Annual Report 2002
Contents                                                                                                                  ...
Significant events in 2002

• Profit after financial items rose by SEK 2,740 million to SEK 796 million.

• Cash flow afte...
Jan Hugo Stenbeck
    1942-2002




2   TELE2 ANNUAL REPORT 2002
Tele2 AB


Dear Shareholder,

Jan Hugo Stenbeck was Chairman of the Board of Directors of Tele2 AB for nine years from
199...
Jan Hugo Stenbeck

    From Kinnevik’s roots in the traditional steel and forestry industries, Jan created a group of
    ...
Jan Hugo Stenbeck

place in the Guinness Book of World Records, but also offered a unique showcase for group
brands such a...
Tele2 in brief

                               Mobile telephony                                            Fixed telephony...
16.8 million customers in 22 countries

Tele2 AB, formed in 1993, is the leading alter-      and billing; C3, which is act...
MVNO                                                      iHear
    MVNO (Mobile Virtual Network Operator) is a concept   ...
Anders Igel                      , President of TeliaSonera   Victory Challenge
“I think Tele2 is good at marketing, adopt...
Tele2 is a unique company

Tele2 is the only telecom company that has       more than SEK 2.3 billion. Another key        ...
“Tele2 is the only
                                                                                               telecom ...
Market – continuing growth

The European telecom market is charac-        Continuing growth                              a...
by the former monopolies discriminates         leases an existing network and thus avoids        with Telenor. Tele2 is al...
Business concept

Based on customers’ needs, Tele2 shall through
simple, customer-friendly sevices and the lowest
price ha...
Strength factors:                                                            Strategies

• profitability                  ...
Business model cont.


mulated expertise. Constant improvement                     The rapid addition of new customers in ...
Products and services

Tele2 offers fixed telephony, mobile telephony, Internet services, and data network services,

cabl...
Mobile telephony                               make calls outside Sweden using a pre-
                                    ...
Cable-TV
Under the Kabelvision brand, Tele2 offers
one of the market’s best basic packages in
Sweden at an attractive pric...
Market position
                                       among alternative
                Service         Launch    operato...
A taste for action
                                               Tele2 – in pole position




Norway                     ...
Mobile telephony                                 Tele2 operates a Wireless Local Loop for     Datametrix
2002 was a year o...
Market position
                                                                                                          ...
Tele2 fångar de stora fiskarna
                               Thrives on competition
                              Tele2 –...
Increasingly comprehensive range               Deregulation of fixed telephony                  In early 2002, Tele2 becam...
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Annual Report 2002

