NetCom Annual Report 1999




                            MCMXCIX
                             A n n u a l R e p o r t 1999
Contents

       1    1999 Highlights

       2    President´s message

       4    NetCom AB

      10    Board of Direct...
1999 Highlights

• Inclusive of prepaid, Comviq added 362,000 gross new sub-
      scribers on an annualized basis for a t...
”   ...ensuring that NetCom is a highly efficient enterprise. Our customers must gain advan-
    tages from that efficienc...
Lars-Johan Jarnheimer (right)
                                                                                            ...
The NetCom Group
NetCom AB, formed in 1993, is a leading telecommu-       Norway. Datametrix, which specializes in systems...
Business concept
    Based on customer needs, NetCom AB shall efficiently provide a high level of service when selling and...
The NetCom Group




Quality                                                      works to transfer voice, images, text, a...
H I S TO RY

   In Denmark and Norway, the ability of Tele2 compa-
nies to offer complete solutions is restricted by their...
NetCom AB
Internet and radio licenses in Poland                         dures that proved valuable and a great aid to qual...
NetCom squeezes prices
As in most countries, Swedish telephony services were long the reserve
of a state-owned monopoly. T...
Board of Directors




Vigo Carlund                        Lars-Johan                         Håkan Ledin                 ...
Senior Executives




Lars-Johan Jarnheimer                        Johnny Svedberg                                 Jörgen ...
Financial Review

NetCom increased operating revenue 37% in 1999, to            Operating profit after depreciation and am...
DEFINITIONS

Five-year summary                                                                                            ...
NetCom Share Data

Listing on the Stockholm Stock Exchange                                                                ...
Share Price, Stockholm Stock Exchange


             Class B Share,        The Affärsvärlden General Index        Weekly T...
Tele2 AB Sweden is a Swedish telecommunications company that sells and delivers, in a
cost-effective manner with first-cla...
Mobile Telephony
      Operating revenue, SEK 3,909 million (2,958), +32%
      Operating profit before depreciation and a...
Tele2 AB                      Tele2’s mobile telephony operations grew apace in 1999, fueled by
Tele2 AB Sverige
         ...
N U M B E R O F C U S TO M E R S , M O B I L E T E L E P H O N Y

                           1,600,000   Quarterly data


...
Tele2 AB

       Mobile Telephony
       Revamping subscription packages                               Positioning system ...
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Annual Report 1999

