s book values for assets and liabilites acquired and for Acquired Divested assets and liabilites in divested companies were as follows: 1999 1998 1999 1998 Intangible assets ................................................................................................................................................................................ 467,440 482,465 — — Tangible assets..................................................................................................................................................................................... 184,131 3,100 — — Long-term financial assets.................................................................................................................................................... — 5,893 54 — Materials and supplies ............................................................................................................................................................... 6,008 5,599 — — Current receivables ..................................................................................................................................................................... 22,638 21,004 53 — Short-term investments and cash .............................................................................................................................. 7,077 1,540 — — Long-term liabilities...................................................................................................................................................................... – 62,520 – 82,841 — — Current liabilities ............................................................................................................................................................................. – 157,470 – 21,285 — — Purchase price 467,304 415,475 107 — Payment by loan from the seller ................................................................................................................................. – 223,333 — — — Purchase price paid/received 243,971 415,475 107 — Cash in the companies acquired/divested ....................................................................................................... – 7,077 – 1,540 — — Impact on Group cash 236,894 413,935 107 — NetCom Annual Repor t 99 59
    • Notes Note 17 Receivables from Group companies Note 19 Receivables from associated companies Parent Company Group 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Acquisition value at Jan. 1 1,071,248 164,564 Acquisition value at Jan. 1 — — Loans 1,319,930 1,125,906 Loans 5,740 — Amortization and additions paid – 1,542,173 – 218,480 Total receivables from Translation difference for the year – 1,769 – 742 associated companies 5,740 — Total receivables from Group companies 847,236 1,071,248 Note 18 Shares and participations in associated companies Number 31 Dec 99 31 Dec 98 (Company, reg. no., reg’d. Office) of shares Holding,% Par value Book value Book value Parent Company Gamla Stans Millennium Evanemang KB, 969653-5997, Stockholm 25 — – 1,746 419 – 1,746 419 Group (additional): Everyday Webguide AB ...................................................................................................................... 50 SEK 175,000 175 — NetCom ASA, 965361413, Oslo, Norway.................................................................. — — — 11,318 NetCom GSM AS, 951589888, Oslo, Norway ............................................... 100 — — — Klart Svar AS, 971180587, Oslo, Norway............................................................. 100 — — — AS Ritabell, 10069046,Tallin, Estonia .................................................................................. 95 — — 538,833 Total shares and participations in associated companies, Group – 1,571 550,570 A change in accounting principles for calculating goodwill on consolidation effect of SEK 164,670 thousand, so deferred tax for NetCom ASA is denominated in the currency of foreign companies resulted in a retroactive reported in Shares and participations in associated companies instead of change of SEK -9,890 thousand in previous years’ figures for Shares and in Deferred tax, as previously. participations in associated companies.The accounting principle for This year’s investment of SEK 175 thousand in Everyday Webguide AB deferred tax in associated companies was also changed with a retroactive reflects the participation in shareholders' equity. Note 20 Other long-term holdings of securities Number of Holding, % 31 Dec 99 31 Dec 98 (Company, reg. no, regd. Office) Shares capital votes Par value Book value Book value Parent Company Société Européenne de Communication SA (SEC), Luxembourg 92,533,625 A 17.8 17.8 LUF 101,852,000 3,518,004 — and 9,318,316 B AS Levicom Broadband, Estonia 1 19.0 19.0 EEK 8,000 18,382 — Suomen Kolmegee, Helsinki, Finland 1,924 20.1 15.0 FIM 1,924,000 4,699 — SCD Invest AB, 556353-6753, Stockholm 1,058,425 A 9.1 49.6 SEK 5,292,000 0 0 3,541,085 0 Group (additional) Brf Sundsvallshus (tenant-owner housing) — — — — 390 390 Total Group 3,541,475 390 The market value of NetCom’s shares in SEC equaled SEK 5,959 million at December 31, 1999. Group Parent Company Other long-term holdings of securities: 31 Dec 99 31 Dec 99 Acquisition value at Jan. 1 343,141 342,751 Investment for the year 3,541,085 3,541,085 Acquisition value 3,884 ,226 3,883,836 Accumulated write-downs at Jan. 1 – 342,751 – 342,751 Accumulated write-downs – 342,751 – 342,751 Total 3,541,475 3,541,085 60 NetCom Annual Repor t 99
    • Notes Note 21 Other long-term receivables Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Acquisition value at Jan. 1.................................................................................................................................................. 2,342 29,808 — 28,714 Loans .......................................................................................................................................................................................................... 14,799 1,473 20,169 277 Amortization and additions paid .............................................................................................................................. — – 28,992 — – 28,991 Reclassified items......................................................................................................................................................................... 41,828 – 50 — — Translation differences........................................................................................................................................................... – 570 103 – 358 — Total other long-term receivables 58,399 2,342 19,811 — During the year, SEK 41 million was converted from a current receivable to a long-term claim on Finvision AB. Note 22 Accounts receivable Group Group Accounts receivable 31 Dec 99 31 Dec 98 Reserve for doubtful receivables: 31 Dec 99 31 Dec 98 Accounts receivable 1,642,943 1,116,561 Reserve for doubtful receivables at Jan. 1 98,661 51,654 Reserve for doubtful receivables – 172,277 – 98,661 Reserves in companies acquired during the year 10,425 121 Book value Receivables recorded 64,679 47,480 of accounts receivable 1,470,666 1,017,900 Previous write-downs recovered – 1,488 – 594 Reserve for doubtful receivables at Dec. 31 172,277 98,661 Note 23 Other current receivables Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Prepaid VAT ............................................................................................................................................................................................ 8,719 19,744 — 26 Receivable from Finvision AB .......................................................................................................................................... — 34,596 — — Receivable from NetCom Intressenter AB.................................................................................................... — 7,380 — 7,253 Claim for goods returned .................................................................................................................................................... 7,285 — — — Other ............................................................................................................................................................................................................. 13,782 33,777 284 130 Total other current receivables 29,786 95,497 284 7,409 Note 24 Prepaid expenses and accrued revenues Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Accrued telephony revenue, other telecom operators ................................................................. 105,482 110,299 — — Accrued telephony revenue, customers ............................................................................................................ 407,316 299,335 — — Prepaid leasing costs and rent ........................................................................................................................................ 67,535 74,573 — 2 Other ............................................................................................................................................................................................................. 81,322 50,157 759 499 Total prepaid expenses and accrued revenue 661,655 534,364 759 501 NetCom Annual Repor t 99 61
