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Tele2 at Kinnevik CMD 20110223

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  • 1. Exploiting growth opportunitiesE ploiting gro th opport nities inSweden and RussiaMats GranrydCEOFebruary 23, 2011
  • 2. Agenda g Tele2 in brief Q4 2010 summary Exploiting E l iti growth opportunities i R th t iti in Russia i Exploiting growth opportunities in Sweden11 2010-10-20
  • 3. Tele2 – An Eastern European growth machine • SEK 40 billion in revenue • Of which 70 percent mobile • 31 million customers in 11 countries • Tele2 always provides the Best Deal • Through price leadership and • Quality in all customer touch points2
  • 4. Q4 2010 summary3
  • 5. Highlights Q4 2010 g g Group: – Net customer intake for the group 803,000 in Q4 2010 – Net sales grew by 2 percent. Currency-adjusted 8 percent – EBITDA grew by 10 percent Currency adjusted percent. Currency-adjusted 18 percent44 2010-10-20
  • 6. Highlights Tele2 Russia g g • 755,000 (1,149,000) new customers in Q4 2010 • Revenue grew by 24 percent in i Q4 201055 2010-10-20
  • 7. Highlights Tele2 Sweden g g • Increased mobile revenue growth of 12 percent • Adding 20,000 (20,000) mobile customers, of which 65,000 (51,000) postpaid • Mobile EBITDA margin 30 (33) percent, due to a larger intake of smart percent phone customers and increased costs to JVs • 4G launch in five major cities66 2010-10-20
  • 8. Tele2 Netherlands: Revenues, segments & g focus areas Share of total revenue 2010 Tele2 NL network Corporate Fixed & BB (22%) SME Fixed & BB (7%) Wholesale (10%) IRU • Tele2 Business is the largest • Big potential in addressing SME • Shift from voice to more data. Leeuwarden competitor to KPN. That position will segment by building indirect Own Groningen Build be developed & strenghtened by channel. • Focus on Ethernet portfolio Assen acquisition of BBned Alkmaar • Improved offering andLondonL d • Focus on Fixed Data & Telephony, market position via BBned LelystadZwolle Haarlem Enschede strong position in the corporate & (‘BBeyond’) with a strong indirect Amsterdam governmental segment. Deventer Amersfoort channel The Hague Utrecht Arnhem Rotterdam Nijmegen Den Bosch Residential Fixed & BB (46%) Mobile (15%) Breda Middelburg Eindhov en Venlo Focus on Broadband 3P bundles Currently MVNO based Frankfurt Antwerp Brussels Heerlen Develop Best Deal position Paris Maastricht77 2010-10-20
  • 9. Highlights Tele2 Kazakhstan g g • During the quarter Tele2 added 114 000 quarter, 114,000 new customers in Kazakhstan, a sequential improvement of the total customer stock by 52 percent • Focus on widening the distribution network throughout the country t k th h t th t • Interconnect lowered as of 2011 with good support from NRA88 2010-10-20
  • 10. Group financial profile99 2010-10-20