  1. 1. Annual Report 2002
  2. 2. Contents A key factor underlying Tele2’s success is that Significant events ........................................................................ 1 Jan Hugo Stenbeck ................................................................... 2 we communicate Tele2 in brief ..................................................................................... 6 with our customers President’s message ............................................................. 10 in a way that appeals Market – continuing growth ......................................... 12 Business concept and business model ........... 14 to them. Services and products ........................................................ 17 page 10 Nordic ................................................................................................... 20 Eastern Europe and Russia .......................................... 23 Central Europe ............................................................................ 26 Southern Europe ....................................................................... 28 Luxembourg .................................................................................... 30 Branded products & services ...................................... 31 Report of the Directors ...................................................... 32 A central market Income statement ................................................................... 37 driving force is that Balance sheet .............................................................................. 38 Cash-flow statement ............................................................. 40 customers are Change in shareholders’ equity ................................ 41 increasingly seeking Notes .................................................................................................... 42 Audit report .................................................................................... 84 total solutions. Personnel and environment ......................................... 85 page 12 Board of Directors ................................................................... 86 Senior executives ..................................................................... 87 Tele2 share ...................................................................................... 88 Addresses .......................................................................................... 90 History ................................................................................................ 92 Definitions ....................................................................................... 93 Annual General Meeting Tele2´s business The Annual General Meeting will be held at 1:30 pm on Thursday, May 15, 2003, at Gamla Stans Bryggeri, concept is to offer Tullhus 2 at Skeppsbron in Stockholm. simple, customer- Shareholders who wish to attend the Annual General friendly services at Meeting must be entered in the register of shareholders the lowest price. maintained by VPC AB (the Securities Register page 14 Center) for the Annual General Meeting (registration must be completed by Monday May 5, 2003). and notify the Company of their intention to attend no later than 1:00 pm on Friday, May 9, 2003. Notification can be made by phone to +46 33 724 12 67, or in writing to: Tele2 AB, Box 2094, SE-103 13 Stockholm, Sweden label the envelope “Annual General Meeting” or by The rapid growth in e-mailing to: bolagsstamma03@tele2.com Southern Europe is Financial information Quarterly report, January–March April 23 driven by the intro- Annual General Meeting May 15 duction of local pre- Quarterly report, January–June August 5 Quarterly report, January–September October 21 selection. page 28
  3. 3. Significant events in 2002 • Profit after financial items rose by SEK 2,740 million to SEK 796 million. • Cash flow after investments increased by SEK 2,903 million to SEK 1,849 million. • Operating revenue jumped 25%, by SEK 6,197 m to SEK 31,282 m. • EBITDA advanced to SEK 5,127 m, compared with SEK 1,698 m in 2001. + 25% • A positive EBITDA was reported for fixed telephony in Central and Southern Europe, SEK 4 million compared with a loss of SEK 1,916 m in 2001. • 16.8 million customers at year-end, an increase of 12%. Significant events at the beginning of 2003 + 12% • Tele2 acquires the British company Alpha Telecom. Financial summary MSEK 2002 2001 Operating revenue 31,282 25,085 Operating profit/loss before depreciation, EBITDA 5,127 1,698 Operating profit/loss after depreciation, EBIT 1,530 –1,356 Operating profit/loss after financial items, EBT 796 –1,944 Profit for the year 223 392 Earnings per share, after dilution 1.51 2.70 Average number of employees 3,115 2,172
  4. 4. Jan Hugo Stenbeck 1942-2002 2 TELE2 ANNUAL REPORT 2002
  5. 5. Tele2 AB Dear Shareholder, Jan Hugo Stenbeck was Chairman of the Board of Directors of Tele2 AB for nine years from 1993 to 2002. He was also Chairman of Industriförvaltnings AB Kinnevik, Invik & Co. AB, Modern Times Group MTG AB, Millicom International Cellular S.A., Metro International S.A. and Transcom WorldWide S.A. Jan passed away on 19 August 2002. He possessed a seldom-rivaled energy, panache, ambi- tion and sense of fun. His dynamism, curiosity and restlessness, combined with a charm, determination and healthy fear, drove him to create one of Europe’s most innovative and successful group of companies. He would not compromise on quality or efficiency and never ceased to surprise by breaking with convention. His insight – the ability to grasp the key elements of an issue and articulate his views clearly - was his greatest attribute. Loyalty was the quality that he valued most in others. Born in Stockholm in 1942, Jan graduated in Law from Uppsala University in 1968 and with an MBA from Harvard Business School in 1970. He then joined US investment bank Morgan Stanley and rose to become a Vice President in the Bank’s Corporate Finance depart- ment. He became a member of the Board of Directors of Industriförvaltnings AB Kinnevik in 1971 and became Chairman in 1993, taking over at the helm of the Group that his father, the prominent lawyer Hugo Stenbeck, and the Klingspor and von Horn families had built into one of Sweden’s largest industrial investment companies. With uncanny foresight, Jan built a multinational information empire from this industrial foundation and transformed Kinnevik into a holding company for new telecommunications, media and service businesses whose brands are now household names not just in his native Sweden but a large number of markets around the world. As one of the leading entrepreneurs and visionaries of his generation, he started hundreds of companies in his lifetime.They ranged from a college sweatshirt business established in 1963 with 10,000 customers and less than US$1 million in annual sales to Europe’s leading alternative telecommunications provider with over 16.8 million customers and US$3.7 bil- lion in annual sales. All the businesses share several common features – they all break monopolies in order to provide people with choice, grow sales aggressively, are highly com- petitive businesses with low cost structures, and they all aspire to be “best in class”. 3
  6. 6. Jan Hugo Stenbeck From Kinnevik’s roots in the traditional steel and forestry industries, Jan created a group of companies that embraced new technologies and encouraged a competitive environment in the Nordic region and then internationally. As a pioneer of mobile telephony in the early 1980s, Jan formed a joint venture with British defense company Racal to acquire the UK’s second mobile phone license. Racal-Millicom evolved into the US$122 billion global telecommunications giant,Vodafone. Jan also acquired one of the first mobile telephony licenses in the United States and this model was repeated around the world. Millicom and Tele2 today hold fixed line or mobile telephony licenses in 37 countries – from Estonia to Sierra Leone, Bolivia to Russia, and Portugal to Laos – and have more than 20 million sub- scribers around the world. In similar fashion, Jan introduced the first commercial television channel,TV3, to Scandinavia in 1987 by broadcasting commercial television into Scandinavia from London via the Astra satellite in Luxembourg.The same approach enabled Sky Television to launch in the UK. TV3 is now the largest pan-Nordic television channel and the Viasat satellite TV platform broad- casts 36 channels to nine countries, which are watched in 45 million homes. The most recent project to achieve global scale and reflect the Group ambition is Metro International, the free newspaper group. Again challenging local market monopolies and established media in cities from Boston to Barcelona, Stockholm to Santiago, and Holland to Hong Kong, Metro now reaches over 12 million readers and is the world’s largest news- paper outside Japan.The company’s advertising revenues have grown at a compound annual rate of 47% since the launch of the first edition in Stockholm in 1995. All of these companies continue to shape and adapt successfully to new developments as third generation mobile telephony and digital multi-channel television become realities, and as exciting new markets in Eastern Europe and Asia offer significant new opportunities. Kinnevik has generated a compound annual average rate of return since 1976 of 13%, with the result that one dollar invested in Kinnevik in 1976 would be worth over US$25 today. The Stenbeck Group of publicly listed companies had a combined market capitalization of US$6 billion in February 2003 and employed more than 25,000 people in more than 50 countries around the world. In typical style, the Stenbeck group of companies, combined established tradition with ground breaking originality by welcoming in the new millennium with a spectacular fireworks and multi-media display in Stockholm’s Old Town on New Year’s eve.The scale and complexity of this event not only mesmerized the record breaking crowd of 700,000 people and won its 4 TELE2 ANNUAL REPORT 2002