    • Notes Note 25 Cash and cash equivalents Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Cash and cash equivalents................................................................................................................................................... 416,873 433,261 7,449 148,009 Short-term investments.......................................................................................................................................................... 4,384 — — — Total cash and cash equivalents 421,257 433,261 7,449 148,009 Of the Group’s cash and cash equivalents at December 31, 1999, some portions can be used only within the Tele2 Group. Bank overdraft facilities granted................................................................................................................................... 260,605 246,398 — — Bank overdraft facilities used ........................................................................................................................................... – 8,171 – 4,851 — — Unutilized credit granted 252,434 241,547 — — The Group has been granted loans equaling SEK 450 million that it has not utilized. In 1999, fees for credit limits and the like equaled SEK 4.7 million for the Group, of which SEK 0.3 million was attributable to the Parent Company. Exchange rate differences in cash and cash equivalents are attributable to the following: Cash at beginning of year.............................................................................................................................................. 2,212 842 Cash flow for the year...................................................................................................................................................... – 4,942 1,670 Total adjustment for exchange rate differences in cash – 2,730 2,512 Note 26 Investing activities and total assets Group Parent Company 1999 1998 1999 1998 Investing activity by geographic market Sweden ................................................................................................................................................................................................. 1,294,860 1,641,570 – 81,242 195,443 Norway ................................................................................................................................................................................................ 55,297 70,768 — — Denmark ............................................................................................................................................................................................ 93,158 128,817 — — Baltic States..................................................................................................................................................................................... 10,356 — — — Other countries ........................................................................................................................................................................ 4,479 31 — — Total investing activity by geographic market 1,458,150 1,841,186 – 81,242 195,443 Investing activity by business area Mobile telephony ..................................................................................................................................................................... 436,045 609,885 — — Fixed telephony and Internet ................................................................................................................................... 697,984 830,343 — — Cable-TV ............................................................................................................................................................................................ 14,060 19,944 — — Group-wide; Parent Company ................................................................................................................................ 143 – 4,207 143 – 4,207 1,148,232 1,455,965 143 – 4,207 Acquisition/divestment of shares......................................................................................................................... 290,107 413,935 70,428 319,577 Long-term receivables, changes ............................................................................................................................. 19,811 – 28,714 – 151,813 – 119,927 Total investing activity by business area 1,458,150 1,841,186 – 81,242 195,443 Financial leases, fixed telephony.................................................................................................................................... 34,907 118,391 — — Total investing activity including financial leases 1,493,057 1,959,577 – 81,242 195,443 Group Parent Company Total assets by geographic market: 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Sweden......................................................................................................................................................................................................... 12,687,185 8,805,032 5,902,027 5,044,550 Norway........................................................................................................................................................................................................ 462,480 518,117 — — Denmark.................................................................................................................................................................................................... 542,970 475,064 — — Finland ........................................................................................................................................................................................................... 10,295 7,696 — — Other countries ............................................................................................................................................................................... 990,801 383,212 — — Total assets by geographic market 14,693,731 10,189,121 5,902,027 5,044,550 62 NetCom Annual Repor t 99
    • Notes Note 27 Shareholders’ equity Restricted equity Non-restricted reserves Share- Share Legal Other restricted Shares in Other non-res- Total share- Group: capital premium reserve reserves equity tricted reserves holders’ equity Shareholders’ equity brought forward 519,251 3,466,366 320 244,813 –318,483 – 649,383 3,262,884 Effects of changes in Accounting principles – 9,890 15,947 6,057 Adjusted shareholders’ equity brought forward 519,251 3,466,366 320 234,923 – 318,483 – 633,436 3,268,941 Provisions to: legal reserve 5 –5 — Transfers: Shares and participations in associated companies 347,172 – 347,172 — Deferred tax – 242,976 – 38,671 281,647 — Untaxed reserves 987,015 – 987,015 — Other transfers 322 – 203,990 9,982 193,686 — Exchange rate differences – 513 – 35,243 – 35,756 Profit/Loss for the year 3,769,129 3,769,129 Shareholders’ equity carried forward 519,251 3,466,366 647 774,459 — 2,241,591 7,002,314 Exchange rate differences Exchange rate differences in consolidated Other restricted Non-restricted shareholders’ equity: reserves reserves Total Shareholders’ equity brought forward 41,926 6,058 47,984 Effects of changes in accounting principles – 9,890 15,947 6,057 Adjusted shareholders’ equity brought forward 32,036 22,005 54,041 Reversal for companies sold – 32,140 – 7,249 – 39,389 Other changes for the year – 513 – 35,243 – 35,756 Amount carried forward – 617 – 20,487 – 21,104 The change in exchange rate differences for this year mainly resulted from translations of subsidiaries and receivables in Danish kroner.The exchange rates used for translating the income statements and balance sheets into Swedish kronor are specified below. 