  • 11. Net debt and dividend targets g • Shareholder remuneration – “Tele2 will seek to pay a progressive ordinary dividend of 50 percent or more of net income excluding one-off items. Extraordinary dividends and the authority to purchase Tele2 s own shares will be sought when the Tele2’s anticipated total return to shareholders is deemed to be greater than the achievable returns from the deployment of the capital within the groups operating segments or the acquisition of assets within Tele2’s economic p g g q requirements.” • Balance sheet – “Tele2 has a target net debt to EBITDA ratio of between 1 25 and 1 75 Tele2 1.25 1.75 times over the medium term. The company’s longer term financial leverage should be in line with the industry and the markets in which it operates and reflect the status of its operations future strategic operations, opportunities and contingent liabilities.”10 10 2010-10-20
  • 12. Tele2’s general g g group targets g • Best D l B t Deal position iti • Targeting a long-term g g g mobile EBITDA margin on own infrastructure of at least 35 percent • All operations should have the ambition of reaching ROCE of at least 20 percent • The capability to reach a top 2 position, in terms of customer market share, in an individual country or , y region11 11 2010-10-20
  • 13. Exploiting growth opportunities in Russia12
  • 14. Macro outlook Consumer & Labor Market Indices 2008 – 2012 GDP per  capita (PPP), $ 18500 13,3 14,0 CPI, % 18000 Real Disposable Income  Growth,  % 12,0 Budget deficit, % of GDP 2009 2010 2011F 17500 Unemployment  rate, % 17000 10,0 Russia 6.1 4.1 2.0 8,8 8,8 16500 7,7 Percen EMEA (incl. Russia) 5.8 5.0 3.7 USD 7,0 8,0 16000 8,4 Eurozone 6.3 63 6.0 60 4.7 47 nt 15500 7,3 7,1 6,8 6,0 6,4 US 10.2 8.6 6.3 15000 14500 3,4 F 4,0 Japan 5.6 6.5 7.5 2,7 27 2,4 2,6 2,3 Global 6.0 5.3 4.3 14000 2,0 13500 13000 0,0 00 2008 2009 2010 2011F* 2012F* Further outlook is for stable macro-environment and positive economic growth p gSources: Actual data & 2010 estimate – Official statistics; forecast – Deutsche Bank EM Outlook 2011, World Bank Outlook13
  • 15. Tele2 Russia: Mobile market overview Penetration Prepaid shareMobile subscribers (million) P NET ADDITIONS QUARTERLY CHURN   Share of adds (%) MTS Vimpelcom MegaFon Tele2 PERCENT Tele2 100%Net additions Quarterly churn 13% 80% 60% 10% 40% Q 7% 20% 0% 4% ‐20% 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10Source: AC&M – 3Q10 Report, Mayson Analysis – Voice Quarterly Metrics, Nov 8th 2010 14
  • 16. Tele2 Russia: Mobile market overview MOBILE MARKET SHARES MOBILE MARKET SHARES PERCENT OF ACTIVE SUBSCRIBERS PERCENT OF ACTIVE SUBSCRIBERS PERCENT OF RETAIL REVENUES 40% 35,0%Mobile market shares Mobile market shares 35% 30,0% 30% 25,0% , m m 25% Mobile TeleSystems 20,0% Mobile TeleSystems 20% VimpelCom VimpelCom 15,0% 15% MegaFon MegaFon Tele 2 T l 2 10,0% 10 0% Tele 2 T l 2 10% 5% 5,0% 0% 0,0% 2006 2007 2008 2009 1Q10 2Q10 3Q10 2006 2007 2008 2009 1Q10 2Q10 3Q10 Average TELE2 share (old regions) – 38.5% Average TELE2 share (new regions) – 14% Average TELE2 share (total 37) – 28%Source: AC&M Consulting – 3Q10 Report, Mayson Analysis – Voice Quarterly Metrics, Nov 8th 2010 15 2010-10-20
  • 17. Mobile ARPU development p Even if prices are pressured in Russia, Tele2 will see stable or growing ARPU Source: World Economic Outlook, Oct. 2010; Analysis Mason, Country Report Data: Russia, Oct 2010; ACM Consulting16