  7. 7. Jan Hugo Stenbeck place in the Guinness Book of World Records, but also offered a unique showcase for group brands such as Comviq,TV3 and Metro.The event perfectly illustrated Jan’s unusual combin- ation of creative flair and intricate planning. On the day after he passed away and only a few months before his 60th birthday, one of Jan’s greatest dreams was realized when the second Victory Challenge yacht was launched in Auckland, New Zealand. From the time that he had acquired the former committee boat of the New York Yacht Club, Jan had nurtured a dream to compete for one of the sporting world’s oldest and most coveted trophies – The America’s Cup.The Victory Challenge syndi- cate brought together leading match race sailors from the Nordic countries in the first challenge by a Nordic crew for twelve years. The challenge exemplified Jan’s approach, as he acquired one of the yachts used by Team New Zealand to win the Cup in 2000, then recruited and motivated world class boat design- ers, builders, and sailors, forged a team, and pushed each member to the limits of their potential, whilst maintaining a strict control on cost.This was an environment in which he thrived – high adrenaline competition, pitting the Nordic team against the world’s best. Every detail counted as seconds decided between success and failure. Victory Challenge won eleven races, including two victories over the New York Yacht Club, reaching the quarterfinals of the Louis Vuitton Cup and becoming the most successful Nordic entry ever.The Challenge generated unparalleled media airtime for its group sponsors, including live television cover- age in Sweden, Norway, Denmark, Switzerland, France, Italy, the United Kingdom, the United States and Canada. Despite, and perhaps because, of all the achievements above, Jan remained a very private and modest man. “Tell them that I am only a Basett hound breeder” he would reply to the end- less requests for interviews. As Jan always said, “if you can’t choose, you shouldn’t com- plain”. He led a unique life and is greatly missed. His legacy is an opportunity to build on his success and your Board is firmly committed to fulfilling this responsibility. On behalf of the shareholders, customers, employees and business partners, the Board of Directors wishes to express its gratitude for the enormous contribution of Jan Hugo Stenbeck to the development of Tele2 and the other companies, which he founded and in which he engaged. Stockholm, 27th February 2003 Tele2 AB The Board of Directors 5
  8. 8. Tele2 in brief Mobile telephony Fixed telephony and Internet Nordic: Sweden, Norway, Denmark. Nordic: Sweden, Norway, Denmark, Finland. Geographic markets: Eastern Europe Eastern Europe and Russia: Estonia, Latvia, Lithuania, Russia. and Russia: Estonia, Poland, Czech Republic. Central Europe: Switzerland, the Netherlands, Austria. Central Europe: Germany, the Netherlands, Switzerland, Austria, UK. Southern Europe: — Southern Europe: France, Italy, Spain, Portugal. Luxembourg: Liechtenstein, Luxembourg. Luxembourg: Liechtenstein, Luxembourg, Belgium. 12 countries 19 countries Percentage of net sales: 30 % 68% Number of customers: Nordic: 3 221 000 Nordic: 2 822 000 Eastern Europe and Russia: 1 366 000 Eastern Europe and Russia: 144 000 Central Europe: 271 000 Central Europe: 3 316 000 Southern Europe: — Southern Europe: 5 129 000 Luxembourg: 181 000 Luxembourg: 41 000 6 TELE2 ANNUAL REPORT 2002 5.0 11.4 million million
  9. 9. 16.8 million customers in 22 countries Tele2 AB, formed in 1993, is the leading alter- and billing; C3, which is active native pan-European telecommunications com- in prepaid calling cards for pany offering fixed and mobile telephony, as well fixed telephony; and as data network and Internet services, under the Optimal Telecom, which brands Tele2, Tango and Comviq to more than offers households low price 16.8 million customers in 22 countries. Tele2 guarantees for telephony services. The Group operates Datametrix, which specializes in sys- also offers cable-TV services and jointly owns the tems integration; 3C Communications, which Internet portal Everyday.com with MTG. Tele2 operates Internet payments, credit card trans- AB’s share is listed on Stockholmsbörsen actions and public pay telephones; Transac, which (Stockholm Exchange) under TEL2A and TEL2B offers data processing of credit card transactions and on Nasdaq under TLTOA and TLTOB. 7
  10. 10. MVNO iHear MVNO (Mobile Virtual Network Operator) is a concept iHear is a cordless digital that makes it possible for Tele2 to offer its customers telephone equipped with mobile telephony without needing to invest in its own a calling-router. mobile network. Tele2 buys the right to handle incom- ing and outgoing mobile traffic. As an MVNO, Tele2 has its own SIM cards, bills its customers directly and develops its own services. As a result, customers gain access to Tele2’s services and lower rates. MVNO offers major growth potential for Tele2 in countries in which it has a large customer base in fixed telephony, but lacks its own infrastructure. Transcom Flexible solutions Transcom is a pan-European partner that handles Tele2’s corporate culture is marked by flexibility and Tele2’s customer relations. Transcom serves as Tele2’s adaptability in reacting to changes in customer customer service and handles all of Tele2’s ongoing requirements and other market conditions – while customers matters. focusing constantly on customer demand for attrac- tive services and the lowest price. 8 TELE2 ANNUAL REPORT 2002
  11. 11. Anders Igel , President of TeliaSonera Victory Challenge “I think Tele2 is good at marketing, adopts a com- Tele2 sponsored Victory Challenge – the Swedish mercial approach and has an ability to get things done. challenger for the America´s Cup in 2003. Victory We’ve got a good deal to learn from them.” Challenge went all the way to the quarterfinals outside Auckland in New Zealand. Tele2 is currently active in Affärsvärlden, No. 3, 2003 22 countries and the exposure provided by the sailing contests was a very effective way of strengthening the brand among existing and new customers. Network Management GSM licenses in Russia To provide 100% availability in the networks, they are monitored 24 hours a day, 365 days a year. This Tele2 now has GSM licenses in all eleven of its oper- ensures that our customers can communicate with as ations in Russia. Preparations for the GSM network few interruptions as possible. build-out are well advanced and general agreements for delivery of GSM infrastructure have been reached with suppliers. 9
  12. 12. Tele2 is a unique company Tele2 is the only telecom company that has more than SEK 2.3 billion. Another key Our fixed network companies are also a pan-European market in fixed network benchmark of our solid financial base is becoming mobile companies in pace with telephony. As the leading alternative tele- that net debt fell by SEK 1.6 billion dur- deregulation. We’re focusing on the MVNO com company in Europe, we can state with ing the year and now amounts to SEK 7.7 concept, which means that we buy rights satisfaction that our subsidiaries in country billion. to handle incoming and outgoing mobile after country report positive operating profit This is a solid platform for continuing traffic from an established mobile opera- before depreciation about three years after operations. tor. As an MVNO, we issue our own SIM start-up. The question posed for most telecom cards, invoice customers directly and The image of Tele2 as primarily a Swedish companies today is: “Are there sufficient develop proprietary services. For the cus- or Nordic company is increasingly inaccur- funds?” The question I’m faced with is a tomer, the difference between a subscrip- ate. Each of our subsidiaries in France, totally different one: “What will we do with tion with Tele2 as the MVNO or having a Italy and the Netherlands have more fixed our funds?” The answer is easy to give: subscription with the operator who owns network customers than Tele2 in Sweden. We will continue to be a growth compa- the infrastructure is merely Tele2’s lower Tele2 is a unique telecom company ny and win market share in markets in rates and services. Being a Service Partner since we are not burdened by major invest- which we are present. The exciting feature (SP) is less attractive for Tele2, since this ments requiring write-offs. Tele2 reported is that we can personally set the pace with- does not permit the same type of customer a positive bottom line in 2002 despite out viewing financial resources as a bottle- contact. write-offs for our 3G venture in Norway. neck. Our efforts to develop fixed network cus- Tele2’s profit before and after deprecia- Over a number of years I’ve stated that tomers and transform them into mobile tion/amortization shows a much smaller we’ve got our fingers in the cookie jar. By customers is an expression of our cross- difference than other telecom companies. that I mean we are as close as possible to selling strategy. Our large customer base is Focusing on markets and customers our