1999 31 Dec 99 1998 31 Dec 98 NOK........................................................................................................................................................................................................... 1.060091 1.0605 1.053777 1.0730 DDK............................................................................................................................................................................................................ 1.185219 1.1505 1.188146 1.2685 EEK ............................................................................................................................................................................................................... 0.563100 0.5480 0.565500 0.5900 FIM ................................................................................................................................................................................................................ 1.482199 1.4403 1.489393 1.5885 Other currencies had no material effect on the Group’s balance sheets or income statements. Group Parent Company Exchange rate differences that affected net profit/loss: 1999 1998 1999 1998 Other operating revenue................................................................................................................................................... 2,060 848 — 73 Other operating expenses ............................................................................................................................................... – 816 – 9,147 — — Loss/gain on other securities and receivables classified as fixed assets .................... – 2,014 — – 2,012 – 742 Other interest revenue and similar income................................................................................................ 4,340 – 755 4,340 – 755 Interest expense and similar costs ......................................................................................................................... 6,103 – 3,771 2,639 932 9,673 – 12,825 4,967 – 492 NetCom Annual Repor t 99 63
    • Notes Effects of changes in accounting principles In 1999, NetCom modified its accounting routines to conform to recommendation RR 8 of the Swedish Financial Accounting Standards Council, Reporting the effects of changes in exchange rates. Accordingly, goodwill from the acquisition of subsidiaries or associated companies should be calculated in the foreign unit’s currency. For purposes of comparison, the figures for 1998 have been restated based on the new accounting principle.The recommendation does not have any retroactive effect on NetCom concerning the reversal of accumulated exchange differences attributable to companies divested in previous years. From 1999, NetCom is reporting deferred tax benefits attributable to associated companies among Shares and participations in associated companies, instead of in Deferred tax benefit, as in previous years. For purposes of comparison, the figures for 1996–1998 have been restated based on the new accounting principle. The changes in accounting principles have had no retroactive effect on the income statements but have had the following retroactive effects on the balance sheets. Group Balance sheet: 31 Dec 99 31 Dec 98 31 Dec 97 31 Dec 96 Tangible assets Goodwill, acquisition value .......................................................................................................................................... — 16,164 — — Goodwill, accumulated amortization .............................................................................................................. — – 217 — — Goodwill, book value — 15,947 — — Long-term financial assets Shares and participations in associated companies ...................................................................... — 154,780 176,721 139,470 Deferred tax benefit ............................................................................................................................................................ — – 164,670 – 176,721 – 139,470 Total assets — 6,057 — — Translation differences, restricted equity .......................................................................................................... — – 9,890 — — Translation differences, non-restricted equity............................................................................................. — 15,947 — — Total shareholders’ equity and liabilities — 6,057 — — Restricted equity Non-restricted equity Share capital (SEK thousands) Share- Share Legal Non-restricted Total share- Parent Company: Class A Class B capital premium reserve equity holders equity Shareholders’ equity brought forward 18,095,632 85,754,614 519,251 3,478,950 20 581,006 4,579,227 Profit/Loss for the year 914,154 914,154 Shareholders’ equity carried forward 18,095,632 85,754,614 519,251 3,478,950 20 1,495,160 5,493,381 Shareholders’ equity Legal reserve: Shareholders’ equity consists of registered share capital, reserves not avail- According to the Swedish Companies Act, provisions must be made to a able for distribution (legal reserve, share premium reserve and other legal reserve each year, equaling 10% of the portion of net profit for the restricted reserves) and retained earnings/losses including profit/loss for the year not used to cover retained losses, until the legal reserve and the share year and share of profit/loss in associated companies. premium reserve together equal 20% of share capital. Restricted reserves in NetCom AB and its Swedish subsidiaries can be used to increase share Registered share capital: capital or, under certain circumstances, to cover retained losses. The share capital in NetCom AB is divided into two types of stock: class A Other restricted reserves: and class B. Stock of both types has a par value of SEK 5 per share and Other restricted reserves are the equity component of untaxed reserves, entitles the owners to equal participation in the net assets and profits of deferred tax and Group participation in translation differences. the Company. However, each class A share entitles its owner to 10 votes, while each class B share entitles its owner to one vote. Unappropriated earnings and dividends: According to the Companies Act, NetCom AB’s unappropriated earnings are Restricted reserves: available for distribution to shareholders after the requisite provisions have Share premium reserve been made to the legal reserve and after previous years’ retained losses The share premium reserve contains the surplus funds raised when the have been covered. Statutory limitations to distribution of funds include Company’s shares are issued at a price that exceeds the par value. general rules for dividends not endangering the company’s liquidity or finan- cial position in other respects or exceeding non-restricted equity in the Equity component of associated companies’ shareholders’ equity: Group.The dividend is decided by the shareholders at the Annual General The equity component of associated companies’ shareholders’ equity refers Meeting and generally cannot exceed the dividend proposed by the Board to earnings after the time of acquisition. Profits are reported as restricted of Directors. equity, and losses are reported as a reduction of non-restricted equity. 64 NetCom Annual Repor t 99
    • Notes Note 28 Number of shares Class A Class B Par value Share capital Change Total Change Total Total no. (SEK) (SEK thousands) At Jan. 1, 1999 18,095,632 85,754,614 103,850,246 SEK 5 519,251 At Dec. 31, 1999 18,095,632 85,754,614 103,850,246 SEK 5 519,251 Calculation of Group Calculation of earnings Group earnings per share: 1999 1998 per share after full conversion: 1999 1998 Profit/Loss for the year 3,769,129 66,618 Profit/Loss for the year 3,769,129 66,618 Weighted avg. no. of shares 103,850,246 103,598,394 Reversal: interest for the year on Earnings per share SEK 36.29 SEK 0.64 the outstanding convertible debenture — — Reversal: 28% deferred tax on interest reversed above — — Adjusted profit/loss for the year after full conversion 3,769,129 66,618 Weighted avg. no. of shares outstanding after full conversion 103,850,246 103,850,246 Earnings per share after full conversion SEK 36.29 SEK 0.64 Note 29 Options issued Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Short-term component........................................................................................................................................................... 94,360 20,320 94,360 20,320 Long-term component............................................................................................................................................................. 