  • 18. Tele2 Russia: Mobile data market BIG4 DATA REVENUE BREAKDOWN* TELE2 REGIONS, PERCENT, 3Q10 14% 29% МТС МегаФон 22% ВымпелКом Tele2 35% BIG4 DATA TRAFFIC BREAKDOWN* DATA REVENUE TELE2 REGIONS,  PERCENT, 3Q10 MTS Vimpelcom MegaFon Tele2 3% 9 МТС 8 МегаФон 7 7 18% 21% ВымпелКом Tele2 58% Data Rev, % of total Revenues17 * Tele2 regions internal, BIG 3 – J’son & Partners, 2011, otherwise AC&M, 2010 2010-10-20
  • 19. The business opportunity pp y Connections (millions) and ARPU (RUB) Service Revenues (BUSD) CAGR 2010- 22,5 5,6% 2015 CAGR 2010- 5,5 4,7% 20,7 20 7 2015 19,4 -1,3% 4,6 25,1% 2,2 4,4 0,8 18,1% 17,1 3,7 11,4% 0,4 1,5 1,4 0,6 14,8% 17,9 18,5 15,6 2,8% 15,7 -3,3% 3,4 3,3 -0,3% 2010 2015 2010 2015 2010 2015 Handsets MBB ARPU Voice ARPU Non‐Voice Voice Broadband Non‐Voice Current Tele2 B2B Russia Target Market (Service revenues) The total Russian B2B market is app. USD 4.4 billion with 1% 19% expected 2010 2015 CAGR 2010-2015 at 5 percent T2 Target Market T2 Revenues Total Market T2 Target Market18 Source: Analysys Mason
  • 20. Tele2 regional expansion opportunities g p ppPopulation (Million) COVERAGE MAPTotal Market 142Tele2 61 CHUKOTSKINew licenses 12,5 Мурманск КалининградCombined 73,5 С.-Петербург Петрозаводск Псков П Нарьян-Мар В.Новгород KORYAKSKI Архангельск Вологда Смоленск Тверь Ярославль МОСКВА Сыктывкар MAGADANSKAYA Кострома Брянск Калуга Дудинка Курск Орел Тула Иваново KOMI-PERMIATSKI Владимир Рязань Н.Новгород р д YAMALO-NENETSKI KAMCHATSKAYA Белгород Липецк Киров YAKUTIA Саранск Тамбов Йошкар-Ола Воронеж Казань Пермь HANTY-MANSIYSKI Ижевск Краснодар Тура Екатеринбург Р.-на-Дону Саратов Волгоград Самара Майкоп Уфа Челябинск Тюмень Элиста Ставрополь HABAROVSKI Оренбург KURGANSKAYA Астрахань Омск Томск Красноярск PENZENSKAYA SAKHALINSKAYA Махачкала ULIANOVSKAYA Новосибирск Кемерово AMURSKYA UST-ORDYNSKI Чита Барнаул Улан-Удэ EVREISKAYA Иркутск Кызыл PRIMORIE Горно-Алтайск Opportunity for Tele2 to expand 2G coverage 19
  • 21. 4G license background • Tele2 has submitted an application letter to join the 4G consortium set up to investigate the feasibility of 3G and 4G in a number of radio frequency bands • The Government has approved the “perspective radio frequency plan” for 800, 900, 2300 and 2600 MH b d t b used f th 3G/4G mobile b db d b 2014 2015 d MHz bands to be d for the bil broadband by 2014-2015 • As per officials’ public statements technology neutrality shall be adopted by 2015 officials LTE 1800 is viewed as a viable 4G opportunity by a number of market players20
  • 22. Summary• After the financial crisis Russia is back on track with GDP growth projected at 4.2% in 2011• The 17 regions launched in 2009 had a great start, and there is still a lot of market to capture• Upcoming new licenses may give further geographical expansion Tele2 Russia’s inherent organic growth is complemented by an array of new opportunities Russia s 21
  • 23. Exploiting growth opportunities in Sweden22
  • 24. A continued shift from fixed to mobile and voice to data 60 50 M2M Billion SEK IP-TV 40 Mobile Messaging (SMS/MMS) 30 Mobile Data B Fixed Business Data 20 Fixed Broadband 10 Mobile Voice 0 Fixed Voice 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sources: PTS, Analysys Mason, Ovum23