customers. We can see clearly how this being offered an increasing number of ser- instead of on costly investments in tech- approach works in Estonia, Latvia and vices, which means lower costs for one nology was the basic philosophy of Tele2’s Lithuania, countries in which we are high- “new” customer. founder Jan Stenbeck from the very begin- ly successful. I’m convinced that these Through MVNO´s, Tele2 is now trans- ning. Jan Stenbeck’s passing away in positive lessons can act as an excellent forming part of its large stock of fixed net- August 2002 was of course a profound loss guide as we increase the pace in our work customers in country after country for Tele2, but the founder’s basic ideas Russian operations. into Tele2 mobile customers. Mobile cus- remain intact. Tele2 is now working active- Tele2 started its operations in Sweden. tomers accounted for the largest percent- ly to develop these basic concepts through- Operations there are wide-ranging and age of the increase in customers in 2002. out Europe. highly important. This applies not least to Tele2 returned its Norwegian UMTS Tele2 now has a solid financial base. Comviq, which celebrated its tenth anni- license during the year, opting instead to The fact that the company began to report versary in 2002, and reported 3 million sign an MVNO deal with Telenor. a profit in 2002 is, of course, significant, mobile customers. Two million of these are European telecom deregulation is far but perhaps what is even more impressive prepaid customers. Comviq’s mobile tele- from complete, but the EU and the various is that cash flow during the year was boost- phony is based on our core values. Our aim national supervisory authorities are now ed by almost SEK 3 billion after invest- is always to give customers minimum worried by the threat that has emerged in ments. The company’s disposable liquid rates, while simultaneously developing a number of countries, namely, that mar- funds, including unutilized overdraft facil- concepts and services. ket newcomers are disappearing so that ities, amounted at year-end to slightly only the former monopolies remain. Since “Tele2 is the world’s fourth fastest growing telecom/IT company…” Business Week, June 19, 2002 10 T E L E 2 A N N U A L R E P O R T 2002
  13. 13. “Tele2 is the only telecom company with a pan-European market in fixed telephony.” Tele2 is one of the few profitable European point remains the same as in the past. We Communication is fun, and fun shouldn’t telecom operators, our operations attract gain a major advantage from expanding our cost too much. substantial positive interest from the EU 3G network in Sweden in cooperation with By rolling out Tele2’s concept across and national regulatory authorities. As the Telia. Our 3G operations will most likely be Europe and taking our experience with us sole alternative pan-European telecom profitable earlier than in any other from previously deregulated markets, we operator, we are currently one of the few European country. Our plan to commence are gaining a profitable customer base in examples of the positive effects of dereg- commercial 3G operations at the end of country after country. ulation for companies and consumers. 2003 remains in place. But for consumers, But there’s no shortage of challenges. Competition must continue in order to voice communications, SMS and MMS will My colleagues and I continue to focus on ensure consumer value. This means that remain the most important features. offering additional services to our enor- the supervisory authorities have an interest Subsequently, long-term 3G factors will mous customer base. This is a guarantee in maintaining competition. I definitely impact positively on earnings. But also in for continued growth and increased prof- feel that this represents a significant guar- this case I believe that our close-to-the- itability in the sprit of a small company. antee against national protection of the customer work approach will offer advan- former monopolies regaining the upper tages. Our dialogue with customers is filled Stockholm, February 2003 hand. But there are definitely countries in with respect and interest in the customer’s which one would wish for greater pressure requirements. Not least, we are following for change. This applies primarily to with great interest the use of mobile tele- Germany, but even in France this would be phony among young women, whom to date Lars-Johan Jarnheimer very desirable. have been major trendsetters in this area. UMTS (3G) continues to be a topical A key factor underlying Tele2’s success subject. I never expected rapid 3G devel- is that we communicate with our cus- opment and therefore my message on this tomers in a way that appeals to them. 11
  14. 14. Market – continuing growth The European telecom market is charac- Continuing growth and market conditions permit. Tele2 has a terized by stiff competition, acquisitions At the same time as competition is stiff- history of offering customers attractive and mergers – but also by continuing ening, the telecom market continues to products at competitive prices. growth in demand. expand. For example, the total market for Following deregulation in the EU, fixed telephony, mobile telecom services Varying progress in deregulation numerous new players established a pres- and Internet access in Sweden rose 7% EU telecom markets were deregulated to ence in the market, at the same time as during the first six months of 2002, com- stimulate greater competition. The intro- the former monopolies expanded into new pared with the same period a year earlier. duction of new legislation designed to lead geographic markets. A central driving force in the market is to increased competition has, however, Following a wave of investments in 3G that customers are increasingly seeking progressed differently in various countries. licenses, data networks and other applica- total telecom solutions. Tele2 has access Germany, for example, has fallen behind tions, many companies have abandoned to services and expertise in mobile teleph- other countries as regards local carrier pre- the market, either as result of acquisition ony, fixed telephony, Internet, data net- selection. In those countries in which local or bankruptcy. One feature of the com- works, cable-TV and broadband and is pre-selection is made available for players panies that were pushed out is that they working continually to transfer know-how other than the former monopolies, such as lacked financial strength and/or a feasible among the various areas and countries to France and Italy, Tele2 has gained consid- business model. This trend has created strengthen its customer offering. Tele2 has erable successes. opportunities for Tele2 to acquire cus- had major success in cross selling new Also, the EU Commission believes there tomers from these companies. products to its existing customer base. is no effective competition in, for example, In markets in which Tele2 is relatively broadband services via access networks, recently established, the strategy is to add meaning copper wire that connects switch- new services and products as deregulation es with end customers. The pricing applied 12
  15. 15. by the former monopolies discriminates leases an existing network and thus avoids with Telenor. Tele2 is already active as an against newcomers. building a new mobile network. MVNO in Denmark and the Netherlands, Also, interconnect traffic charges are an The difference between MVNO and SP and during 2002, an MVNO agreement area in which improvements are required. is a fundamental one. In the latter case, was signed with Connect Austria in Austria, The interconnect traffic charge is the fee the operator becomes a vendor of another where service was launched in February paid by a telecom operator to enter the company’s telephony, since it only handles 2003. access network. Interconnect traffic outgoing traffic. MVNO means simply that charges are one of the largest expense a mobile operator purchases radio access UMTS – third generation mobile telephony items for Tele2. Consequently, lower inter- from an existing mobile operator, but is Tele2 holds UMTS licenses for third gen- connect traffic charges provide highly pos- otherwise completely independent and can eration telephony in Sweden, Finland itive effects. develop services, payment forms and (through joint ownership of Suomen The pricing originates from the former direct traffic accordingly as if it were a con- Kolmegee Oy), Liechtenstein, Luxembourg monopoly’s attempts to retain control of ventional mobile operator. The only differ- and Latvia. the access network. It is only when these ence between a conventional operator and In an effort to keep down costs of con- – and thus subscriptions – are exposed to a real MVNO is that the MVNO has no con- struction and operation of the UMTS net- competition that deregulation of the mar- trol of coverage build-out. For the cus- work in Sweden, Tele2 and Telia have ket will have a full impact. tomer, there is no difference between hav- established a jointly owned company, ing a subscription with a conventional Svenska UMTS-nät AB. Costs are curtailed MVNO offers new growth opportunities operator or having one with an MVNO. through the use of both companies’ exist- In cases in which deregulation is effective, The model opens major growth oppor- ing infrastructure, such as telecom masts. new markets are opened up to new forms tunities for a company like Tele2, which Tele2 has a strong brand, large cus- of service suppliers. Both Mobile Virtual has a large customer base in many coun- tomer base, service development close to Network Operators (MVNO) and Service tries but which does not have its own infra- customers, an efficient organization and Providers (SP) have emerged as new busi- structure. During the year, Tele2 returned comprehensive technical know-how – fac- ness models that add to competition in the its UMTS license in Norway and instead tors that suggest success in the market for mobile market. In both cases, the operator elected to conclude an MVNO agreement 3G-based services. 13
