Annual Report 2003


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Annual Report 2003

  1. 1. Annual Report 2003 Best year ever. Still hungry... ... HATE FAT CATS!
  2. 2. CONTENTS TELE2 ANNUAL REPORT 2003 2003. President’s message, Tele2 has an important mission, You just have to know this about Good growth in Tele2’s markets, page 2 page 4 Tele2, page 6 page 21 Contents Tele2 in brief 2 President’s message: Profitability and growth, with satisfied Tele2 is Europe’s leading and profitable alternative telecom operator. customers at the top of the agenda With our unique values, we provide cheap and simple telecom for all 4 Mission and values: Tele2 has an important mission Europeans every day. We have over 22 million customers in 23 countries. 6 Our working method: You just have to know this about Tele2 We offer products and services in fixed and mobile telephony, Internet access, 8 Products and services: What Tele2 offers data networks, cable TV and content services. Our main competitors are the former government monopolies. Tele2 was founded in 1993 by Jan Stenbeck 9 Board of Directors and has been listed on Stockholmsbörsen since 1996. The share has also 10 Senior executives been listed on Nasdaq since 1997. In 2003 we had an operating revenue of 12 The Tele2 share SEK 36,911 million and reported a profit of SEK 5,710 million (EBITDA). Tele2 always strives to offer the market’s best prices. 14 New market organization: New organization for growth in Europe 16 Market: Nicely aligned with the customers’ needs 18 Competition policies: Everyone wins with more competition 20 The right quality: The customer’s wellbeing – our reward 21 Tele2 on each market: Good growth in Tele2’s markets Financial information 22 Market area Nordic: Cross-selling with Nordic focus • Quarterly report, January–March April 21, 2004 24 Market area Southern Europe: ADSL already a success in France • Annual General Meeting May 12, 2004 26 Market area Central Europe: Germany now profitable • Quarterly report, January–June August 2, 2004 28 Market area Baltic and Russia: Strong foothold in • Quarterly report, January–September October 20, 2004 fast-growing countries 30 Market area Benelux: The successes continue 32 Market area Services: Growth in smart IT and telecom products Annual General Meeting 33 Tele2 and the community: Close cooperation For more information about the Annual General Meeting, see page 72. 34 Employees: Hungry for success 36 Accounts 38 Report of the Board of Directors 41 Income statement 42 Balance sheet 44 Cash flow statement 45 Changes in shareholders’ equity 46 Notes 68 Audit report 69 Definitions and Glossary 70 Addresses 72 Annual General Meeting
  3. 3. TELE2 ANNUAL REPORT 2003 THE YEAR THAT PASSED 1 2003 – our best year ever • Operating revenue rose by 18% to SEK 36,911 (2002: 31,282) million • 5.5 million net intake in 2003; a total of 22.3 million customers at year-end • Profit after tax increased to SEK 2,396 (2002: 223) million • Earnings per share after tax and dilution rose to SEK 16.20 (2002: 1.51) • Cash flow after investments increased by 85% to SEK 3,418 (2002: 1,849) million Increase in operating Cash flow, operations Cash flow, revenue after investments Financial summary MSEK 2003 2002 Operating revenue 36,911 31,282 Operating profit/loss before depreciation, EBITDA 5,710 5,127 Operating profit/loss after depreciation, EBIT 1,884 1,530 Operating profit/loss after financial items, EBT 1,267 796 Profit for the year 2,396 223 Earnings per share, after dilution, SEK 16.20 1.51 Average number of employees 3,274 3,115
  4. 4. 2 THE PRESIDENT’S MESSAGE TELE2 ANNUAL REPORT 2003 Profitability and growth, with satisfied customers at the top of the agenda PRESIDENT’S MESSAGE. We have done what no one believed possible. Just over 20 years ago, when Jan Stenbeck planted the seed for what is now Tele2, many people shook their head. How could it be possible to build a profitable company in the telecom sector? Would it really be possible to break the government monopoly, offer customers better services and still make money? At the time of writing, over 22 million customers in 23 European Our target is for each new country of operations to reach an countries have entrusted us to be their supplier. Although the operating profit within three years. Progress in Germany fluctuated world’s telecom operators have experienced hard times, Tele2 can a little to start with, basically due to regulatory difficulties, but we report very good results for 2003. are now on the right side of the line. Once again, Tele2 had done We increased revenue by 18 percent to SEK 36,911 million and what few thought possible. operating profit before depreciation (EBITDA) increased by 15 percent, amounting to SEK 5,710 million. We have consolidated our already strong cash position and are well placed for the future. “Long-term development is Tele2 is currently Europe’s leading alternative telecom operator. Our mission is as follows: cheap and simple telecom for all positive and we are achieving Europeans. Tele2 strives to offer the market’s best prices. In short, this means good results and an excellent that we give our customers real value for their money. At Tele2, we hate complicated technology. We put our efforts cash flow” into making our services as simple as possible, and our customers appreciate this. We also make a point of only releasing new services on the market when customers are ready to pay for them. One Our values create results example is 3G on the Swedish market: we will launch our services Our success is not due to mere chance. Nor does it come from ten- only when there are phones to buy. This protects Tele2 from un- year plans or long workshops. necessary market risks and paves the way for future profitability. No, Tele2’s success is based on a unique corporate culture, cen- tral to which is our firm conviction that the customer is king. Our best year ever Tele2 must always deliver what the customers want. In a mar- There are several important events in 2003 I would like to high- ket where trends are fast-moving, we must match the pace. For light, starting with our good results. Revenue, profitability, cash this reason, we plan the details of our operations in three-month flow and customer intake are all factors which experienced positive periods. We are constantly helped by our simple targets and strong development during the past year. This would never have been values. possible without tailoring the Tele2 culture to all 23 countries. We also steadfastly believe in delaying investments as long as A strong organization enabled us to enter into three new mar- possible and preferably avoiding them. I have never had anyone kets: Belgium, the UK and Portugal, where we are already produ- come up to me and say, “It’s a crying shame we didn’t buy that a bit cing promising results. earlier.” Later in the annual report (page 21), we describe how the diffe- If you are not familiar with the expression MVNO, it is the rent market areas performed during the year. However, France and abbreviation for our preferred business model for our mobile ex- Germany deserve special mention here. pansion. In short, MVNO dispenses with heavy investment in own France has become a pilot market for our sharp ADSL concept. networks and enables us to own the whole customer relationship. Tele2 has quickly become the fastest growing supplier. At certain Both ourselves and the network owner providing the call minutes periods, we have even surpassed the historical supplier hands down see clear advantages in an MVNO setup. in terms of new intake. We look forward going into other markets On page 5, we describe how our values help us satisfy our custo- with a similar setup. mers, while also earning money.