  • 25. Smartphones change the customers’ behavior customers Tele2 customers’ demand for data solutions is The Swedish mobile market increasing rapidly Smartphones vs. regular phones Share of total market Sales of data packages increased 400% in 2010 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0% 2009 2010 2011 2012 2013 2014 Smartphone Active mobile handset subscribers More than 60 percent of Tele2’s p p p prepaid customers converting to postpaid change to a smartphone Sources: Analysys Mason Sources: Internal data24
  • 26. Smart phones drive revenue growth • Increased usage and ASPU Top 10 phone sales (Oct-Dec) – A customer used to a regular phone quickly increases usage of voice, text and data 1 iPhone4 – ASPU increases with almost 20% 2 iPhone 3GS 3 Sony Ericsson X8 4 HTC Desire 5 HTC Desire HD Smartphone user, who previously used a regular 6 Samsung E1080 phone 7 Samsung Galaxy S Minutes* SMS MMS Data ASPU** Up-lift 13% 21% 26% 975% 19% 8 HTC Wildfire * Out-going minutes 9 Nokia 1208 ** ARPU excluding operator revenue and installments 10 Sony Ericsson X10 Mini Pro25
  • 27. Communication As a Service (CAS) increases revenue Service revenues for SME (000s) IP Centrex extensions $30 250 $25 200 $20 150 $15 100 $10 $5 50 $0 0 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 • Tele2 has strengthened its product portfolio within the CAS segment – Acquired Spring Mobil in 2010 – Integrated the departments working with CAS to gain an increased focus on customers26
  • 28. 4G is a substitution for fixed broadband Revenue from data 2004 2009 2004-2009 4G benefits for Tele2 25% e/Revenue Mobile revenu (MSEK) 29000 23% 28000 • Increased customer intake 27000 21% 19% ue – Substitute for Fixed Broadband Data-Revenue 26000 17% 25000 15% • Improved quality perception 24000 23000 13% 11% 22000 9% • Higher ARPU 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 • Lower production costs27 Source: Analysis mason, 2010
  • 29. Summary • A continued shift f i d hif from fi d to fixed mobile and voice to data • Smartphones change the customers’ behavior and drive revenue growth • Good potential for further market p share gain in the SME segment • 4G can provide a substitute for fixed id b tit t f fi d broadband28
  • 30. Tele2 s Tele2’s group guidelines • Best D l B t Deal position iti • Targeting a long-term g g g mobile EBITDA margin on own infrastructure of at least 35 percent • All operations should have the ambition of reaching ROCE of at least 20 percent • The capability to reach a top 2 position, in terms of customer market share, in an individual country or , y region29
  • 31. 30
  • 32. APPENDIX31
  • 33. 32 A 1 9 07 A 1 3 ,5 ,4 B 4 05 4 12 37 B 9. .9 93 3 ,3 C 1 1 [ ] = Cluster; 11 C 6 92 ,5 D 9 0 10 .2 81 D 8. ,8 E 1 9 10 7 6 78 E ,6 [ F] 6 p 1 1 0 .6 7 6 F 5. ,1 G 1 7 AT&K 10 7 5 71 G Personnel Personnel ,8 H 3 7 Depreciation Depreciation 10 .4 71 [H] 3. 