  1. 1. NetCom Annual Report 1999 MCMXCIX A n n u a l R e p o r t 1999
  2. 2. Contents 1 1999 Highlights 2 President´s message 4 NetCom AB 10 Board of Directors 11 Senior Executives 36 18 12 Financial Review 13 Five Year Summary 14 NetCom Share Data 16 Tele2 AB Sweden 18 Mobile Telephony 21 25 22 Fixed Telephony 25 WAP 26 Internet 33 29 Broadband 30 Cable-TV 32 Tele2 A/S Denmark 34 Tele2 Norge AS 16 30 36 Other Operations Ritabell Datametrix Optimal Telecom 4T Solutions 40 Associated Companies 34 SEC Everyday.com 4 42 Report of Directors 44 Income Statements 45 Balance Sheets 47 Cash Flow Statements 48 Notes 26 22 72 Audit Report Back page Addresses Financial Calendar First Quarter Results May 8 Annual General Meeting May 25 Second Quarter Results August 15 41 Third Quarter Results November 6
  3. 3. 1999 Highlights • Inclusive of prepaid, Comviq added 362,000 gross new sub- scribers on an annualized basis for a total of 1,641,000. • 48% annualized growth in activated prepaid card customers in Sweden to 909,000. • Monthly mobile average revenue per subscriber (ARPU) in Sweden, excluding prepaid subscribers, increased by over 14% to SEK 418. • In March, the NetCom Board announced the appointment of Lars-Johan Jarnheimer as President and CEO of NetCom AB. • In June, NetCom announced a business reorganization initia- tive to cut costs to meet future increases in market compe- tition. The reorganization will create annualized cost savings of MSEK 80, effective January 2000. • In September, Everyday.com, NetCom’s joint venture with Modern Times Group (MTG), was launched, creating Scan- dinavia’s biggest Internet portal. Everyday.com offers free Internet, secure payments in addition to broad product content. • In October, NetCom announced a collaboration with Cisco to launch a new fiber optic ring as part of Tele2’s Internet back bone which will facilitate greater bandwidth. • In November, NetCom announced the sale of its 24.8% shareholding in its associate company, NetCom ASA, in exchange for a 17.8% stake in Société Européenne de Communication SA. • NetCom’s operations were not effected by the changeover to the new millennium. FINANCIAL SUMMARY SEK million 1999 1998 % Change Operating revenue 8,193 5,969 +37 Operating profit before depreciation and amortization 2,097 1,223 +71 after depreciation and amortization 1,142 518 +120 Profit after financial items 4,179 232 +1,701 of which profit on sale of shares in associated companies 3,228 — — excluding profit on sale of shares in associated companies 951 232 +310 Profit after taxes 3,769 67 +5,525 Earnings per share (SEK) (1) 36,29 0,64 +5,570 (1) Earnings per share figures are after taxes and full conversion. NetCom Annual Repor t 99 1
  4. 4. ” ...ensuring that NetCom is a highly efficient enterprise. Our customers must gain advan- tages from that efficiency, through prices and quality, at the same time as the interests of shareholders must also be satisfied, of course. ” A Message from the President of NetCom 1999 was a watershed year for NetCom. A massive, far- A look back sighted investment that was long in the red has broken In the mobile telephony field, the prepaid card Comviq through to profitability, thanks to dedicated hard work. Kontant kept up its rapid pace of expansion. Comviq I am thankful for the efforts that my predecessors and was one of the very first mobile telecom companies in my associates have made to bring us to this destination. Europe to invest aggressively in this technical solution, I assure you that our goal now is to further amplify which was developed in Portugal. The Swedish market NetCom’s earnings as quickly as possible. quickly welcomed the prepaid card. Actually, the other From the start, NetCom’s business concept was to two Swedish GSM operators were the only ones who squeeze prices. This remains essential to our company’s took their time before realizing this crying need among identity. For a growing number of customers, we are the consumers. Comviq has retained its strong position as company that offers at a lower price services of a quality market leader in this segment. During 1999, we also on a par with those of the old monopolists or, for that became the first Swedish operator to allow prepaid-card matter, the serious newcomers to the partially deregulat- customers to make calls while abroad. ed markets where we are active. Comviq subscriptions invoiced for service reported My task primarily consists of ensuring that NetCom outstanding growth, as did Tele2Mobil subscriptions for is a highly efficient enterprise. Our customers must gain business customers. advantages from that efficiency, through prices and qual- The Estonian mobile telecom operator Ritabell posi- ity, at the same time as the interests of shareholders tioned itself during the year as the price leader in its must also be satisfied, of course. market. This makes tough demands on our ability to explain Since Tele2 was founded, the Internet has been an our services to customers. It also makes tough demands essential business area. Tele2 pioneered the Internet in on the politicians in power and the government agencies Sweden at a time when the incumbent operator Telia supervising the slow process of deregulation in the tele- thought it a passing fad. Tele2 has supplied broadband com market. For consumers to genuinely benefit from capacity to companies for many years – since long competition, politicians and government agencies must before others coined the phrase “Broadband for every- show more resolution for deregulation. The will and the one!” Through Kabelvision, we can also supply such capacity for this have wavered recently, not only in capacity to households. Tele2 has good reason to stress Sweden