141,540 81,280 141,540 81,280 Total options issued 235,900 101,600 235,900 101,600 The Parent Company’s Annual General Meeting in May 1997 voted to imple- Invik & Co.AB (“Invik”) owned 51% and 67% of NetCom Intressenter AB ment an incentive program for key personnel in the NetCom Group.The as of December 31, 1999 and 1998, respectively. Invik acts as a custodian incentive program was based on an initial seven senior managers in the for these shares, in which capacity Invik is not permitted to sell or transfer the Group forming a limited liability company, NetCom Intressenter AB, to enable shares without the approval of NetCom. The company intends to distribute them to acquire an option written by NetCom and entitling the holder to the remaining shares in NetCom Interessenter AB to employees in the future. 100,000 class B shares each year from 1999 through 2003, for a maximum The premium for the option described here was SEK 6.6 million in 1997. of 500,000 shares in all. In 1998, a wider circle of approximately 50 more The premium for the option and the ongoing obligation the option entails senior managers in the Group was offered the opportunity of subscribing for have been valued based on the estimated value per share in NetCom.The shares in NetCom Intressenter AB.The subscription price is SEK 150 per valuation was performed by experts not related to the Company using the share. NetCom has the right, when the options are exercised, to: 1) deliver the Black-Scholes option pricing model, based on the share’s current market price shares, 2) pay a cash settlement or 3) propose to the Annual General and an exercise price of SEK 150.The share price was SEK 107.50 at the Meeting that a special issue of shares be made to NetCom Intressenter AB. time the contract was signed in May 1997 and SEK 598 at year-end 1999. NetCom AB is aware that the Swedish Companies Act currently does not The Board regards the conditions described above as reflecting commercial allow the Company to deliver its own shares upon exercise of the option and terms. that the option for the time being must be considered a “notional option.”The options are granted each year based on certain revenue goals. NetCom Annual Repor t 99 65
    • Notes Note 30 Liabilities to financial institutions Group Parent Company Short-term interest-bearing loans: 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Nordbanken .......................................................................................................................................................................................... 124,220 160,000 116,000 160,000 Armada ........................................................................................................................................................................................................ 1,500 4,063 — — Bank overdraft facilities ........................................................................................................................................................... 3,133 114 — — Financial leases.................................................................................................................................................................................... 45,649 — — — Total short-term interest-bearing loans 174,502 164,177 116,000 160,000 Group Long-term interest-bearing loans and terms of interest: Interest terms Maturity date 31 Dec 99 31 Dec 98 Parent Company: Nordbanken LIBOR+ 0,45% 2001 21,000 116,000 (security: Parent Company’s shares in Belmus BV and receivables on Belmus BV for SEK 79 million) 21,000 116,000 Group (additional): CIBC Wood Gundy Plc LIBOR+ 0,45–0,55% 2004 4,175,000 3,730,000 (security:Tele2 Holding AB’s shares in Tele2 AB) Nordiska Investeringsbanken Fixed rate: 9,16% 2001 125,000 809,000 (guaranteed by the CIBC Wood Gundy syndicate) Armada Municipal rate + 1.5% 2000–2006 — 1,500 (security: chattel mortgages in Åkersberga Kabelvision AB for SEK 16 million) Nordbanken LIBOR+ 0,45% 2004 270,000 — (security:Tele2 AB’s shares in Tele2 Eesti AS) Financial leases on transmission capacity 165,936 140,021 Total long-term interest-bearing loans 4,756,936 4,796,521 (LIBOR = London Interbank Offered Rate) Group Parent Company Security pledged for liabilites to financial institutions and for credit 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Chattel mortgages...................................................................................................................................................................... 16,000 16,000 — — Shares in subsidiaries .............................................................................................................................................................. — — 330,552 317,476 Net assets in subsidiaries................................................................................................................................................... 365,676 0 — — Materials and supplies ............................................................................................................................................................ 6,865 5,365 — — Receivables .......................................................................................................................................................................................... 10,630 2,146 79,444 75,929 Bank invoices .................................................................................................................................................................................... — 64,398 — — Other assets.......................................................................................................................................................................................... 6,028 — — — Total assets pledged for own loan liabilities 405,199 87,909 409,996 393,405 The loan from CIBC Wood Gundy is based on requirements to continuously satisfy certain financial ratios and sets some restrictions on the possibilities for divi- dends from Tele2 AB.Tele2 AB expects to be able to satisfy these requirements. Pledged assets are also discussed in Note 34. Loans, including the short-term Group Parent Company component, fall due in the following years: 99-12-31 99-12-31 2000 174,502 116,000 2001 865,098 21,000 2002 931,925 — 2003 923,529 — 2004 1,967,646 — 2005–2009 42,961 — 2010–2014 25,777 — Total loans 4,931,438 137,000 66 NetCom Annual Repor t 99
    • Notes Financial leasing All assets related to financial leases signed since 1997 have been included in the consolidated accounts.Values for these assets and assets that have not been restated, that is, those pertaining to leases signed before January 1, 1997, are specified below. Group Book value assets Assets not booked Loan liability, financial leases 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Short-term component........................................................................................................................................................... 45,649 11,155 9,402 27,998 Long-term component............................................................................................................................................................. 165,936 128,866 107,971 98,777 Total loans for assets under financial leases 211,585 140,021 117,373 126,775 Group Loans pertaining to financial On-balance-sheet Off-balance-sheet leases expiring the following years: 31 Dec 99 31 Dec 99 2000 ................................................................................................................................................................................................................. 45,649 9,402 2001 ................................................................................................................................................................................................................. 39,411 9,402 2002 ................................................................................................................................................................................................................. 25,675 9,402 2003 ................................................................................................................................................................................................................. 17,279 9,402 2004 ................................................................................................................................................................................................................. 14,833 9,402 2005–2009............................................................................................................................................................................................... 