  5. 5. TELE ANNUAL REPORT 2003 TELE22 ANNUAL REPORT 2003 THE PRESIDENT’S MESSAGE 3 XXXXX SID Future agenda I see five important items on Tele2’s agenda. The first is to ensure that our operations in new countries conti- nue to grow, without ever losing sight of profitability. At Tele2, we have a tested model for activating new markets and we know what signs to take a quick look at. The second is to give Russia, where operations are still in their infancy, the support required. Tele2 has a good intake of new customers, but there is intense price pressure. We are working conscientiously to increase the revenue per customer. Russia has the potential to become an important part of Tele2’s future growth. The third is new products, such as ADSL in France and Italy, to achieve what we have envisaged. However good our own efforts are, every market has important issues connected with legislation and other regulations. Despite new EU regulations, many countries are putting off introducing improved competition rules. Correctly implemented, the new competition rules would mean better opportunities to compete on more reasonable terms with the former monopolies, resulting in lower prices for customers. Fourth on the agenda is cross-selling. When we enter a country, we tend to start by selling fixed telephony. Once we have establis- hed our brand and built a customer base, we launch new services. We can then increase revenue quickly and easily, paving the way for positive results. There are many interesting oppor- tunities in all our countries of operation. The fifth item on the agenda is particularly important. In the next few years, growth is at the top of the agenda, closely followed by profitability. In the long term, they are both a prerequisite for each other. I have strong support from the Board of Directors and owners regarding continuing expansion. Europe is a large market and contains many potential customers. There are still more than ten European countries in which we are not established, so that should keep Tele2 busy for a long time. And finally As we leave 2003 behind, I will especially remember one thing. Despite doubts from the world at large, we have done what few thought possible. Long-term development is positive and we are achieving good results and an excellent cash flow. Without jeo- pardizing future expansion, the Board of Directors has therefore proposed to the Annual General Meeting that the shareholders be allocated a dividend of SEK 3 per share. This is an acknowledge- ment that our joint efforts have not been in vain. And as it says on the cover of our annual report: Best year ever – still hungry. At Tele2, we shall continue to follow our own path and work hard to exceed the expectations of the outside world. Stockholm, February 2004 Lars-Johan Jarnheimer
  6. 6. 4 MISSION AND VALUES TELE2 ANNUAL REPORT 2003 Tele2 has an important mission
  7. 7. TELE2 ANNUAL REPORT 2003 MISSION AND VALUES 5 MISSION AND VALUES. Tele2 has an important mission: cheap and simple telecom for all Europeans. Our values are not there just for the sake of it. They are an important support in the day-to-day work in our Group. Our mission Cheap and simple telecom for all Europeans Our work is marked by... Flexibility. Positioned close to the customers’ needs and fast-acting. Openness. Unity, straight answers and a simple organization. Tele2 is Europe’s leading and profitable alternative Cost-consciousness. Careful with money, investing as telecom operator. With our unique values, we provide late as possible and always questioning costs. cheap and simple telecom for all Europeans every day. We currently have over 22 million customers in 23 countries. We offer products and services in fixed telephony, mobile telephony, Internet access, data networks, cable TV and content services. Our main competitors are the former …and we do so by government monopolies. Tele2 was founded in 1993 by Copying with pride. Making it simple, copying what Jan Stenbeck and has been listed on Stockholmsbörsen works and, above all, not changing what is successful. since 1996. The share has also been listed on Nasdaq Challenging. Doing the impossible by going since 1997. In 2003 we had an operating revenue of our own way. SEK 36,911 million and reported a profit of SEK 5,710 Acting. Focusing on the solutions, not the problems. million (EBITDA). Tele2 always strives to offer the market’s Reveling in speed and celebrating our successes. best prices . Tele2’s history Late 1970s 1981 1988 1990 1992 Industriförvaltnings AB Comvik AB launches its own Comviq is awarded a GSM Tele2 AB is formed. (Now Comviq GSM starts up its Kinnevik invests in the analog network for mobile license. Tele2 Sverige AB). own GSM network. telecommunications market. telephony. We find many names for those we love. NetCom Systems AB, which was established in 1993, changed its name to NetCom AB in 1998. NetCom AB changed its name to Tele2 AB in 2001.
  8. 8. 6 OUR WORKING METHOD TELE2 ANNUAL REPORT 2003 You just have to know this about Tele2 1993 1996 Tele2 launches fixed The shares in Tele2 are telephony. Tele2 is distributed to shareholders 1997 1998 established to develop the in Kinnevik. Meanwhile, Tele2 is listed on Nasdaq Operations are extended Kinnevik Group’s telecom Tele2 is listed on the O-List in New York. to Estonia through the companies in the Nordic of Stockholmsbörsen. acquisition of 48% in the Region. mobile operator Ritabell.
  9. 9. TELE2 ANNUAL REPORT 2003 OUR WORKING METHOD 7 OUR WORKING METHOD. Tele2 is a rapidly-growing, fast-acting Company. This has a great bearing on our working methods and requires us to be close to the market and our customers’ needs at all times. While other companies are busy presenting ten-year planning documents, Tele2 prefers to build a corporate culture for growth and profitability. This means that every employee knows what is required to make Tele2 even more successful. Profitability and growth We are penny-wise, but not to the point of stupidity Tele2 is the fastest growing Pan-European telecom operator. The At Tele2, we keep a tight hold on our own money and that of our Group holds a leading position among European telecom operators customers. This means that we aim to give customers the lowest who are challenging the former monopolies. prices on the market. To keep our promise to the customers, For us, profitability is a natural part of our growth strategy. In we have to be price-conscious. This attitude is shared by all our the next few years, we will continue to prioritize rapid growth with employees and permeates our whole Company. Although we keep a our great focus on profitability. tight hold on money, we are prepared to invest when we know that our investments will produce results. Customers drive our market, not technology At Tele2, we love our customers, but detest unnecessary techno- Speed creates growth opportunities logy. We want to create simple, customer-friendly services. By Competition in the telecom market is fierce. Having light baggage selling what customers want to buy we can continue to develop our means we can quickly adapt our operations to new conditions. Company and generate long-term earnings for our shareholders. We can then launch new services and products on our markets more quickly than our competitors. We avoid investing heavily in A customer-focused product portfolio own networks, preferring MVNO as a business model for mobile Tele2 offers fixed and mobile telephony, Internet services, data net- telephony (more on page 17). We use this speed and freedom of works, cable TV and content services to over 22 million European action to grow more quickly than our competitors. customers. Our portfolio takes into account the customers’ needs and willingness to spend rather than leading-edge technology and Tested model for growth the latest possibilities. When we go into a new country, we usually start by establishing ourselves in the fixed telephony market. The priority is on quickly One European Company in 23 countries building a satisfactory customer base in the chosen segment and Tele2 is a truly European Company, with operations in 23 countries. then cross-selling. This means that we sell more of our services We use a well-tested model to develop our operations, but adapt it and products to the same customer. Our target is to have achieved to the unique conditions of each country. And Tele2 promotes en- profitability with this model within three years. In some cases, we trepreneurship and inventiveness in local operations by spreading augment organic growth by strategic acquisitions. best practice to other markets. 2000 2002 Tele2 becomes the first Comviq sets a new record mobile virtual network with more than 2 million operator (MVNO) in prepaid card subscribers. Denmark. Tele2 acquires Tele2 is the world’s fourth Société Européenne de fastest growing listed telecom/ 2003 Communication S.A. (SEC). IT company. MVNO launched Tele2 increases its number Tele2 is awarded a UMTS in the Netherlands and of customers by 5.5 million 1999 license in Sweden. Tele2 2001 MVNO agreements signed to 22.3 million. Successful Tele2 increases its holding acquires Latvia’s second Acquisition of FORA in Norway and Austria. Jan ADSL launch in France. in Ritabell to 94.8%, giving largest mobile operator Telecom (Russia). Stenbeck, Tele2’s founder Largest customer intake it access to a GSM1800 Baltkom GSM. Joint UMTS company with and Chairman, passed away ever in the Baltic and license in Lithuania. Telia in Sweden. at 59 years of age. Russia.