  16. 16. Business concept Based on customers’ needs, Tele2 shall through simple, customer-friendly sevices and the lowest price have the most satisfied customers in the market. This is Tele2 Values Tele2, formed in 1993, is the leading alternative Tele2’s corporate culture rests on three pan-European telecommunications company and fundamental values: is active in GSM, public telecommunications and • flexibility data networks, as well as Internet and cable-TV • informality services. • cost-consciousness Tele2’s organization Tele2 AB Lars-Johan Jarnheimer, CEO Håkan Zadler, CFO Nordic Eastern Europe Central Europe Southern Europe Luxembourg Branded products and Russia Germany France & services Sweden Luxembourg Norway Estonia Netherlands Italy Liechtenstein C3 Denmark Latvia Switzerland Spain Belgium United Kingdom Finland Lithuania Austria Portugal 3C Everyday Optimal Telecom Poland Ireland Transac Datametrix Czech Republic Russia X-source 14 T E L E 2 A N N U A L R E P O R T 2002
  17. 17. Strength factors: Strategies • profitability The company’s strategy is reflected in: • low rates • Being the price-leading operator in all markets in which the Group is present. • large customer base • Price-leadership and the role of challenger to the • industry-leading efficiency former monopolies have been decisive factors in • well-known brands successfully securing new customers and thus • flexibility Tele2’s growth. • prompt adjustment to new customer • When expanding into new markets, the aim is requirements and market conditions to rapidly build up a customer base that can • committed and skilled employees subsequently be cross sold services in pace with market maturity and deregulation to offer more people the opportunity to communicate less expensively through Tele2. Business model In existing markets in continental Europe, when it is not necessary. In countries in Baltic states are extremely important for future growth is expected to derive largely which Tele2 owns infrastructure, it would expansion in Russia. Know-how and experi- from the cross-selling of services and not have been possible to compete with the ence from the Baltic market can be used products to the existing customer base. In former monopoly without access to propri- to gain efficient growth in Russia. less mature markets, the penetration rate etary infrastructure. remains relatively low, permitting rapid The objective in each country is to reach Rapid growth growth when an increasing number of a positive operating income before depre- In 2002, Tele2 was the fastest growing people demand attractive communications ciation/amortization within three years telecom operator in Europe, thereby con- services. Tele2 is also monitoring countries from the start of operations. Tele2 has firming the functional nature of its busi- bordering on current market areas. achieved this in all markets except ness model. Tele2 consistently attempts to transfer Germany, where deregulation has lagged know-how among its various product areas behind the rest of Europe. Quality and countries. Customer offerings and suc- In Southern Europe, with France and Tele2 has a quality policy that serves as a cessful concepts create synergies since Italy as the largest markets, Tele2 has guide for all operations in the Group. One they can be more used effectively in sev- established itself as a strong brand and has of the most important means of attaining eral markets, creating conditions for high- had great success in fixed telephony. the Group’s target is high quality in every- er profitability through economies of scale Operations in the Baltic States have thing it does. Tele2’s commitments, and better resource utilization. largely emulated Nordic activities with actions and products will be perceived as Cost-consciousness also entails not great success – the area is one of the most an expression of quality. The foundation contracting and owning infrastructure rapidly growing in mobile telephony. The comprises the Group’s values and accu- 15
  18. 18. Business model cont. mulated expertise. Constant improvement The rapid addition of new customers in with an expected introduction in Germany is the work motto. the Baltic States is driven by mobile tele- during 2003, revenues in Central Europe The experience of a product or service phony and particularly the prepaid card. In will grow in 2003 without triggering any must always meet the customer’s expect- Latvia, Tele2 acquired one of two UTMS rise in costs. As an MVNO, new possibili- ations. The customer is the center of atten- licenses. In January 2003, the market ties for growth are created. Tele2 has an tion and the key quality benchmark is cus- opened for fixed telephony and Tele2 MVNO agreement with Telenor in Norway, tomer satisfaction. Customer surveys are expects to introduce services during the with launch planned for the first quarter of conducted regularly in an effort to improve first half of the year. Tele2 launched fixed 2003. During 2002, Tele2 rolled out an results consistently. Customers must telephony in Poland during the first quarter MVNO in the Netherlands and signed an always feel confidence in Tele2 as a sup- of 2003 and plans to introduce local pre- MVNO agreement with Connect Austria in plier. selection in the Czech Republic during the Austria. year. In February 2003, Tele2 acquired Alpha Opportunities in 2003 In Continental Europe, fixed telephony Telecom, the leading prepaid fixed tele- During 2002, Tele2 grew faster than its operations continued to post strong growth phony operator in the UK for private indi- competitors, generated the best cash flow in 2002 and at year-end had 8.5 million viduals and the market leader in prepaid and improved earnings sharply. customers. Central Europe and Southern cards for fixed telephony. Alpha will ben- Maintaining the balance between cus- Europe combined reached breakeven at efit from Tele2’s strong market position tomer growth, profitability and cash flow the EBITDA level during the year. and will be able to expand to Tele2’s mar- continues to be the priority in 2003. Introduction of local pre-selection in kets in Europe. Tele2’s mobile operations are “Best in Southern Europe fueled Tele2’s very rapid Class” with very favorable margins in development in the market area. Fixed Sweden. Tele2 has more than 3 million telephony was launched in Portugal in mobile customers in Sweden. Profitability 2003. in the Swedish fixed telephony operations With local pre-selection available in the continues to be good. Netherlands since August 1, 2002, and Good positioning Tele2 always aims to improve 16 T E L E 2 A N N U A L R E P O R T 2002
  19. 19. Products and services Tele2 offers fixed telephony, mobile telephony, Internet services, and data network services, cable-TV and content services in 22 countries in Europe. Tele2’s product strategy is to have a joint product portfolio with fixed telephony as a base and add dial-up Internet services, mobile telephony and broadband when the market in each country is sufficiently mature. This strategy permits Tele2 to deliver and continually improve products that satisfy customer demands for low-cost, high-quality communications services. Fixed telephony Prepaid telephony Prepaid fixed telephony means that the customer pays his/her own “call account” which they then use when calling via the Carrier Pre-select fixed telecom network. For Tele2, the Pre-selection means that customers can service means fewer unpaid receivables, select to use Tele2’s lower prices for their lower customer churn and reduced invoicing fixed telephony. They no longer need to dial costs, and at the same time, it is positive a prefix. Local pre-selection means that for cash flow. Tele2 also takes charge of local calls via Tele2 has had considerable success pre-selection. with prepaid fixed telephony in France, Following deregulation in France, Italy Italy, Spain and Finland. and the Netherlands – Tele2 began to offer iHear stores and news stands. C3 works closely customers cheaper call rates using Tele2 iHear is a cordless telephone equipped with Tele2, which provides the network via pre-selection. Tele2 continues to work with a calling-router that always connects capacity. with the authorities in countries in which pre-selection and local pre-selection have the call via Tele2, and thus provides access not yet been deregulated. to the company’s attractive rates. In recent Telephone booths, Internet The access network, meaning the cop- years, Tele2 has used the iHear telephone terminals and WLAN Hot Spots successfully to increase customer satis- Via 3C Communications, Tele2 operates per wire connecting households with the faction, customer loyalty and call volumes. credit card-based telephone kiosks and telecom network, is still not open to com- The telephone is particularly effective in Internet terminals in hotels, restaurants petition but is instead handled almost ex- countries where pre-selection is not avail- and other well-frequented locations clusively by Europe’s former telecom mon- able. Tele2 launched the latest Dect 3 throughout Europe. The kiosks and termin- opolies. As a result, customers who have model of iHear in 2002. als are an excellent base for adding WLAN selected an alternative, must pay sub- Hot Spots (Wireless LAN) which permit a scription charges to the former monopoly. Telephone cards link up with portable computers. Tele2 However, we have succeeded in offering Since 1999, C – Calling Card Company – 3 operates via the operator organization subscriptions to customers in Denmark has sold calling cards for fixed telephony Pass-One for global roaming among vari- and we are intensively pursuing this issue in a number of markets in Europe. The call- ous Hot Spots. in other countries. This gives our cus- tomers one invoice and a better overview ing card is available in different denomi- of their telephony costs, resulting in more nations for domestic and international VoIP calls and features a code. The customer Voice over Internet Protocol – telephony via satisfied customers and notably lower cus- calls up the number indicated on the card the Internet. tomer turnover. and dials in his/her code – then it’s just a During 2002, Tele2 conducted a num- matter of calling cheaper with Tele2. ber of successful tests using VoIP in broad- The calling card is marketed under a band networks. number of brands and is sold primarily in 17