2 ,0 I 8 7 2 0 99 Rental equipment R ental equipm ent I .8 ,5 J 0 6 4 8 98 [J] .3 ,1 K 9 92 6 6 K 7 ,7 .1 L 0 6 8 5 88 [L] .2 ,9 M 5 6 8 5 80 M .5 ,7 N 5 6 8 5 78 N .7 ,2 2 O 6 2 4 72 O .5 [ P] ,2 9 6 9 3 72 P .1 Q ,4 2 6 0 71 1 Q ,8 0 = Operator excluded from reference value calculation .2 R 5 1 9 70 Tele2 SE 07A A .5 S ,5 8 5 6 68 7 ,2 S .2 T 8 5 0 67 6 ,1 [T] .1 U 9 5 5 66 5 R eference U ,7 1 Reference .9 V 5 8 66 5 ,7 V .4 W 0 5 3 5 Ex ternal serv ices 63 ,6 W Ex ternal serv ices .0 X 2 5 2 61 5 ,3 [X] Site and building rental .9 Y 3 Site and building rental 5 7 61 5 ,1 [Y] .6 Z 0 5 4 60 3 ,9 [Z] AA 6 AT&Kearney global b .4 0 60 53 A AA ,0 .4 AB 2 5 0 59 2 ,8 AB B .7 AC 7 5 6 59 0,4 AC C .5 AD 5 4 7 59 9,9 AD D .2 [A ] E 0 4 6 57 5 ,8 [ AE ] .2 AF 6 1 4 4 55 ,8 AF F [A ] G 5 .0 4 1 h 52 4 ,0 AG G .7 AH 7 6 4 3 Pow er ,8 51 AH H .9 [A ] I 9 4 4 Pow er 51 3 ,4 AI AJ 6 .6 4 1 49 2 ,6 J AJ .7 AK 8 9 4 C luster reference 48 1 ,9 AK K AL 6 Cluster reference .3 4 7 46 1 ,0 AL L AM 6 .9 4 4 0 k l b l benchmark ,9 Leased lines / frequencies 46 [ AM ] [A ] N 1 .8 4 5 Leased lines / frequencies 45 0 ,1 AN N [A ] O 2 .6 3 2 44 9 ,9 AO O AP 9 .3 3 2 43 8 ,6 AP P AQ 4 .4 3 8 6 ,0 4 42 AR AQ Q .9 3 9 42 5 ,8 [ AR ] AS 3 9 Total cost per site .4 3 5 ,2 [A ] T 4 42 S AS .3 3 9 41 4 ,3 AT T AU 4 .9 3 4 41 4 ,3 AU U AV 0 .4 3 7 Other 2 ,8 AW 9 41 AV V 2 Other .2 32 ,6 [A ] X 7 37 AW W 3 8 Tele2 has the lowest costs according to .2 1 ,8 AY 5 34 AX X 3 0 Total cost per Gb (traffic) .7 1 ,7 [A ] Z 6 32 AY Y .1 3 2 0 ,7 BA 4 31 AZ Z .4 2 9 0,6 30 T le S 0 A e2 E7 5 BA A .1 1 7 9,9 8 License & v endor m aintenance 27 BC BB B 1 9 1 7 2 3 .2 3 ,7 License & v endor maintenance [ Tele2 SE 08A ] .1 BD ,9 8 4 0 1 [ T le S 0 A] e2 E8
  • 34. Our customers shall communicate in the world’s most efficient network, with good quality t ffi i t t k ith d lit GCB - Independent benchmark to other operators Lowest value Tele2 Average Highest value 0,01% 0,2% 0,53% 1,8% Congestion rate Lowest value Tele2 Average Highest value 0,23% 0,7% 0,73% 1,54% Call drop rate Lowest value Tele2 Average Highest value Average call 2630 4500 4873 7940 set-up time (msec)33
  • 35. An overview of network sharing arrangements Telenor Tele2 Telia 2G Net4Mobility 3G 3GIS SUNAB 4G Net4Mobility34
  • 36. Strategy for network companies proven with the S Sunab j i t venture b joint t • T l 2 mobile b db d ”b t in t t” Tele2 bil broadband ”best i test” • >50% savings, OPEX and CAPEX compared to own network k Cost efficiency • Benchmark on quality and costs always in focus • ”Key for success” to have a detailed agreement and a common p g plan”Test av bästa mobila bredbandet” 35
  • 37. Strategy for cost efficiency resulted in joint venture with T l t ith Telenor N4M • N4M enables unique position for 4G speeds and coverage in Sweden • 40-50% OPEX and CAPEX savings, compared to own network Cost efficiency always in focus • Benchmark on quality and costs • ”Key for success” to have a detailed agreement and a common plan36
  • 38. 4G roll-out NETWORK AND TERMINALS PLAN ON TRACK COMMERCIALLY LAUNCHED 15-11-2010 • 4G Core network installed and operational • Roll-out started from new combined 2G and 4G network in Stockholm, G th b t k i St kh l Gothenburg, M l ö L d Malmö, Lund and Karlskrona • >350 sites swapped to date • 30 – 50 sites will be swapped each week • Quality and speed improvements in the 2G network • Emphasis on 2G quality and coverage37
  • 39. 4G speeds38
  • 40. 39

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