  10. 10. 8 PRODUCTS AND SERVICES TELE2 ANNUAL REPORT 2003 What Tele2 offers PRODUCTS & SERVICES. Tele2 offers products and services in fixed and mobile telephony, dial-up Internet, broadband, prepaid calling cards and cable TV. Product area FIXED TELEPHONY MOBILE TELEPHONY DIAL-UP INTERNET BROADBAND CALLING CARDS CABLE TV Nordic Sweden ★ ★* ★ ★ ★ Norway ★ ★ ★ ★ Denmark ★ ★ ★ ★ Finland ★ ★ ★ ★ Baltic and Russia Estonia ★ ★* ★ ★ ★ Latvia ★ ★* Lithuania ★* ★ ★ Russia ★* ★ Central Europe Germany ★ ★ Austria ★ ★ ★ ★ ★ Poland ★ ★ ★ Czech Republic ★ ★ ★ Southern Europe France ★ ★ ★ ★ Italy ★ ★ ★ ★ Spain ★ ★ ★ Switzerland ★ ★ ★ ★ ★ Portugal ★ ★ United Kingdom ★ ★ Ireland ★ Benelux The Netherlands ★ ★ ★ ★ Luxembourg ★ ★* ★ Liechtenstein ★ ★* ★ Belgium ★ *Tele2 network.
  11. 11. TELE2 ANNUAL REPORT 2003 BOARD OF DIRECTORS 9 Board of Directors From left to right: Cristina Stenbeck, Vigo Carlund, Marc J.A. Beuls, Sven Hagströmer, John Shakeshaft, Lars-Johan Jarnheimer and Håkan Ledin. Cristina Stenbeck Sven Hagströmer Chairman of the Board Håkan Ledin Born 1977. Vice Chairman of the Board of Kinnevik, Born 1943. President and Board Chairman Hagströmer 1937–2004. It is with great sadness that Tele2 AB Invik and Metro. Board member of Millicom, MTG and & Qviberg from its inception in 1980 to 1995. Board announces that its Board Member Håkan Ledin, has Transcom. Member of the Board of Tele2 since 2003. Chairman of Investment AB Öresund, AB Custos and passed away in March 2004. He made invaluable Holding: - Avanza AB. Board assignments: AcandoFrontec AB, contributions during his time with Tele2 and was a Bilia AB, LGP Telecom Holding AB and HQ Fonder. strong force behind the Group’s success. He worked for Vigo Carlund Member of the Board of Tele2 since 1997. many years at LM Ericsson prior to becoming President Born 1946. Has worked for Kinnevik companies Holding: 130,000 B shares of Millicom, where he served as Chairman of the Board since 1968. He is President of Industriförvaltnings AB from 2002. He served as President of NetCom Systems Kinnevik. Chairman of the Board of Metro International John Shakeshaft from 1995 to 1996. He had been a member of the S.A., Transcom WW S.A. and Korsnäs AB. Member of Born 1954. Banker, is Managing Director at Cardona, Board of Tele2 since 1994. The memory of the expertise the Board of Millicom. Member of the Board of Tele2 Lloyd Limited, external member of the Audit Håkan brought to Tele2 will always burn bright. since 1995. Committee of Cambridge University and adviser, Holding: 379 B shares Quintain Estates and Development plc. Mr Shakeshaft AUDITORS was previously a partner of Lazard. Member of the Pål Wingren Auditor Marc J.A. Beuls Board of Tele2 since 2003. Born 1949. Authorized Public Accountant Born 1956. Holds a B.Sc. in Economics. Holding: - Öhrlings PricewaterhouseCoopers He has been with Millicom International Cellular S.A. since 1992 and has been President & CEO since Lars-Johan Jarnheimer President and CEO Carl Lindgren Auditor January 1998. From 1997 until 2003 he was Managing (not a member of the Board). Born 1959. Authorized Public Accountant Director of Banque Invik S.A. Currently he is a member Born 1960. MBA. President and CEO of Tele2 AB since KPMG of the Board of directors of Banque Invik S.A. and Tele2 March 1999. Mr. Jarnheimer has held various positions AB. Marc Beuls previously held executive positions at at IKEA, Hennes & Mauritz and SARA Hotels, and Mikael Winkvist Deputy Auditor Generale Bank in Belgium. Member of the Board of was President of ZTV for a short time before coming to Born 1962. Authorized Public Accountant Tele2 since 1998. Comviq as Vice President in 1992. President of Comviq Öhrlings PricewaterhouseCoopers Holding: - during 1993–97. Member of Group management at Saab Automobiles with responsibility for the Nordic Björn Flink Deputy Auditor countries, Russia and the Baltic States, and was Born 1959. Authorized Public Accountant President of Saab Opel Sverige AB during 1997–98. KPMG Board assignments: MTG, Millicom, Invik AB, Arvid Nordquist Handels AB. Holding: 52,000 B shares and 15,000 options
  12. 12. 10 SENIOR EXECUTIVES TELE2 ANNUAL REPORT 2003 Senior executives 1 2 3 4 5 6 7 8 9
  13. 13. TELE2 ANNUAL REPORT 2003 SENIOR EXECUTIVES 11 Lars-Johan Jarnheimer (1) Jeanette Almberg (2) President and CEO, Tele2 AB Director Customer Operation Born 1960 Born 1965 MBA MBA Employed since 1992 Employed since 1995 Holding: 2,000 B shares Holding: 15,000 options 1) and 15,000 options 1) Holdings through companies: Holdings through companies: 1,500 B shares 2) 50,000 B shares 2) Jan Tjernell (8) Håkan Zadler (14) Director Legal, Regulatory CFO and Purchasing Born 1960 Born 1963 MBA LLB Employed since 2000 Employed since 1994 Holding: 5,000 B shares Holding: 304 B shares and and 15,000 options 1) 7,500 options 1) Holdings through companies: – Holdings through companies: 1,500 B shares 2) Johnny Svedberg (10) Market Area Director, Karl-Johan Nybell (11) 10 11 The Baltic and Russia Director Product Implementation Market Area Director, Services and New markets Chief Operating Officer Born 1968 Born 1962 M.Sc. in Engineering B.Sc. in Market Economics Employed since 1995 Employed since 1990 Holding: 15,000 options 1) Holding: 1 A share, 1,239 B shares Holdings through companies: and 15,000 options 1) 1,500 B shares 2) Holdings through companies: Roger Mobrin (5) 8,000 B shares 2) Director Billing Operations Fredrik Berglund (6) Born 1968 Market Area Director, Nordic Technical college engineer President, Tele2 Sverige AB Employed since 1995 Born 1961 Holding: 50 B shares and B.Sc. in Market Economics 15,000 options 1) Employed since 1995 Holdings through companies: Holding: 15,000 options 1) 1,500 B shares 2) Holdings through companies: Björn Lundström (13) 12 13 30,000 B shares 2) Director Network Jean-Louis Constanza (4) and Operations Market Area Director, Southern Europe Chief Technical Officer President, Tele2 France Born 1965 Born 1961 M.Sc. in Engineering MBA Employed since 1991 Employed since 1998 Holding: 15,000 options 1) Holding: 15 000 options 1) Holdings through companies: Holdings through companies: – 1,500 B shares 2) Anders Olsson (12) Ib Andersen (3) Market Area Director, Central Europe Director Carrier Business Marketing Coordinator and Revenue Assurance President, Tele2 Germany Born 1955 14 MBA Employed since 2000 Employed since 1997 Holding: 15,000 options 1) Holding: 1,056 B shares and Holdings through companies: – 15,000 options 1) Lars-Erik Svegander (9) Holdings through companies: – Personnel Director Per Borgklint (7) Born 1941 Market Area Director, Benelux Employed since 1991 President, Tele2 Netherlands Holding: 15,000 options 1) Born 1972 Holdings through companies: MBA 1,500 B shares 2) Employed since 2000 Holding: 7,500 options 1) Holdings through companies: – 1) relates to incentive program 2002/2007, please see Note 38 2) relates to incentive program 1997/2006, please see Note 38