  20. 20. Mobile telephony make calls outside Sweden using a pre- paid card. This service has proved to be very successful. Tele2 offers mobile telephony via a number UMTS of subscription forms and prepaid cards. UMTS technology increases capacity in Regardless of whether the service targets mobile networks considerably compared infrastructure. Capacity is leased instead consumers or the corporate market, it is with GSM. Tele2 believes firmly that third from a network owner. In countries in positioned as price leader. generation mobile telephony, 3G, will which Tele2 does not have a mobile Having a mobile telephone with a pre- involve a revolution for access to personal license, the MVNO concept permits Tele2 paid card is growing in popularity and has information and entertainment by con- to supply fixed telephony with a full range contributed to Tele2’s rapid growth. It’s necting mobile customers with mobile of services in subscription and prepaid easy to understand why many people opt broadband services such as e-mail, image calling cards for mobile telephony. for prepaid calling cards. Customers can services, games and content portals. Tele2 expects MVNO´s to expand in the start calling immediately, they have good Tele2 has UMTS licenses in Sweden, immediate future, since deregulation of control of their telephone costs and can Finland (via the jointly owned Suomen the EU telecom market is gaining an always check how much credit they have Kolmegee Oy), Luxembourg, Liechtenstein impact and the mobile market is maturing. left. They also avoid bills and credit and Latvia. Tele2 operates as a MVNO in Denmark and appraisals are unnecessary. the Netherlands. During 2002, a MVNO A major innovation in Sweden during MVNO agreement was signed with Telenor in 2002 was the introduction of a service MVNO – Mobile Virtual Network Operator Norway and with Connect Austria in allowing Tele2 customers to receive and – means that Tele2 can act as a complete Austria, where the service was subse- mobile operator without owning its own quently launched in February 2003. Internet services the conventional network are impossible due to technical, legal or business reasons. The success of wireless broadband also indicates that the former monopolies have Dial-up Internet an erroneous and ongoing monopolistic Dial-up Internet means that customers are approach in the pricing of broadband ser- not permanently connected but can use a vices. modem when they wish to link up to the Tele2 offers wireless broadband via WLL Internet. Dial-up Internet is available in in parts of Poland, Czech Republic, subscription form and as a link-up without Finland, Norway, Sweden and Denmark. a fixed charge, for which customers pay Metropolitan Area Networks only for the time they are connected. The ADSL Tele2 offers broadband at 10 Mbit/s in a primary growth in the area is represented ADSL – Asymmetric Digital Subscriber Line number of MANs (Metropolitan Area by connections without a fixed charge. – is a technology that permits the use of Networks) in Sweden and Denmark. Tele2 is the market leader in Scandi- broadband via conventional telephone In Sweden, the MAN is linked to Tele2’s navia for dial-up Internet and has very suc- lines. This area offers major potential, wide-ranging trunk network, Swipnet, cessfully launched Internet with subscrip- especially since customers find the product which was the first commercial IP network tions as base in France and Italy in 2002. easy to use by customers, although pricing in Sweden. In Denmark, MAN is linked to Dial-up Internet will be launched in more by the former monopolies presents a major the country’s largest trunk network. countries during 2003. The Internet product obstacle to future growth. Tele2 is active- is continually upgraded with new services. ly continuing its efforts to find solutions to Broadband via cable-TV the monopoly problem. As early as 1998 in Sweden, Tele2 began Wireless broadband Tele2 offers ADSL in Sweden, Norway, to offer broadband using cable-TV as the Broadband is a method for transferring Denmark and Switzerland. Tele2’s ADSL carrier. During 2001 and 2002, a large data in the form of text, images and voice services have made a definite impact in the portion of the network was upgraded to at very high speeds. Wireless broadband Nordic market and the company has con- handle broadband. The offering is one of via WLL (Wireless Local Loop, via radio net- solidated its position as the largest Internet the cheapest on the market. works) is a way of circumventing the access supplier in Scandinavia. ADSL will be intro- Tele2 also offers broadband via cable- network when broadband connections via duced in additional countries in 2003. TV network in Estonia and Lithuania. 18 T E L E 2 A N N U A L R E P O R T 2002
  21. 21. Cable-TV Under the Kabelvision brand, Tele2 offers one of the market’s best basic packages in Sweden at an attractive price. Kabel- vision’s basic package (Pluspaket) offers access to 15 popular TV channels such as MTV, Visasat Sport, Discovery, Eurosport and E!. In addition, Kabelvision offers two highly competitive expanded packages, Silver and Gold, as well as premium channels such as Canal+ and TV1000. Available throughout Sweden, Kabelvision has 310,000 household subscribers – making it the country’s second largest cable-TV operator. Tele2 also conducts cable-TV operations in Estonia and Lithuania. Content services Tele2’s strategy is to organize but not During the year, the Tele2 SelfNavigator develop content services (e-mail, news, service was launched, permitting cus- games, ringtones, image services) which tomers to review, add to or terminate cer- makes things easier for our customers. The tain services on the Internet. It is also pos- services are linked to the portal sible to view billing information and account Tele2Internet that can be accessed irre- information. spective of the form of communication. Tele2 also offers a large amount of SMS Tele2 has a payment solution attached to and WAP-based services in various mar- the platform for micro-payments to the kets. For example, Tele2 was one of the companies supplying services, indepen- first companies in Estonia to offer payment dens of access. The business model is of parking charges via mobile telephone. based on distribution of revenue. Tele2 was also the first operator to give customers in Luxembourg the potential to send images using MMS. 19
  22. 22. Market position among alternative Service Launch operators Sweden Mobile 1981 Market area Fixed Internet Cable TV 1993 1991 1986 1 Nordic Norway Mobile 2000 Fixed Internet 1998 1997 1 Denmark Mobile 2000 Fixed Internet 1996 1997 1 Finland Fixed 2000 Internet 2001 Sweden Comviq was the first operator in Sweden Tele2 was established in Sweden and this to offer all prepaid card customers the market accounts for the Group’s broadest opportunity to call and receive calls from Market area’s share of the Group’s 43% product portfolio. Sweden is also a key test market for new services and their develop- ment, which are subsequently implement- abroad. For corporate customers, Tele2 launched mobile centrex, which offers the potential net sales ed in other Tele2 countries. to use switch functions directly in the During 2002, Tele2 Sweden sharpened mobile phone. Customers are seeking to its focus on profitability and sales volumes. integrate solutions between fixed and Efforts in this direction have highlighted mobile telephony and the launch of cen- the primary products – mobile telephony, trex is a step in this direction. 