42,961 43,977 2010–2014............................................................................................................................................................................................... 25,777 26,386 Total loans for assets under financial leases 211,585 117,373 Note 31 Other interest-bearing liabilities Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Other current interest-bearing liabilities: Levicom International ........................................................................................................................................................ 73,654 — 2 ,946 — MIC ........................................................................................................................................................................................................... — 74,997 — 74,997 Total other current interest-bearing liabilities 73,654 74,997 2,946 74,997 Other long-term interest-bearing liabilities: Levicom International ........................................................................................................................................................ 74,710 — 2,985 — Total other long-term interest-bearing liabilities 74 ,710 — 2,985 — Group Parent Company Debt, including the short-term component, falls due in the following years: 31 Dec 99 31 Dec 99 2000 ................................................................................................................................................................................................................. 73,654 2,946 2001 ................................................................................................................................................................................................................. 74,710 2,985 Total other interest-bearing liabilities 148,364 5,931 Note 32 Other current liabilities Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 VAT liability ............................................................................................................................................................................................. 118,016 65,032 588 — Tax deducted at source, personnel .......................................................................................................................... 20,016 22,653 275 235 Liability to SCD Finans AB .................................................................................................................................................. 18,641 18,419 — — Customer deposits ....................................................................................................................................................................... 6,317 6,949 — — Costs of programs and revenue on subscriptions, cable TV .................................................... 7,724 — — — Liabilities to customers, point system................................................................................................................... 3,667 — — — Other ............................................................................................................................................................................................................. 15,336 11,782 242 12 Total other current liabilities 189,717 124,835 1,105 247 NetCom Annual Repor t 99 67
    • Notes Note 33 Accrued expenses and prepaid revenues Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Accrued expenses related to personnel ......................................................................................................... 66,924 55,563 1,283 1,475 Accrued interest expense................................................................................................................................................. 43,270 75,327 1,852 3,149 Accrued selling expenses, company divestment..................................................................................... 12,845 — 12,845 — Accrued telephony expense to other telecom operators........................................................ 460,633 295,649 — — Accrued expense to dealers.......................................................................................................................................... 56,081 36,164 — — Accrued leasing costs and rent .................................................................................................................................. 109,383 46,042 — — Accrued costs of programs ............................................................................................................................................ — 1,915 — — Prepaid revenues .......................................................................................................................................................................... 350,979 266,243 — — Other ......................................................................................................................................................................................................... 132,215 132,677 8,906 5,437 Total accrued expenses and prepaid revenues 1,232,330 909,580 24,886 10,061 Note 34 Pledged assets Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Assets pledged for own liabilities: Chattel mortgages............................................................................................................................................................... 16,000 16,000 — — Shares in subsidiaries ....................................................................................................................................................... — — 330,552 317,476 Net assets in Group companies......................................................................................................................... 365,676 0 — — Materials and supplies ..................................................................................................................................................... 6,865 5,365 — — Receivables................................................................................................................................................................................... 10,630 2,146 79,444 75,929 Bank invoices ............................................................................................................................................................................. — 64,398 — — Other assets .................................................................................................................................................................................. 6,028 — — — Total assets pledged for own liabilities 405,199 87,909 409,996 393,405 Other pledged assets: Shares in subsidiaries for loans by subsidiaries .................................................................................. — — — 3,045,632 Bank invoices................................................................................................................................................................................. — — — 64,398 Total other assets pledged — — — 3,110,030 Total assets pledged 405,199 87,909 409,996 3,503,435 The data above show the book value of assets that have been pledged as The shares in the Group that have been pledged are reported in an security for external loans. NetCom has pledged its shares on Belmus BV amount corresponding to the book value of net assets that each subsidiary and receivables on Belmus BV as security for its own borrowing from represents in the consolidated balance sheet. Reported chattel mortgages Nordbanken. During the year, NetCom sold its shares in Tele2 AB to a totaling SEK 16 million (1998: SEK 16 million) are security for a loan from wholly owned subsidiary. Consequently, shares in Tele2 that NetCom had Armada. Materials, supplies and receivables totaling SEK 17 million (1998: pledged at December 31, 1998, were pledged by a wholly owned sub- SEK 7 million) are security for a bank overdraft facility for Datametrix sidiary instead at December 31, 1999.The shares are pledged as security Norway, and other assets pledged pertained to security for a bank over- for Tele2 AB’s loan from a syndicate led by CIBC Wood Gundy. draft facility for Ritabell. Note 35 Contingent liabilities and other commitments Contingent liabilities Group Parent Company 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Surety bonds benefiting Group companies.................................................................................................... — — 322,953 720,060 Total contingent liabilities — — 322,953 720,060 Fees contracted to be paid in the future for Group Parent Company operating leases are distributed as follows: 31 Dec 99 31 Dec 99 2000 269,485 175 2001 141,209 — 2002 101,708 — 2003 87,286 — 68 NetCom Annual Repor t 99