  14. 14. 12 THE TELE2 SHARE TELE2 ANNUAL REPORT 2003 Dividend for the first time THE TELE2 SHARE. In 2003, the price increase was 67 percent and average daily turnover was SEK 212 million (B share). Total international ownership in Sweden was 27.7 percent. At year-end the market value amounted to SEK 56.6 billion and the number of shareholders was 60,930. Share capital Stockholmbörsen was in conjunction with the distribution of the Tele2 has a share capital of SEK 738 million, distributed Company to the shareholders of Industriförvaltnings AB Kin- among 21,689,804 A shares and 125,870,371 B shares, totaling nevik. Following the distribution, Kinnevik did not own any 147,560,175 shares. Series A shares carry ten votes, while B shares shares in Tele2, but held a convertible debenture corresponding carry one vote. All shareholders are equally entitled to a share in to 25,555,555 shares. During 1996, Kinnevik sold portions of the the Company’s assets and profit. debenture, after conversion to shares, to institutions and Invik & Co AB. Listing To promote interest in the Company’s shares in the USA and to Tele2’s A and B shares was listed on the O-List of Stockholmbörsen increase liquidity outside Sweden, Tele2 A and B shares were listed on May 14, 1996 under TEL2A and TEL2B, and on the Nasdaq on the Nasdaq Stock Exchange in New York in January 1997. A Stock Exchange in New York on January 22, 1997 under TLTOA few months later, a new issue of 2,000,000 B shares was imple- and TLTOB. mented. With this issue, Tele2 sought to broaden the Company’s international ownership interest and to support the Nasdaq listing. Price movements and turnover The proceeds from the share issue, which amounted to SEK 220 During 2003, Tele2’s share price increased by 67 percent to SEK million, were primarily used for ongoing investment requirements, 384 (230.5) per B share. Affärsvärlden General Index rose by 28 in particular for the development of Tele2’s Danish and Norwegian percent. operations. At year-end, Tele2 had a market value of SEK 56.6 billion. In conjunction with the new share issue, Industriförvaltnings AB During 2003, B shares were sold for an average of SEK 212 million Kinnevik sold the majority of its remaining debenture in Tele2, per business day. On March 1, 2004, the market price was SEK 366 converted to 6,000,000 shares. (B share) and the total market value SEK 54 billion. During 1997, Invik & Co AB had converted its debenture, corre- sponding to 6,700,000 B shares, thus increasing Tele2’s sharehold- Debentures and share issues during listings ers’ equity by SEK 335 million. During the second quarter of 1998, This listing of Tele2’s A and B shares on the O-list of all outstanding debentures were converted into 755,555 B shares. Stockholmsbörsen Nasdaq
  15. 15. TELE2 ANNUAL REPORT 2003 THE TELE2 SHARE 13 Debentures and share issues been issued. At the end of 2001, all shares in FORA Telecom B.V. At the Annual General Meeting in May 2000, the Board of Directors (the Russian operations) were acquired in exchange for 2,461,449 was authorized to settle an option commitment through a new share newly issued Tele2 B shares. issue. In October 2000, 200,000 new B series shares were issued, as During 2002 8,317,143 A shares were remarked to B shares. well as three convertible debentures with detachable warrants with rights to a new subscription totaling 300,000 B shares. These shares Shareholders were subscribed with 100,000 B shares each year during 2001–2003. As of December 31, 2003, Tele2 had a total of about 61,000 (2002: At an Extraordinary General Meeting of Tele2 AB in August 61,000) shareholders. Tele2’s largest shareholders are Industriför- 2000, a proposal was approved to issue at most 40,901,585 series valtnings AB Kinnevik with 20,4 percent and Invik & Co AB with A and series B shares in Tele2 to shareholders and holders of 8,0 percent of the share capital. depository receipts in Société Européenne de Communication S.A. The proportion of institutional owners corresponded to about 89 (SEC), in exchange for shares and depository receipts in SEC. (2002: 88) percent of the share capital and 92 (2002: 92) percent of By the end of the issue period, a total of 40,784,480 shares had the voting rights on December 31, 2003. Ownership structure, December 31, 2003 Total Number of Share of Share of A shares B shares A and B shares votes capital. % votes. % Invik & Co AB 9,891,787 1,900,579 11,792,366 100,818,449 8.0 29.4 Industriförvaltnings AB Kinnevik 6,368,880 23,665,929 30,034,809 87,354,729 20.4 25.5 Emesco 3,205,379 0 3,205,379 32,053,790 2.2 9.4 Stenbeck. Jan (Estate) 914,157 0 914,157 9,141,570 0.6 2.7 SEB 0 7,023,328 7,023,328 7,023,328 4.8 2.1 Nordea 35,250 6,014,170 6,049,420 6,366,670 4.1 1.9 AMF Pension 0 6,285,000 6,285,000 6,285,000 4.3 1.8 ROBUR 0 5,235,933 5,235,933 5,235,933 3.5 1.5 Fidelity 0 4,653,000 4,653,000 4,653,000 3.2 1.4 Handelsbanken 150 4,237,826 4,237,976 4,239,326 2.9 1.2 Total, ten largest shareholders 20,415,603 59,015,765 79,431,368 263,171,795 53.8 76.8 Other shareholders 1,274,201 66,854,606 68,128,807 79,596,616 46.2 23.2 Total 21,689,804 125,870,371 147,560,175 342,768,411 100.0 100.0 Dividend For the financial year 2003, the Board of Directors proposes a di- Sell-side analysts during 2003 vidend for the first time in the Company of SEK 3. The proposed ABG Securities Henrik Vikström dividend is in line with a policy, which reflects the Board’s view that ABN AMRO Alfred Berg Mikael Rönnblad Tele2 is a high growth company. In recommending the dividend Carnegie Fredrik Danielsson Chevreux Peter Kurt Nielsen a balance is maintained among growth, profitability and available Citigroup Smith Barney Christian Kern cash flow. CSFB Ben Spincer Danske Equities Lars Horslund Deutsche Bank Peter Irblad Enskilda Securities Johan Michelsen EVLI Matti Riikonen Goldman Sachs Simon Weeden Shares per shareholder Hagströmer & Qviberg Sven Sköld Number of shares Number of shareholders Holding (%) Handelsbanken Andreas Ekström 1–100 33,536 1.1 Kaupthing Håkan Persson 101–500 19,020 3.4 Lehman Brothers James Britton 501–1,000 4,280 2.4 Morgan Stanley Michael Besley 1,001–2,000 2,046 2.1 Natexis Bleichroeder Philip Townsend 2,001–5,000 1,115 2.5 Swedbank Henrik Sandell 5,001–10,000 357 1.8 UBS Warburg Soomit Datta 10,001–20,000 203 1.9 Öhman Fondkommission Stefan Billing Published in March 2004 20,001– 373 84.9 Total number of shareholders 60,930 100
  16. 16. 14 NEW MARKET ORGANIZATION TELE2 ANNUAL REPORT 2003 New organization for growth in Europe NORDIC • Sweden (incl. Optimal Telecom) • Norway • Denmark • Finland • Datametrix BALTIC AND RUSSIA • Estonia • Latvia • Lithuania • Russia BENELUX • Netherlands SERVICES CENTRAL EUROPE • Luxembourg • 3C (incl. Tango) • Germany • ProcureITright, PIR • Liechtenstein • Austria • X-Source • Belgium • Poland • Transac • Czech Republic SOUTHERN EUROPE • France • Italy • Spain • Switzerland • Portugal • UK • Ireland • Calling Card Company (C3) NEW MARKET ORGANIZATION. Tele2 is now PREVIOUS ORGANIZATION working in a new market organization which is Nordic: Sweden (incl. Optimal Telecom), Norway, Denmark, Finland, Datametrix, ProcureITright better adapted to growth and profitability. We are also Eastern Europe and Russia: Estonia, Latvia, Lithuania, changing our financial reporting in conjunction with Russia, Poland, Czech Republic, X-Source Central Europe: Germany, Netherlands, Switzerland, the change. More information on this can be found Austria, Ireland Southern Europe: France, Italy, Spain, Portugal later in the Annual Report on page 62 in Note 35. Luxembourg: Luxembourg (incl. Tango), Liechtenstein, Belgium, 3C, Transac Branded products and services: UK, Calling Card Company (C3), Everyday