2002 2001 Change fixed telephony, Internet, data network ser- vices and cable-TV. Fixed telephony Number of In February Tele2’s fixed telephony cus- customers, 000s 6,252* 6,274 Sharper customer focus tomers were also offered pre-selection for Net sales, SEK M 13,566 11,898 +14% Two customer areas were created: Private local calls. This means that customers Customers and Corporate Customers. The were also able to benefit from Tele2’s low EBITDA, SEK M 4,814 3,768 +28% customer areas are in charge of services prices for local calls. Tele2 is working *including adjustment to the Group’s definition of active customer and packaging as well as for reaching their towards achieving a solution to offer fixed preset profitability targets. The change has telephony susbcriptions, since this offers Brands Tele2, Comviq, Kabelvision, Datametrix, led to a clear customer focus. The primary additional potential to reduce customer Uni2, Optimal, Tango, Everyday, Get2Net results are more effective distribution as costs and enhance customer loyalty. well as a distinct product offering. The 2002 Increased market shares measures are a major factor underlying Launch of ADSL Improved profitability higher profitability and have been con- In the case of Internet customers, the ducted in all product areas. focus has been on ADSL, which was launched in June. Due to unreasonable Higher market shares pricing from the network owner, Tele2 is “We’re stronger Tele2 Sweden won market share in all unfortunately unable to offer a price that is substantially below that of competitors. than ever in the product areas. The most aggressive growth However, it is gratifying to see that the dial- was noted in Comviq prepaid, with the num- Nordic region.” ber of customers exceeding two million dur- up Internet service, Free2Connect, has ing autumn 2002. The total number of cus- shown stable growth. Fredrik Berglund tomers exceeded three million at year-end. Tele2 also launched IP-VPN for the data Market Area Director, Nordic network market. The launch marked a Consolidated price position in mobile major sales success and it is planned to Tele2 has consolidated its price position in enhance the product portfolio in data net- the private and corporate markets. Private works during 2002. customers are offered “Five ways of calling more cheaply” and corporate cus- Stronger brands tomers have two new subscriptions A logical development of the above is the “Company” and “Company+”. At the close growing recognition of the Tele2 and of the year, Comviq celebrated its 10th Comviq brands. Currently, 97% of anniversary with a number of activities, Sweden’s population recognizes both which included presenting existing and brands. 20 T E L E 2 A N N U A L R E P O R T 2002 new customers with lower calling prices.
  23. 23. A taste for action Tele2 – in pole position Norway In September Tele2 signed an MVNO In August, Tele2 launched its ADSL ser- Despite a slower growth rate in the market agreement with Telenor. The agreement vice for households, which offers cus- as a whole, Tele2 continued to expand and offers Tele2 the potential to transfer cus- tomers access to the market’s lowest rates. win market share. Growth, combined with tomers currently covered by the present cost control, resulted in record high prof- Service Provider agreement to the more Corporate market itability for Tele2 Norway. competitive MVNO service. The agreement Tele2 has a complete range of services for permits Tele2 to develop new, price-lead- companies, but focuses particularly on Fixed telephony ing services for its customers in Norway. offering standardized package solutions to Tele2 strengthened its customer offering In November, Tele2 returned its UMTS small and large companies. Standard- and sales rose throughout the year, despite license to the Norwegian authorities. ization of the product portfolio is a suc- aggressive marketing from old and new Consequently, Tele2 no longer has any cessful concept in reaching profitability in competitors. commitments or expenses linked to the the corporate market. expansion of the UMTS network in Norway. Mobile telephony Denmark Tele2 increased its market share and Internet The Danish telecom market is undergoing strengthened its position in the mobile Although the market for dial-up Internet restructuring and consolidation. A number market, with revenue showing a stable continued to weaken in 2002, Tele2 man- of players have withdrawn from the mar- increase during 2002. aged to raise its market share. Marketing ket. Tele2 is continually seeking to max- Tele2 successfully recruited mobile campaigns in January and December were imise the resulting emerging opportuni- customers from Tele2’s existing customer successful in recruiting a substantial num- ties. base in fixed telephony. Cross-selling ber of new customers. Cross-selling has Tele2 focused on controlling growth and offers lower costs in attracting new cus- also proved to be highly successful, result- costs and is entering 2003 with good tomers, moreover this type of customer ing in a larger number of more loyal cus- prospects in terms of growth and earnings. calls more frequently and is more loyal tomers. than other customer groups. 21
  24. 24. Mobile telephony Tele2 operates a Wireless Local Loop for Datametrix 2002 was a year of consolidation, restruc- broadband in Jyväskylä. The service was Datametrix is a strong system integrator in turing and reassessment of the market for launched in spring 2002 and Tele2 is the Nordic market. The company is char- Danish mobile operators. Prices in the pri- studying the possibility of expanding into acterized by good geographic coverage, vate market have declined and competi- other cities with other network owners. flexibility and cost-consciousness. tion continues to be tough. Tele2 conduct- The market is driven by the develop- ed measures aimed at raising profitability Monopolistic market ment of conventional telephony with innova- from mobile services, which led to a reduc- The monopolistic nature of the Finnish tive applications and the ever-growing tion in costs for customer procurement and market means that Tele2 cannot yet offer demand for mobile solutions. IP telephony an increase in call volume per customer. local calls. Nevertheless the number of has established itself as a competitive During early 2002, Tele2 launched a customers and revenue rose during 2002. alternative for commercial applications. subscription service, which reported rapid During the year, new agreements were growth. signed covering international calls and other Sweden services that reduce costs for Tele2. During The Swedish organization has been Internet 2002, Tele2 moved from the development streamlined and is now focusing on IP Tele2 ASDL was launched in August 2002. phase to greater customer focus and further telephony and system integration of tele- The strategy is to attain balanced and cost developed its fixed telephony services, phony and data. Like Tele2, Datametrix is effective growth. The launch of broadband which were launched in autumn 2001. a unique total solution supplier with a has meant a reduction in dial-up traffic in strong product and service profile. the overall market. But customer intake Optimal Telecom continues nonetheless. Optimal Telecom is a Service Provider Norway A review of the company and its inter- offering individuals fixed telephony and In November 2002, Datametrix in Norway nal processes permitted the achievement Internet and the Tango prepaid calling card celebrated its 20th anniversary. The com- of synergies between Tele2 and UNi2, the for mobile telephony. pany has developed into a prominent sys- brand for corporate Internet. tems integrator in the Norwegian market. Lowest-price guarantee It has become a market heavyweight Fixed telephony Optimal Telecom’s lowest price guarantee through its consistent efforts in its three During the year, Tele2 launched what automatically gives customers the lowest core areas: infrastructure, IP telephony could be viewed as an alternative to fixed ordinary rate from Telia, Tele2, TeleNordia, and security. price telephony, namely, the Weekend+ Rix Telecom, Utfors, Glocalnet and ACN. The service, which offers 24-hour free tele- guarantee is the primary factor underlying Denmark phony each Sunday. The service attracted Optimal Telecom’s high customer loyalty. In September, Datametrix in Denmark was considerable attention and appeals to the Optimal Telecom also sells cordless ranked number 18 on the Børsen Gazelle conservative, fixed telephony market. telephones and speaker telephones index of the fastest growing companies in Two small operators with the corporate equipped with a calling-router, which Denmark, computed by the daily paper sector as their niche were acquired during means calls are always handled by Optimal Børsens Gazelle index. The factor underly- the year, which contributed to an increase Telecom. ing the success of Datametrix is its keen in the customer base and revenue in the focus on products for the call-center mar- corporate segment. Expansion in the private market ket. At the end of the year, the Danish Optimal Telecom continued to report authorities presented new regulations that robust growth in fixed and mobile teleph- Partners entail a reduction in interconnect charges ony, while the company also raised prof- In May 2002, Datametrix was appointed in certain areas during 2003. itability, despite stiff competition in the Norway Gold Partner to Cisco. This is con- market. firmation of the company’s leading-edge Finland During 2003, the focus is on generat- expertise and business skills. In Sweden, Tele2 offers fixed telephony in Finland in ing continued growth and improved prof- the company is Gold Partner to Avaya and the form of domestic calls, international itability in fixed and mobile telephony a certified Ericsson Service and Sales calls and calling cards. In the Helsinki through increased cross-selling and build- Partner. During the year, Datametrix signed area, dial-up Internet is also offered. The ing long-term customer relations. an OEM agreement with Intel, making it launch of iHear telephones commenced in the sole vendor of Intel’s product line for the summer of 2002. VPN in Sweden. 22 T E L E 2 A N N U A L R E P O R T 2002