    • Notes Group Parent Company continuing... 31 Dec 99 31 Dec 99 2004 81,352 — 2005 or later 420,097 — Total fees contracted to be paid in the future 1,101,137 175 Fees for operating leases for the year 499,647 259 Note 36 Supplemental cash flow information Transactions attributable to investing and financing activi- tization of loans secured through financial leasing was SEK -15,954 thou- ties but not affecting cash are as follows. sand (1998: SEK -9,737 thousand). In addition to investing activities in cash flow, in 1999 the Parent Company In addition to investment reported in cash flow for the Parent Company, divested its shares in NetCom ASA in exchange for new shares in SEC in 1999 investments were also made in subsidiaries through the payment worth SEK 3,518,004 thousand. of SEK 1,134,943 in shareholder contribution to NetCom Luxembourg SA In addition to the reported investments in shares and financing activi- and SEK 1,460 thousand in shareholder contributions to Trade2 AB and an ties, in 1999 the Group also acquired shares in Levicom Cellular and issue of new shares to Comvik International AS for SEK 100,826 thousand. Levicom Broadband for an additional SEK 223,333 thousand in the Group, In addition to sales of shares in subsidiaries reported in cash flow, in SEK 8,939 thousand of which was in the Parent Company.The amounts 1999 the Parent Company divested its Tele2 AB subsidiary to the sub- refer to the portion of the purchase price settled by an obligation to the sidiary Tele2 Holding AB for SEK 1,133,236 thousand and Everyday purchaser which will be paid off according to a fixed schedule. Webguide AB to the group-company Stenblocket i Fruängen AB for SEK In addition to the investment and debt obligation reported in cash flow, 175 thousand. In 1998, the Parent Company divested the subsidiary investment and loans secured through financial leasing in the Group Comviq GSM AB to the subsidiary Tele2 AB (SEK 463,847 thousand) in totaled SEK 34,907 thousand (1998: SEK 118,391 thousand), and amor- addition to sales reported in cash flow. U.S. generally accepted accounting principles The consolidated accounts were prepared based on accounting principles The following is a description of the adjustments based on U.S. GAAP generally accepted in Sweden.These rules differ in certain respects from that affect the consolidated profit/loss for the year and shareholders’ equity. generally accepted accounting principles (GAAP) in the United States. Profit/loss for the year: Group Shareholders’ equity Group 1999 1998 1997 31 Dec 99 31 Dec 98 31 Dec 97 Profit/loss for the year based on Shareholders’ equity based on Swedish accounting principles 3,769,129 66,618 48,542 Swedish accounting principles 7,002,314 3,268,941 3,155,259 Adjustments to comply with U.S. GAAP: Adjustments to comply with U.S. GAAP: a) Capitalized start-up costs 48,953 41,696 52,979 a) Capitalized start-up costs – 274,955 – 322,677 – 365,778 b) Capitalized interest expense – 2,970 – 2,970 – 2,970 b) Capitalized interest expense 20,784 23,754 26,724 c) Transactions between companies c) Transactions between companies with the same owners 20,599 20,599 20,599 with the same owners – 71,643 – 92,242 – 112,841 d) Reporting associated companies 133,631 30,158 30,931 d) Reporting associated companies — – 133,631 – 174,165 e) Leasing contracts 2,603 2,614 3,599 e) Leasing contracts 8,816 6,213 3,599 f) Tangible assets: 28,847 36,697 826 f) Tangible assets: 20,230 – 8,617 – 45,314 g) Revenue recognition, prepaid cards –15,693 –12,135 – 4,052 g) Revenue recognition, prepaid cards – 31,880 – 16,187 – 4,052 h) Stock options 9,242 — — h) Stock options 9,242 — — i) Group accounting, acquisition analisys 1,574 — — i) Group accounting, acquisition analisys 1,574 — — j) Internal use software – 80,418 — — j) Internal use software – 80,418 — — Net adjustment 146,368 116,659 101,912 Net adjustment – 398,250 – 543,387 – 671,827 Tax effect of adjustments Tax effect of adjustments for U.S. GAAP – 43 – 20,838 – 16,736 for U.S. GAAP 99,738 99,781 120,619 Profit/loss for the year Shareholders’ equity based on U.S. GAAP 3,915,454 162,439 133,718 based on U.S. GAAP 6,703,802 2,825,335 2,604,051 Adjusted profit/loss per share for the year SEK 37.70 SEK 1.57 SEK 1.36 Weighted avg. no. of shares outstanding 103,850,246 103,598,394 98,061,358 Adjusted profit/loss per share for the year after full conversion SEK 37.70 SEK 1.56 SEK 1.40 Weighted avg. no. of shares outstanding after full conversion 103,850,246 103,850,246 103,433,579 NetCom Annual Repor t 99 69
    • Notes Official US GAAP Extract from the consolidated balance sheets: 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98 Balance Sheet Current assets ............................................................................................................................................................................. 2,618,060 2,111,880 2,618,060 2,111,880 Fixed assets ..................................................................................................................................................................................... 12,075,671 8,077,241 11,817,432 7,776,597 Total assets 14,693,731 10,189,121 14,435,492 9,888,477 Current liabilities ............................................................................................................................................................................. 2,460,502 2,014,848 2,492,382 2,031,035 Long-term liabilities...................................................................................................................................................................... 5,229,903 4,903,793 5,238,296 5,030,568 Minority interest .............................................................................................................................................................................. 1,012 1,539 1,012 1,539 Total liabilities 7,691,417 6,920,180 7,731,690 7,063,142 Shareholders’ equity.................................................................................................................................................................... 7,002,314 3,268,941 6,703,802 2,825,335 Explanation of current differences between e) Leasing contracts Swedish accounting principles and U.S. GAAP The Group has certain leasing transactions which have been treated as operating leases based on Swedish generally accepted accounting princi- U.S. generally accepted accounting principles ples. U.S. GAAP regards such contracts as financial leases. The consolidated accounts were prepared based on generally accepted accounting principles in Sweden.These rules differ in certain respects f) Tangible assets from U.S. GAAP. Certain overhead expenses that were capitalized have been expensed for The following is a description of the adjustments based on U.S. GAAP the adjustment, and estimated direct payroll expenses attributable to the that affect the consolidated profit/loss for fiscal 1997, 1998 and 1999 and installation of networks have been capitalized, in accordance with U.S. the Group’s shareholders’ equity at December 31, 1997, 1998 and 1999. GAAP. Differences between Swedish and U.S. accounting principles that are rele- vant to NetCom are also discussed below. g) Revenue recognition, prepaid cards The Group reports revenue from the sale of prepaid cards when the a) Capitalized start-up costs cards are sold to an independent dealer. Provisions are made for anticipat- The Group has entered as assets start-up costs attributable to the con- ed future costs. According to U.S. GAAP, revenue cannot be recognized struction of its networks to depreciate over the useful life of the net- until the telephony service is being used regularly by the end-customer, works. A significant proportion of these costs is attributable to overhead which means that profit/loss based on U.S. GAAP is reduced by the esti- incurred during the construction phase. U.S. GAAP requires such costs to mated net profit on prepaid cards that have been sold but not put into be expensed, so all start-up costs, which were capitalized have been use. expensed in the adjustment to U.S. GAAP. Depreciation and amortization were adjusted accordingly. At December 31, 1997, all start-up costs per- h) Stock options