  17. 17. TELE2 ANNUAL REPORT 2003 NEW MARKET ORGANIZATION 15 ★★★★★★★★★★★★★★★★★★★★★★★★★★★★ ★★★★★★★★★★★★★★★★★★★★★★★★★★★★ NORDIC BENELUX • Continuing increase in market shares • Tele2 is largest alternative operator in Sweden, despite relatively low growth. throughout Benelux New subscription forms launched during • Investment in cross-selling in the year the Netherlands turns out well • Agreement signed with Telenor for resale • Large proportion of pre-selection of monthly charge for fixed telephony in Norway customers in the Netherlands • Breakthrough for new sales in Denmark and Luxembourg • Operating revenue doubled in Finland • New operations in Belgium – already despite anti-competitive flaws in 35% of the Group’s operating revenue 10% of the Group’s operating revenue showing strong growth deregulation ★★★★★★★★★★★★★★★★★★★★★★★★★★★★ ★★★★★★★★★★★★★★★★★★★★★★★★★★★★ BALTIC AND RUSSIA SERVICES • Sharp upswing in number of • Market leader in Europe for integrated new customers in Baltic and Russia credit card transactions • Tele2 is fastest growing operator in • TIME procurement project carried out the Baltics and deregulation continues in 34 countries during the year • Russia is one of the world’s • IT outsourcing services grow in fastest growing markets the Baltic 7% of the Group’s operating revenue 1% of the Group’s operating revenue ★★★★★★★★★★★★★★★★★★★★★★★★★★★★ CENTRAL EUROPE • Germany becomes profitable during the year, with deregulation expected to increase • Successful year for Austria • Tele2 is largest alternative operator in Poland and the Czech Republic 9% of the Group’s operating revenue ★★★★★★★★★★★★★★★★★★★★★★★★★★★★ SOUTHERN EUROPE • Tele2 is the third-largest ADSL supplier in France – following launch during the year • Strong growth for Internet in Italy • Spanish advertising campaign helps accelerate growth • Good growth in Switzerland • Increase in sales for rechargeable calling cards • Successful launch of fixed 38% of the Group’s operating revenue telephony in the UK • Operations were launched in Portugal during the year
  18. 18. 16 MARKET TELE2 ANNUAL REPORT 2003 Nicely aligned with the customers’ needs
  19. 19. TELE2 ANNUAL REPORT 2003 MARKET 17 MARKET. Despite fierce competition, 2003 was Tele2’s best year ever. A record number of new customers, strong growth and unparalleled profitability speak for themselves. Mere chance? Not likely! The Tele2 brand continues to grow. Almost half the population of Europe has scarcely a cent to spare at the end of the month. And, using Jan Stenbeck’s words as a star- This is MVNO ting point “Tele2 must do everything differently from the former Tele2 is more interested in customers than technology. The MVNO business monopolies, at a lower price and with the same quality”, Tele2 model provides a crystal-clear reflection of this. MVNO is an abbreviation of has systematically marketed itself as the price leader in Europe, mobile virtual network operator. MVNO means that Tele2 purchases radio without compromising quality. It is really quite simple: first build a access from an existing mobile operator, but is free to develop its own services large customer base in fixed telephony and then sell other services and payment forms, and direct traffic. However, unlike the network owner, to the same customers. an MVNO has no control over coverage build-out. The advantages of MVNO to Tele2 are fundamental. In particular, it creates large growth potential and requires relatively little capital investment. Europe’s mature markets In mature markets, in the sense that consumers are experienced users and competition exists, Tele2 generally aims to cross-sell services and create long-term, stable relationships with customers. tions are fixed telephony, but Tele2 also offers low-price mobile A satisfied customer stays with you; a dissatisfied customer chan- telephony in the Netherlands, Luxembourg and Liechtenstein. ges operator. In the mature, fiercely competitive Nordic markets, Tele2 has Europe’s growth markets successfully managed to cross-sell services. Tele2 won market sha- Competition has just begun in the emerging markets, where res and reduced customer turnover during 2003. customers are relatively inexperienced users. Tele2 is concentrating Unlike in Sweden, Tele2 can offer its Danish and Norwegian on quickly building a customer base in fixed telephony and then customers billing of monthly charges in fixed telephony. Consu- launching other services. Large-scale advertising campaigns and mer surveys show that one of the main reasons customers change commercials based on price comparisons with the former monopoly operators is that they receive one bill from Tele2 and yet another are highly effective. The Tele2 brand is held in high regard by the from the operator which owns the network, and therefore their man in the street and is associated with low prices and high quality. subscription. The reason for the switch is that it is easier for custo- Growth markets, such as Eastern Europe and the Baltic, expan- mers to receive everything on one bill. However, Sweden is also ded strongly in 2003. Tele2 is the fastest growing operator in the set to change its rules, which will have a positive impact on Tele2’s region, and the future looks bright. operations. With a population of 145 million and a low penetration of mobile telephony, the Russian market holds huge potential. Only one The Tele2 markets during 2003 in four Russians has a mobile phone, but in larger cities, such as In 2003, the United Kingdom implemented eagerly-awaited pre- Moscow and St. Petersburg, just over half of the residents use a cell selection reforms, which means that Tele2 can now start to com- phone. Tele2 is Russia’s fifth largest multi-regional telephony brand. pete on an equal footing for the business of the country’s 60 million Even though Poland and the Czech Republic are in the midst of residents. Tele2’s German operations are now showing a profit and a deregulation process, Tele2 has still enjoyed excellent success in the customer base is growing strongly. fixed telephony. In Austria, almost 20 percent of the households are Tele2 custo- mers and 2003 saw the highly successful launch and cross-selling of both ADSL and mobile telephony. Despite the fact that the Southern European market area is characterized by a trend towards fewer large players and fiercer competition, Tele2 is growing in all its countries. Dial-up Internet and ADSL growth has been even stronger. In 2003, Tele2 success- fully launched its operations in Portugal. With the establishment of operations in Belgium, Tele2 is now present in all the countries of the Benelux market area. Core opera-