  25. 25. Market position among alternative Licenses Launch* operators Market area Estonia Mobile 1998 Fixed Cable-TV 1998 1998 1 Eastern Europe Latvia Mobile 1999 1 and Russia Lithuania Mobile 2000 2 Czech Republic Fixed Internet 2002 2000 1 Poland Fixed 2003 Internet 2000 Russia Estonia Tele2 offers mobile telephony in eleven regions in Russia. Most of the companies Tele2 in Estonia offers a broad range of telecom services: mobile telephony (sub- Russia Mobile 7 operate under the FORA brand. In scription and prepaid calling cards), fixed *Year of launch by Tele2 November Tele2 sold its share of the telephony, Internet, content services and Moscow-based NMT450 operator MCC. Preparations for GSM cable-TV. 2002 was one of the most successful years in the history of the company. The Market area’s share of the Group’s 8% During the year, Tele2 received GSM sharp growth from 2001 continued into net sales licenses for Nishny Novgorod, Chelyabinsk 2002. Tele2 is the most rapidly growing and the St Petersburg region. Thus, all mobile operator in Estonia and now has a companies have licenses for GSM1800 tight grip on the second place in the mar- and work is in progress to launch the first ket. Tele2 now commands one-third of the regions during 2003. Estonian mobile market. 2002 2001 Change Tele2 is also clearly the leading alter- Calling Party Pays native operator in fixed telephony. Number of customers, 000s 1,574 996 +58% Tele2’s company in Omsk was the first mobile operator to launch CPP (Calling Supplementary services launched Net sales, SEK M 2,320 1,148 +102% Party Pays) services, which, as the name During 2002, several supplementary ser- EBITDA, SEK M 541 272 +99% implies, means that the calling person vices were launched that create added pays the call. CPP is unusual in Russia, value for customers and which offer com- where it is most common that the mobile petitive advantages for Tele2. Among other Brands Tele2, Fora, C gates, Zeta Zivtina telephone owner pays (MPP, Mobile Party points, Tele2 is the only mobile operator to Pays), even when that person is called. date that offers pan-Baltic roaming for pre- 2002 Revenue doubled CPP has proved to be an attractive and paid customers. Tele2 has also introduced Continuing profitability effective means of competition in the a uniform invoice for customers who have Russia market. Tele2 has also launched fixed as well as mobile telephony. CPP in Chelyabinsk. During 2003, Tele2 “Tele2 is growing rapidly will continue its efforts in negotiating Attractive services in the Baltic States, with agreements for CPP in other regions. Tele2 is very positive about prospects in 2003, not least because of a highly attract- more than one million Outlook for 2003 ive product and service offering, although satisfied customers.” Prospects for the Russian economy in competition in the Estonian market has 2003 are positive. The mobile telephone stiffened in recent times. Johnny Svedberg Market Area Director, Eastern Europe and Russia market expanded by 125% in 2002. Rapid growth is expected to continue during the current year. The customer segments now seeking to acquire mobile telephones are the middle class, middle management in companies and small business owners, which traditionally have been strong cus- tomer groups for Tele2. 23
  26. 26. Tele2 fångar de stora fiskarna Thrives on competition Tele2 – more efficient than the old monopolies Latvia vice means that both subscription and pre- Recognition of Tele2 is very high. 80% Tele2 is the leading alternative mobile paid customers can call from anywhere in of Latvians recognize the brand, even operator in Latvia. The company’s growth the Baltic States and still enjoy call rates though it was launched less than two years is being driven particularly by the success as if they were at home in Latvia. ago. This level of recognition is reflected in prepaid calling cards. Tele2 plans to Prepaid customers now get a bonus in growth: Tele2 is the most rapidly grow- launch fixed telephony during 2003. when they are called, which contributes to ing telecom company in Latvia. raising call volumes. They can also refill Leader in the prepaid calling card market the prepaid card directly from their bank Tele2 leads the market for prepaid calling account, all that is required is an SMS – cards with Zelta Zivtina, “Gold Fish”. making it simple for customers and offer- Subscription services are the leading alter- ing a cost saving for Tele2. native to the former monopoly. A new ser- 24 T E L E 2 A N N U A L R E P O R T 2002
  27. 27. Increasingly comprehensive range Deregulation of fixed telephony In early 2002, Tele2 became the first During 2002, Tele2 acquired one of two There are good prospects for the strong company to win a public license for fixed UMTS licenses in Latvia. Tele2 also has growth in mobile telephony continuing. telephony. Negotiations for an intercon- one of the two GSM licenses (900 and The market for fixed telephony was deregu- nect traffic agreement with the former 1800) for Internet services and a license lated in 2003 and Tele2 will maximise the monopoly were concluded in December for broadband via radio networks. An opportunities for cross-selling as they and the launch of fixed telephony is application for fixed telephony has been emerge. planned for the first quarter of 2003. submitted, and Tele2 expects an allocation during early 2003. Cable-TV and broadband Deregulation heralds new opportunities During 2002, Tele2 achieved a dominant In November 2002, Tele2 signed a distri- Exciting development position in cable-TV in all the company’s bution agreement for its prepaid calling Both the customer base and revenue are areas in Vilnius. During the autumn the cards for fixed telephony with the Polish expected to rise when Tele2 enters the cable-TV network was expanded to cover all Post Office, which sharply increased the market for fixed telephony, at the same of Vilnius. number of sales outlets from 2,000 to time as it continues to fuel growth in The number of broadband customers 10,000. mobile telephony. doubled during the year. Tele2 offers cable- Since Poland has some of the highest TV and broadband under the C gates brand. telephony rates in Europe, there are major Lithuania opportunities awaiting Tele2 during the Since its start-up in Lithuania in 2000, first quarter of 2003 with the finalization Tele2 has established a strong position as Czech Republic of deregulation. This creates the potential the leading operator among private cus- Tele2 has strengthened its position as one for Tele2 to market a more comprehensive tomers. of the three largest suppliers of wireless service range in fixed telephony. Mobile penetration rose sharply in 2002 broadband in the Czech Republic and has and the customer base more than doubled. established a presence in the market for X-source Tele2 is winning market share at the fixed telephony. X-source operates in IT outsourcing. The expense of the two competitors; Bite and During 2002, Tele2 expanded wireless company was started by Tele2 in an effort Omnitel. broadband to an additional two cities and to support IT operations in the group. The the number of customers rose by 52%. head office is located in Stockholm. Strong brand Depending on the business terms and con- During 2002, X-source expanded and During the past year, strength and trust in ditions that can be achieved, Tele2 is like- opened offices in London, Luxembourg the Tele2 brand have grown considerably, ly to offer ADSL during 2003. and Copenhagen. It also took over part of with brand recognition rising to 71% dur- Transcom Sweden’s IT operations. As a ing the fourth quarter of 2002. A contribu- Success in fixed telephony result, X-source is now established in six tory factor is the fact that the GSM network In July, Tele2 became the first operator to locations in Sweden. The company plans was expanded so that it now covers a little conclude an interconnect traffic agree- to established a presence in the Baltic more than 90% of the population. ment with Cesky Telecom. The agreement States by spring 2003. permits private customers to call more Subscriptions launched cheaply with Tele2 by dialing a prefix. Competitive prices During the first quarter of 2002, the Joker Tele2 is now a well-known brand in the X-source offers services in operations and subscription service was launched, offer- Czech Republic and the largest alternative the development of PC workplaces, oper- ing the market’s lowest monthly charge operator in the private market. During ations and maintenance of servers, data com- and a price guarantee. During the third 2003 Tele2 plans to offer pre-selection munications and data security. X-source quarter, a subscription was launched that and local calls. introduces a business approach to PC work- is aimed at small and medium-sized com- places and assists client companies in panies. Poland creating a secure and controlled IT infra- Tele2 in Lithuania was also the first Tele2 Poland continued its rapid develop- structure, while simultaneously reducing IT operator to launch pan-Baltic roaming for ment in IP telephony and wireless broad- costs. prepaid customers. band access. The focus is on small and X-source’s services are also competitive medium-sized companies. The number of for companies outside the Tele2 Group. customers more than doubled during Customers include Datscha, Metro, MTG, 2002. Viasat, EIM. Iocore and Basset Support Solutions. 25

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