taining to fixed telephony in Tele2 AB had been fully amortized. Under U.S. GAAP, based on the terms of the stock options to the employ- ees, the amount of the liability for such stock options should be measured b) Capitalized interest expense each period based on the current price of the underlying shares of the The Group has not capitalized as assets interest expenses incurred for Company’s stock. According to Swedish GAAP, all options are valued financing fees for constructing certain fixed assets. According to U.S. using the Black-Scholes model. The Company applies U.S. APB Opinion 25 GAAP, such interest expenses are calculated using the interest rates when accounting for its stock options. applied on outstanding loans during the relevant period, are included in the acquisition value of the fixed assets and are subsequently depreciated i) Group accounting, acquisition analisys over the useful life of the assets. Fixed assets, depreciation and amortiza- Due to differences between Swedish and U.S. GAAP regarding the account- tion were adjusted accordingly. ing treatment of start-up costs, acquired net assets in Ritabell AS are lower under U.S. GAAP compared to Swedish GAAP. For this reason, for U.S. c) Transactions between companies with the same owners GAAP purposes, goodwill increased by the same amount. Amortization is In 1993 the Company acquired Tele2 and in 1994 Comviq from the adjusted accordingly. Industriförvaltings AB Kinnevik group.The transactions were reported based on the purchase method. Hence, the difference between the acquisi- j) Internal-use software tion value and the market value of net assets was reported as goodwill. Internal-use software is under U.S. GAAP accounted for in accordance U.S. GAAP requires that the acquisition of operations from companies with American Institute of Certified Public Accountants Statement of under joint control (according to U.S. GAAP rules) is reported in a man- Position (SOP) 98-1, “Internal Use Software”. SOP 98-1 provides guidance ner similar to the pooling-of-interests method. Accordingly, all revaluations on reporting software developed in-house for use by the company itself. of properties, plant, equipment and other assets as well as goodwill arising at As the Company has during the development stage externally marketed the time of establishment are eliminated in consolidated accounts based on its internal-use software, the criterias for SOP 98-1 are not met. SFAS 86, U.S. GAAP. Depreciation and amortization were adjusted accordingly. “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed” gives further guidance. According to SFAS 86, d) Reporting associated companies development costs for externally marketed software products, must be In 1993, the Company acquired shares in the Norwegian associated com- expensed until “technological feasability” has been established.Thereafter, pany NetCom ASA from a company in the Industriförvaltnings AB all software production costs must be capitalized until commercial sales Kinnevik group.The investment was reported based on equity accounting. commence. Swedish GAAP lacks specific guidance in this area. For U.S. In conjunction with the investment, a surplus was reported. For U.S. GAAP purposes, an adjustment has been recorded to reflect the differ- GAAP, this surplus has been reversed, because it resulted from a transac- ence. Amortization is adjusted accordingly. tion between companies with the same owners. Amortization was adjust- ed accordingly. During 1999 NetCom sold its shares whereby all opening balances adjustments have been reversed. 70 NetCom Annual Repor t 99
    • Notes Additional information for U.S. GAAP Operating activities, Group 1999 1998 1997 Net income 3,769,129 66,618 48,542 Change of accounting principle According to Swedish GAAP, a change in accounting principles is recorded Adjustments to reconcile net via equity. U.S. GAAP requires a change in accounting principles to be income to net cash provided recorded via the income statement, however corrections of errors are by operating activities: recorded via equity.The Company has restated its equity under Swedish Depreciation and amortization 955,245 704,604 608,348 GAAP, due to a change in principles, regarding accounting for changes in Minority interest – 2,363 – 270 — foreign currency-rates. Since this restatement under U.S. GAAP reflects a Gain/loss of associated companies – 49,725 9,929 119,282 correction of an error, no adjustment is needed. Deferred income taxes 411,737 165,581 – 85,663 Net profit/loss per share Capital leases – 5,980 – 9,737 – 1,204 Net profit/loss per share on full conversion excludes interest expense, Unpaid interest – 32,424 17,929 – 36,209 adjusted for tax, on the outstanding convertible debentures as specified Sales of shares in below. associated companies – 3,227,889 — — Other – 5,635 839 – 2,941 1999 1998 1997 1,812,095 955,493 650,155 Profit/Loss for the year 3,915,454 162,439 133,718 No. of shares, weighted avg. 103,850,246 103,598,394 98,061,358 Advertising expenses Profit/loss per share SEK 37.70 SEK 1.57 SEK 1.36 Total advertising expenses for the year were SEK 168 million (1998: SEK 209 million). Profit for the year 3,915,454 162,439 133,718 Pensions Reversal: interest for the year on NetCom accounts for the valuation and disclosure of pension obligations the outstanding convertible debenture — — 14,742 under SFAS No. 87,“Employer’s Accounting for Pensions,” and SFAS No. 132, Reversal: 28% deferred tax on “Employers’ Disclosures about pensions and other post retirement benefits”. interest reversed above — — -4,128 The Group provides pension benefits for all employees in Sweden through general pension plans.These Swedish pension plans are defined benefit plans Adjusted profit/loss for the but are insured with a third party. In Denmark, pension benefits are provided year after full conversion 3,915,454 162,439 144,332 based on a defined contribution pension plan. Pension plans in Norway are No. of shares outstanding after defined benefit plans, which require a U.S. GAAP valuation. However, the full conversion, weighted avg. 103,850,246 103,850,246 103,433,579 adjustment is not material and thus no adjustment has been made. The Group’s pension costs are reported in the note “Costs of Personnel.” Profit/loss per share after For the year ended December 31, 1999, SEK 1,2 million (SEK 1,4 million in full conversion SEK 37.70 SEK 1.56 SEK 1.40 1998; 1997 SEK 0,5 million) was attributable to defined benefit pension plans in Norway and SEK 0,8 million (SEK 0.7 million in 1998) was attributable to defined contribution pension plans in Denmark. Deferred tax The following shows the estimated tax effect, related to temporary differ- Fair value ences, that is reported as deferred tax benefit in the reconciliation of SFAS 107, "Disclosure about Fair Values of Financial Instruments", requires accounts with U.S. GAAP. the disclosure of estimated fair values for all financial instruments for which it is practicable to estimate fair value. Financial instruments of the Group including cash and cash equivalents, short-term investments, receivables and Group payables, prepaid revenues and short-term liabilities to financial institutions are deemed to approximate fair value due to short maturity.The carrying 1999 1998 amount of the Group’s long-term liabilities to financial institutions and Deferred tax liability/benefit based options issued are also deemed to approximate their fair values. on Swedish GAAP – 139,245 232,715 Adjustments to comply with U.S. GAAP: Comprehensive income U.S. GAAP adjustments 99,738 99,781 The Company accounts for Comprehensive income in accordance with SFAS No. 130 “Reporting Comprehensive Income”. Comprehensive income Total deferred tax liability/benefit includes net income and foreign currency translation adjustments. based on U.S. GAAP – 39,507 332,496 1999 1998 1997 Cash flows The accompanying cash flow statements are prepared in a format consis- Comprehensive Income tent with SFAS No. 95, “Statement of Cash Flows,” except that cash flow Net income based on U.S. GAAP 3,915,454 162,439 133,718 provided from operating activities is reconciled from operating income, Exchange rate differences not net income, as is required under U.S. GAAP. based on U.S. GAAP – 73,475 21,183 – 4,783 These differences between the Swedish accounts and U.S. GAAP are Comprehensive Income described in the table below: based on U.S. GAAP 3,841,979 183,622 128,935 Cumulative Comprehensive Income Cumulative Comprehensive Income based on U.S. GAAP, Jan 1 52,545 31,362 36,145 Exchange rate differences based on U.S. GAAP – 73,475 21,183 – 4,783 Cumulative Comprehensive Income based on U.S. GAAP, Dec 31 – 20,930 52,545 31,362 NetCom Annual Repor t 99 71