  20. 20. 18 COMPETITION POLICIES TELE2 ANNUAL REPORT 2003 Everyone wins with more competition This is how we rate competition policy in Europe: Come on, you politicians! Did you know that prices in mobile, national and international telephony fell by approximately 12–50 percent during the period 1998-2002? Yet fixed telephony prices rose by 20 percent during the same period. Guess where the competition is. Source: The Europe Commission’s 8th implementation report, December 2002
  21. 21. TELE2 ANNUAL REPORT 2003 COMPETITION POLICIES SID 19 COMPETITION POLICIES. Even though the European telecommunications market is open to competition, there still remains much to be done. Tele2 is encountering opposi- tion from monopolists and politicians who are using every trick in the book to sabotage increasing competition. And the result? Private customers and companies receive needlessly high telephone bills and inferior service. Competition on equal terms Tele2 desires one thing: to compete for customers on the same terms as the former monopolies. This may sound obvious, but unfortunately truly open competition is not so easily achieved. Difficulties remain, despite the fact that the EU’s new regulations on electronic communication were due to come into force on July 25, 2003. The Netherlands, France and Germany are examples of countries which are delaying introduction of the new rules. Elsewhere, the former monopolies are abusing their predominant positions, resulting in higher prices for consumers and companies. The advantages of a telecommunications market open to com- petition are crystal clear. Consumers and companies end up with lower prices and better service, and society is ensured a well func- nection relates to physical and logical interconnecting of networks. tioning telecommunications market, which is the foundation for a Access and interconnection are important points, as these are two knowledge-based economy. areas which need clear rules to ensure that competition is created There is no lack of explanations for the delay, but the EU com- and maintained. mission is active and it is only a matter of time before every country • With the new rules in place, Tele2 will be more able to compete will have to implement the EU’s decision. With the new rules in on equal terms. It will become easier to sign MVNO agreements, place, Tele2 will have moved a step closer to its goal to compete for to compete for fixed telephony subscriptions and pre-selection and customers on the same terms as the former monopolies. to offer ADSL under better commercial conditions. The new rules Monopolists still clinging on Competition must increase. Some of the most important points in The former monopolies dominate their respective European mar- the new rules are described below. kets. Tele2 believes that the way the new rules are implemented in • Bureaucratic obstructions to entering a market must be reduced. the different countries is crucial to achieving the desired effect of • Rules on access and interconnection with the old incumbent increased competition, resulting in lower prices and better services. operators are safeguarded. Access covers all forms of access to net- It is also essential that the regulatory authorities have the inclina- works and services which are open to the general public. Intercon- tion and the correct resources to ensure that the rules are followed. ★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★★ TELE2’s REQUIREMENTS LIST FOR POLITICIANS AND MONOPOLISTS 1. Subscription for the people 2. Pre-selection for the people 3. ADSL for the people The former monopolies have taken the opportunity Introduction of pre-selection, involving no need to ADSL is the broadband service which has to increase their prices for fixed telephony dial a prefix when making a call, has accelerated the greatest potential to reach the majority of subscriptions as there is no competition. competition and lowered prices. Europeans. Tele2 believes that one way to put an end to this Tele2 believes that, if pre-selection is to be At present, the former monopolies are abusing cross-subsidization is for the former monopolies to developed, national regulatory authorities must their dominant position by keeping prices for be forced by legislation to open up subscriptions to facilitate pre-selection for customers and keep a wholesale of ADSL to other operators at an other operators for resale at wholesale prices. close eye on the former monopolies. unreasonably high level. Only when alternative operators can offer fixed The former monopolies of Europe are often quick In order to increase Internet use in Europe, subscription will competition be able to function. to come up with various pre-selection proposals Tele2 believes that the alternative operators must which all have one thing in common: they do not have access to ADSL under non-discriminatory allow simpler and cheaper calling for customers. conditions.
  22. 22. 20 THE RIGHT QUALITY TELE2 ANNUAL REPORT 2003 The customer’s wellbeing – our reward THE RIGHT QUALITY. Even though we have won the confidence of over 22 million customers, we still work hard to improve our performance even more. Listening to the customers and taking heed of their needs is a clear responsibility which permeates our entire organization. Contact with the customer is crucial – do we really make the to help the customer and an invaluable source of knowledge about grade? Humility towards the customer is an attitude which is our customers. shown throughout our entire organization. Partly because this is Working in customer service is a real vocation. At Tele2, we con- proper common sense, but also because it represents an essential stantly ensure quality in relation to our rapidly growing number of competitive advantage. We must always be better than our com- customers. We have decided to outsource the majority of customer petitors at taking care of customers. contact to a specialist partner. This partner is Transcom, which is The customers’ wishes and interests act as our decision data for one of the largest call-center companies in Europe. It is vitally im- new products, services, offers and continuous improvement. Tele2 portant to provide an efficient and personal service in our handling has well-developed working methods, which draw advantage from of customer calls, letters and e-mails, and to ensure that this is the knowledge and experience in our customer service. Reports done in a cost-effective way. from customer service are a natural element of management work Our close partnership gives the customer simple, direct contact at all levels in the Group. with Tele2, while we receive invaluable feedback from our customers. At Tele2, we look on a call to customer service as an opportunity In this way, we really live up to our motto: “The customer is king”. The Fink family from Düsseldorf, Germany, is the 20 millionth customer choosing Tele2.
  23. 23. TELE2 ANNUAL REPORT 2003 TELE2 ON EACH MARKET 21 Good growth in Tele2’s markets
  24. 24. 22 MARKET AREA NORDIC TELE2 ANNUAL REPORT 2003 Cross-selling with Nordic focus NORDIC. During 2003, Tele2, Comviq and Optimal Telecom continued to win market shares despite relatively low growth in the Nordic market. Tele2 is the second largest operator after the former monopolies in Sweden, Norway and Denmark. SWEDEN Tele2 won market shares in fixed and mobile telephony and dial- up Internet. Private and small business customers are canvassed through 15,000 vendors around the country and larger corporate customers through our own sales force. Telemarketing is an im- portant sales channel in fixed telephony. Tele2 successfully uses a customer care program (CRM) to increase cross-selling and reduce customer turnover. Fixed and mobile Tele2 improved its position in mobile telephony with a higher market share. To meet customers’ needs and intensify Tele2’s price pressure, new forms of subscription were launched during the year. In fixed telephony, Tele2 took market shares among private and corporate customers. Tele2 now offers new forms of subscriptions in this area too, which has resulted in a marked increase in cross- selling, particularly to corporate customers. NORWAY Dial-up Internet experienced stable development during the year. In Norway, Tele2 increased its market shares in mobile telephony. However, unrealistic pricing from the incumbent operator, means This represents an important stepping stone for increased prof- that Tele2 is sadly unable to offer its customers ADSL at lower itability and average revenue per customer. Tele2 is the largest prices than its competitors. alternative operator in fixed telephony and dial-up Internet. During 2004, the focus will continue to be on customer care and One of the most important events of the year for Tele2 was the cross-selling. 3G service will also be launched. signing of an agreement with Telenor for the resale of monthly charges for fixed telephony. The subscription launch in the middle Optimal Telecom of October soon attracted customer interest. Its success is due to Optimal Telecom is a service provider which offers a lowest-price Tele2’s low prices and the fact that the agreement gives customers guarantee for fixed telephony, dial-up Internet and prepaid calling flexible invoice management, with one invoice from one operator cards to Swedish households. The market for dial-up Internet has decreased, to the advantage In 2003, the Company enjoyed strong growth and took market of ADSL, and Tele2 is currently one of the largest players in the shares. ADSL market. By offering customers pre-selection for fixed telephony via tele- marketing campaigns and effective cross-selling, the Company in- Simpler for customers creased its customer intake. The Company strengthened customer During the year, Tele2 standardized its product range. The inten- loyalty by introducing various initiatives for building long-term tion was to make it easier for customers to buy Tele2’s services and customer relationships. to communicate more clearly that Tele2 is the price leader. Stand- Optimal Telecom’s operations in mobile telephony developed ardization will continue in 2004, mainly to cut costs in preparation extremely well in 2003. Sales of prepaid calling cards under for even tougher competition. the Tango brand increased and the Company won market shares The launch of the MVNO agreement with Telenor and the through aggressive cross-selling to existing fixed telephony fixed fee are two important milestones in Tele2’s operations in the customers. The brand also became stronger among the general Nordic mobile market. public. It appears the Company can look forward to a bright future. In DENMARK 2004, more new customers are expected to bring increased profit- Tele2 is constantly striving to find alternative ways of attracting ability. new customers. During 2003, Tele2 managed to increase customer
  25. 25. TELE2 ANNUAL REPORT 2003 MARKET AREA NORDIC 23 to double its revenue in 2003. Tele2 also offers Internet, and in February 2004, Tele2 launched mobile telephony under an MVNO agreement with Radiolinja. DATAMETRIX Datametrix has a strong position as a system integrator in the Nordic market. The Company is characterized by good geographic coverage, flexibility and cost-consciousness. The telephony market is driven by the following factors: • IP telephony is now a competitive alternative for commercial applications. • The demand for integrated mobile solutions is increasing. • The demand for call center integration is increasing. uptake by successfully using sales personnel in shopping malls, Datametrix has a good position and well-developed expertise in train stations and retail environments. all areas. Like Tele2, Datametrix is a unique total solution provider with a Increased market share strong product and service profile. In fixed-line telephony, Tele2 succeeded in persuading new and In Sweden, Datametrix is focusing on IP telephony and system existing customers to choose regular subscriptions leading to more integration of telephony and data. In 2003, there was a sharp in- loyal customers and an increase in market share. crease in the number of installed total solutions for IP telephony. In Over the past year, Tele2’s ADSL sales have boomed and, already, addition, the Company intensified its presence in the broadband/ by the end of 2003 the Company was one of the largest players in metropolitan area networks with LAN/WAN and VPN solutions. the market. Dial-up Internet services continue to make a positive In Norway, Datametrix is the country’s leading system integrator contribution to operations. Competition in mobile telephony is in networks, telephony and communications. Datametrix is recog- challenging and Tele2 adapted itself quickly to changes in the nized as a highly competent provider which focuses on customers market resulting in increased turnover for the year. Tele2 is one of and customer benefits. In 2003, Datametrix concentrated on IP the few companies in the Danish market offering a complete range telephony, MPLS networks, wireless solutions and security, while of telephony services. In 2004, the Company will continue to focus also expanding its range of services. on growth, profitability and the challenge of breaking the former In Denmark, Datametrix has a strong position in advanced call monopoly. center services and voice recording. Several of Denmark’s largest companies have opted for Datametrix solutions. FINLAND In Finland, Tele2 mainly sells international calls in fixed telephony. Partners Deregulation in the Finnish market has major defects, making it Datametrix Norway is a Cisco Gold Partner. From 2004, Datame- impossible for Tele2 to compete for local calls. trix Sweden will regain its status as an Avaya Gold Partner and Despite the anti-competitive flaws in the rules, Tele2 managed certified Ericsson Service and Sales Partner. Nordic Market Positions Position among alternative operators 2003 2002 Change Country Service Launch 2003 2002 Operating revenue , MSEK 12,942 13,557 1) –5% Sweden Mobile 1981 EBITDA1), MSEK 3,861 4,805 –20% Fixed 1993 1 1 Number of customers, 000s 6,720 6,252 7% Internet 1991 Cable 1986 Finland Norway Norway Mobile 2000 Fixed 1998 1 1 Sweden Internet 1997 35% Denmark Mobile 2000 Fixed 1996 1 1 Denmark Internet 1997 The market area’s share Finland Mobile 2004 of the Group’s operating revenue Fixed 2000 - - 1) One-off items are shown in Notes 1 and 2 Internet 2001
  26. 26. 24 MARKET AREA SOUTHERN EUROPE TELE2 ANNUAL REPORT 2003 ADSL already a success in France SOUTHERN EUROPE. The Southern Europe market area comprises France, Italy, Spain, Switzerland, Portugal, the UK, Ireland and C3. Operations grew and profitability rose during 2003, despite stiff competition. During the year, Tele2 started successful operations in Portugal In December 2003, Tele2 was awarded a GSM license in Switzer- and launched ADSL in France amid much attention, soon becom- land. ing the third-largest ADSL supplier. Spanish operations showed Although Switzerland is a mature market, Tele2 has achieved very satisfying growth during the last quarter of 2003. its growth targets. New growth has come from ADSL and mobile Unfortunately, deregulation in the ADSL market is not reflected telephony. In a period of just 10 months, Tele2 has become the in mobile telephony where we continue to see anti-competitive second largest player in ADSL. cartel formations. Supported by EU directives, Tele2 is working actively to increase competition. PORTUGAL Tele2 views 2004 with optimism. More customers will mean Tele2’s fixed telephony launch in Portugal in September 2003 at- higher revenues, which in turn will have a positive effect on profit- tracted much attention and the addition of Tele2 as a new player ability. The concentration on ADSL and dial-up Internet contin- ues, as growth opportunities in these areas appear to be excellent. FRANCE Tele2 remains the largest operator after the French monopoly for telephone services to private individuals and small and medium- sized companies. September 2003 saw the launch of Tele2 ADSL, with Tele2 France taking the largest share of growth in the market. By launching ADSL, Tele2 demonstrated to its existing and future customers in no uncertain terms that the Company is a price leader, always aspiring to offer top-quality products at the lowest prices. ITALY Tele2 offers a full range of products and services and is the second largest alternative operator in Italy. The Company’s growth spi- raled during the year, primarily due to the fantastic success of dial- up Internet, which will provide a good platform for a future ADSL launch. The combination of Tele2’s strong brand and an increased market share makes the future look very bright. SPAIN Growth for Tele2’s Spanish operations in fixed telephony accelerat- ed rapidly after September 2003. This success can be attributed to Tele2’s improved products, networks and processes, and a success- ful advertising campaign during the year which strengthened the Tele2 brand among the general public and brought new customers. Towards the end of the year dial-up Internet was launched with the lowest prices in Spain. SWITZERLAND Tele2 Switzerland now comes under the Southern Europe market area. However, the Company has had a market presence in Switzer- land for five years. Switzerland has a broad offering of fixed and mobile telephony, Internet and ADSL services.