    • Notes Effects of new recommendations The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). SFAS 133 will be applicable to NetCom as from January 1, 2001. SFAS 133 requires that all derivative instruments be record- ed on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether or not a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management antici- pates that, due to its limited use of derivative instruments, the adoption of SFAS 133 will not have a significant effect on NetCom’s results of operations or its financial position based on U.S. GAAP. Stockholm, February 21, 2000 Jan Hugo Stenbeck Chairman Lars-Johan Jarnheimer Marc Beuls President and CEO Vigo Carlund Sven Hagströmer Håkan Ledin Stig Nordin Lars Wohlin Audit Report To the Annual General Meeting of NetCom AB (publ) Company registration number 556410-8917 We have examined the annual accounts, the consolidated accounts and the financial records as well as the administration of the Board of Directors and the president of NetCom AB for 1999. It is the Board of Directors and the president who are responsib- le for the accounting records and the administration. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. The examination was conducted in accordance with generally-accepted auditing standards in Sweden.This means that we have planned and carried out the audit to assure ourselves that to a reasonable extent the annual accounts and the consolidated accounts do not contain any significant errors. An audit includes examining a selection of the supporting documents for amounts and other information in the accounting records. An audit also covers the supporting documents for the amounts and other information in the accounting records. An audit also includes examining the accounting principles and the Board of Directors’ and the president’s application of them to assess the collective information in the annual accounts and the consolidated accounts. As support for our statement on discharge of liability, we have examined significant decisions, measures and conditions in the Company to be able to assess if any Board Member or the president has in any other way acted contrary to the Companies Act, the Annual Accounts Act or the Articles of Association.We consider that our audit gives us reasonable ground for our state- ments below. The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and thus provide a true and fair view of the Company’s and the Group’s earnings and financial position in accordance with generally accepted accounting principles in Sweden. We recommend that the Annual General Meeting adopt the Income Statement and the Balance Sheet of the Parent Company and the Group, distribute the profit in the Parent Company in accordance with the proposal in the Directors’ Report and discharge the Board of Directors and the president from liability for the financial year. Stockholm, February 23, 2000 Pål Wingren Hans Karlsson Authorized Public Accountant Authorized Public Accountant 72 NetCom Annual Repor t 99
    • Notes Millennium Celebrations in Stockholm’s Old Town people poured into the Film, music, light, explosions, and bonfires recreated 700 000 Skeppsbron area of Stockholm’s Old Town, Swedish history right where it had happened. As the last performance ended on New Year’s Eve after- crowded the roads around Slussen and the ferry docks at noon, with the entire Swedish royal family in attendance, Stadsgården, perched on Katarinavägen and Norrbro, preparations for the gigantic New Year’s celebrations and milled around Kungsträdgården and the Grand began. At 9:00 PM, the fires were lit. Millennium celeb- Hotel. rations around the world were projected on giant TV The fireworks display on New Year’s Eve was seen by screens. From 11 PM, the water was illuminated, and one million people in Stockholm. artists began performing on the floating stage beside the The display was the climax of five days of festivities, schooner af Chapman, which now serves as a youth called Årtusendets fest (The Party of the Millennium), hostel. ABBA’s Björn and Benny were honored by disting- which turned out to be Sweden’s biggest festival ever. uished Swedish performers such as Tommy Körberg, The promoters were Invik & Co, Industriförvaltnings Helene Sjöholm, and Anders and Karin Glenmark. AB Kinnevik, NetCom, and Modern Times Group. The And it was there that the biggest reunion of all the mil- official invitation came from the newspaper Metro. lennium parties around the world took place this historic The celebration began on December 27, with Historical night: The Swedish rock group Europe retook the stage Days in the Old Town, and continued through New and performed its notably fitting 1980s hit The Final Year’s. Hundreds of thousands of people enjoyed mar- Countdown. kets, handicrafts, sailing, entertainment and cultural King Carl XVI Gustaf, with his family, came out onto events, games, gambling and amusements, and samples the Logårds steps of the castle and toasted in the new mil- of food and drink. lennium. They rediscovered how it had been in the Old Town Then one million celebrants saw the biggest, most over the centuries. magnificent and powerful fireworks display ever seen in Above all, they eagerly followed the millennium celeb- Stockholm or this part of the world. rations’ most popular performance: Historiens ljus (Light On TV3, those who wanted to could continue to fol- of History), with the popular Swedish author Herman low New Year’s celebrations in time zone after time zone, Lindqvist as guide. Some 25,000 people came to the pre- in a marathon 26-hour broadcast. miere, and 50,000 the next day. On the following two The millennium celebration turned out to be the days, 80,000 people attended, although most of the popular festival it was intended to be, but with many audience could experience only a fraction of this multi- more participants than anyone dared to expect. media extravaganza that quickly transported spectators And none of this would have been possible without the from the dawn of Swedish history to modern day. 2,000 millennium hosts and other volunteers who helped The main stages were at Norrström and Norrbro, but with everything – from security to fire safety, acting and the Royal Palace, Riksdagen (House of Parliament), and even selling champagne. the Opera served as imposing backdrops playing them- selves. NetCom Annual Repor t 99 73
    • Comviq GSM 4T Solutions AB Société Européenne de Communication P.O. Box 62 Västertorpsvägen 135 75 Route de Longwy SE-164 94 Kista SE-129 44 Hägersten L-8080 Bertrange Street address: Borgarfjordsgatan 16 Phone: +46 8 522 003 00 G-D de Luxembourg Phone: +46 8 562 640 00 (vxl) Fax: +46 8 522 003 90 Phone: +352 45 95 451 +46 200 22 20 40 (Customer service) Fax: +352 45 95 51 Fax: +46 586-534 44 Interloop AB P.O. Box 62 Tele2 AB Datametrix AB SE-164 94 Kista P.O. Box 62 P.O. Box 79 Street address: Borgarfjordsgatan 16 SE-164 94 Kista SE-164 94 Kista Phone: +46 8 562 623 50 Street address: Borgarfjordsgatan 16 Street address: Borgarfjordsgatan 16 Fax: +46 8 562 642 00 Phone: 08-562 640 00 Phone: +46 8 522 002 00 Customer service: Fax: +46 8 522 002 90 Kabelvision +46 200 24 24 24 (Internet) P.O. Box 62 +46 200 25 25 25 (fast telefoni) Datametrix AS SE-164 94 Kista +46 200 22 40 50 (mobiltelefoni) Grenseveien 95 Street address: Borgarfjordsgatan 16 Fax: +46 8 562 642 00 N-0663 Oslo Phone: +46 8 562 643 52 (vxl) Norge +46 200 22 55 00 (Customer service) Tele2 Danmark A/S Phone: +47 23 03 59 00 Fax: +46 586 548 40 Gammel Køge Landevej 55-57 Fax: +47 23 03 59 01 DK-2500 Valby Optimal Telecom AB Danmark Datametrix A/S P.O. Box 62 Phone: +45 77 30 10 01 Gammel Køge Landevej 55-57 SE-164 94 Kista Fax: +45 77 30 10 00 DK-2500 Valby Street address: Borgarfjordsgatan 16 Danmark Phone: +46 8 562 625 00 (vxl) Tele2 Norge AS Phone: +45 77 30 10 60 +46 200 21 00 21 (Customer service) Ulvenveien 89 B Fax: +45 77 30 10 61 Fax: 08-562 625 25 N-0581 Oslo Norge Datametrix Oy Ritabell AS Phone: +47 21 31 90 00 P.O. Box 5 Jõe Street 2 Fax: +47 21 31 91 00 Virnatie 5A Tallinn 10151 FIN-01301 Vanda Estland Finland Phone: +372 6 205 255 Phone: +358 9 47 64 82 00 Fax: +372 6 205 206 Fax: +358 9 47 64 82 10 Graphic design: Solberg Kommunikation. Printed by: On Paper. NETCOM AB Skeppsbron 18 P.O. Box 2094, SE-103 13 Stockholm Phone +46 8 562 000 60 Fax +46 8 562 000 40 E-mail info@netcom.se www.netcom.se Reg.nr: 556410-8917