  27. 27. TELE2 ANNUAL REPORT 2003 MARKET AREA SOUTHERN EUROPE 25 gave the market an injection of energy. The future looks excep- tionally positive. Tele2 has good opportunities for strong growth, particularly as other competitors have failed to take any major market share from the former monopoly. Since the launch, Tele2’s operations have gone according to plan in terms of the number of new customers and revenue. UNITED KINGDOM In October 2003, Tele2 launched fixed telephony in the UK. Suc- cess was not long in coming – by the end of the year Tele2 was already one of the fastest growing operators. The recipe for suc- cess of this ultra-fast, highly productive introduction was the fact that Tele2 used existing, tested business models from other Tele2 companies around Europe and the launch was synchronized with simplifications in pre-selection reform. Future As the market for alternative operators in fixed telephony grows in 2004, Tele2’s main focus is to increase the number of customers. In addition, Ofcom (the UK telecommunications regulator) is likely to introduce a system whereby customers only receive one bill for all their fixed telephony services. Tele2 can quickly and cheaply launch new Internet services for fixed telephony, resulting in increased revenue, better margins and enhanced customer benefits. IRELAND Tele2 has a fixed telephony license in Ireland. Tele2 advertising on BT Tower, belonging to British Telecom, in February 2004. CALLING CARD COMPANY (C 3) Integration of telephone card customers from the Alpha Group, C3 sells international calling cards in Ireland, Austria, the UK, acquired in 2003, has gone smoothly. New sales channels, which France, Germany, Spain, the Netherlands, Switzerland, Poland, included electronic terminals and the Internet, were successfully Portugal and Italy. Tele2’s rechargeable international calling card launched during the year. can now be used to make calls from 45 countries and C3 ’s invest- In 2004, Tele2’s growth will increase by means of additional focus ment in Call Shops has been successful – the service is now availa- on new distribution channels, more services and expansion to more ble in many European countries. countries. Southern Europe Market Positions Position among alternative operators 2003 2002 Change Country Service Launch 2003 2002 Operating revenue, MSEK 13,859 10,293 35% Ireland France Fixed 1999 1 1 EBITDA, MSEK 1,096 –48 - United Kingdom Internet 2002 Number of customers, 000s 7,487 5,594 34% Italy Fixed 1999 2 2 Internet 2002 Spain Fixed 2001 France 4 4 Internet 2003 Switzerland Switzer- Mobile 2000 land Fixed 1998 2 2 Spain Internet 2002 38% Italy Portugal Portugal Fixed 2003 - - United The market area’s share Kingdom Fixed 2003 - - of the Group’s operating revenue Ireland License for fixed telephony
  28. 28. 26 MARKET AREA CENTRAL EUROPE TELE2 ANNUAL REPORT 2003 Germany now profitable CENTRAL EUROPE. During the year, Austria launched mobile telephony and ADSL and Germany achieved its profitability goal. Tele2 has successfully joined the ranks of the most important players in the Polish and Czech markets. German operations have met the goal of becoming profitable and AUSTRIA are now showing very satisfying growth. Profitability increased and market shares were won in fixed telephony. The Austrian market is the most mature in the area. Tele2’s Tele2 is the largest alternative operator in fixed telephony to focus strategy is to use its large customer base to cross-sell mobile and on the important private market. Internet services. In February 2003, Tele2 successfully launched mobile telephony. Even though Poland and the Czech Republic are in the midst of Approximately 10 percent of Tele2’s fixed telephony customers a large-scale deregulation process, Tele2 has succeeded in beco- also had a mobile subscription with Tele2 at the end of the year. ming one of the most important players in fixed telephony in both The strategy to market the Company as a price reducer for prepaid markets. customers turned out well. Tests conducted by consumer organizations clearly show that GERMANY Tele2 has the lowest prices. Tele2 also comes out with top marks in Tele2 was one of the fastest-growing fixed telephony operators in independent customer surveys. Germany in 2003 and this fast growth enabled the Company to ADSL was introduced in the last quarter of 2003. The strategy show a profit in 2003. This success can be attributed to an effective for 2004 is continued growth in core operations, while also expand- advertising campaign which significantly increased the proportion of ing in ADSL and mobile operations. pre-selection customers and reduced customer turnover. Now that deregulation of local calls has taken place in 2003, the regulatory POLAND situation has been adapted to a similar level to other EU countries. In early 2003, Poland deregulated fixed telephony. Shortly after, in There still remain some steps to be taken, such as a simplified pre- April, Tele2 launched fixed telephony for the private market. The selection process. It is Tele2’s opinion that Germany is gradually launch was extremely successful and received a highly positive recep- conforming to other EU countries and Tele2s’ rapid overall growth tion from the general public. In the second half of 2003, Tele2 added is expected to continue in 2004. many new customers and was the fastest growing telecommunica- tions Company.
  29. 29. TELE2 ANNUAL REPORT 2003 MARKET AREA CENTRAL EUROPE 27 Tele2 is the only independent operator targeting the mass mar- alternative operator. Apart from the former monopoly, Tele2 is ket. The sales channels are telemarketing, partner sales and direct currently the only Company focusing totally on the mass market. mail advertising. Tele2’s market positioning is as price leader. Innovations during the year Bright future During 2003, Tele2 introduced local calls, dial-up Internet and The market for calls from the fixed network to mobiles will prob- pre-selection. All the services were positively received and the ably be completely deregulated in 2004. Although there are still number of customers rose sharply. inadequacies in the rules, 2004 is expected to be a year in which Regulations in the telecom sector are in need of improvement. Tele2 enjoys rapid growth. However, the Czech Republic’s EU membership in May 2004 is expected to contribute towards better rules and regulations. As a CZECH REPUBLIC whole, Tele2 considers the trends to be positive, and believes that Towards the end of 2002, Tele2 started offering fixed telephony to strong growth will continue in 2004. private customers. Just one year later, the Company was the largest Central Europe Market Positions Position among alternative operators 2003 2002 Change Country Service Launch 2003 2002 Operating revenue, MSEK 3,441 2,465 40% Germany Fixed 1998 3 3 EBITDA, MSEK –303 –231 - Austria Mobile 2003 Number of customers, 000s 3,469 1,817 91% Fixed 1999 1 1 Poland Germany Internet 2003 Poland Fixed 2003 1 - Internet 2000 Czech Republic Czech Fixed 2002 1 1 Austria Republic Internet 2000 9% The market area’s share of the Group’s operating revenue