but also in Norway and Denmark. this aspect of the company’s business more clearly in the NetCom’s various brands – chiefly Comviq GSM, future. The pioneer role may be a thing of the past, but Kabelvision, Tele2 and Tele2Mobil – have earned respect Tele2 remains a cutting-edge enterprise in both the busi- for their high quality combined with low prices. Behind ness and consumer markets, capable of marshaling this recognition lies a corporate culture that has learned exceptional expertise. to wield its tools well, to invest so that efficiency and In the area of fixed telephony, 1999 was a trying year. quality can be satisfied at extremely low cost. In Sweden, the chief ordeal was the telephone service This has created a proud corporate culture in which reform that included switching the international dialing the various brands have grown into one another during prefix to 00, replacing the old operator prefixes and the past few years, as the people working with the introducing preselect, by which customers could desig- brands have acted in an integrated organization. And nate a default domestic and international carrier. This that yielded outstanding efficiency gains. During the proved a complicated matter for customers and was past year, we saw similar effects, as staffing numbers poorly managed by the authorities. were reduced by 150 with no loss of quality. 2 NetCom Annual Repor t 99
  5. 5. Lars-Johan Jarnheimer (right) succeeded Anders Björkman as CEO of NetCom in March 1999. The transition to preselect caused the most animated reacted most vociferously against Tele Danmark’s pric- discussion during a period of unclear instructions from ing, which illustrates the gap between Telia’s actions in the regulatory bodies. Heightened competition was the Sweden and in a market where the company does not goal of the reform, itself part of the deregulation of hold the position of former monopolist. European telecom markets under the leadership of the European Union. The goal of former monopolists like The future Telia, Telenor and Tele Danmark was quite naturally to Telecom deregulation in Europe is a glacial process, minimize the effects of preselect (in Sweden, a sub- unfortunately. It will take many years before customers scriber can choose to make all calls except local calls enjoy a market in which the former monopoly compa- with a single operator). As reform loomed, a conflict of nies really are competitors, under the same conditions interest appeared that the operators themselves were as the new companies. The political structures in each powerless to solve. The National Post and Telecom country have a tendency to protect their old state- Agency, the Swedish Competition Authority and the owned enterprises to the bitter end. This is true of Swedish Consumer Agency must have a mandate and politicians as well as deregulation and competition the power to handle problems that arise. This was not authorities. the case in Sweden. In Denmark and Norway, on the In the three markets where NetCom has its principal other hand, it was considerably easier to implement the operations – Denmark, Norway and Sweden – prospects preselect reform. for the future are bright as long as the company keeps to The fact that Tele2 in Sweden had become such a sig- its pursuit of lower costs and the pricing philosophy that nificant rival to Telia caused special problems. Telia saw I mentioned in the beginning. The idea is to augment the reform as an opportunity to reset the clock to pre- operations in Denmark and Norway so that Tele2 cus- competition days; Tele2 should start from zero, they tomers there can also be offered mobile telephony in seemed to have reasoned. As the merger of Telia and one way or another. The crucial Internet market is Telenor and their pending stock exchange listing another field where Tele2 has been a pioneer and aggres- approached, political and regulatory authorities sively pursued new projects, such as www.everyday.com, appeared incapable of dealing with this conflict between a portal owned jointly with Modern Times Group Telia and its only genuine competition, Tele2. MTG AB. This market is seething with competition in Tele2 was forced to invest substantial sums in explain- every single country, which I find invigorating. NetCom ing the reform to customers and the public. Telia’s han- has never shrunk from an attractive market with intense dling of the reform after September 11, when the competition. On the contrary, that spurs the Company change took effect, also left much to be desired. Telia to perform even better. owns the telephone system (the “copper-wire network”) and is also the biggest competitive operator – a situation that is entirely unacceptable. The future will show to Lars-Johan Jarnheimer what extent EU demands for further deregulation are CEO fulfilled in a reasonable manner. In Denmark, Tele Danmark’s competitors have been able to use the tele- phone network all the way to the customer since the spring of 1999, but Tele Danmark’s pricing so far has made that reform a joke. Telia’s Danish subsidiary has NetCom Annual Repor t 99 3
  6. 6. The NetCom Group NetCom AB, formed in 1993, is a leading telecommu- Norway. Datametrix, which specializes in systems inte- nications company in the Nordic countries. The gration, 4T Solutions and Optimal Telecom are also part Company provides GSM cellular services, under the of NetCom. The Group offers cable television services Comviq and Tele2Mobil brands in Sweden, through its under the Kabelvision brand name. NetCom has a Ritabell subsidiary (Q-GSM) in Estonia and through the 17.8% stake in Société Européenne de Communication Tele2 brand in Lithuania. For public telecommunica- SA. The Company is listed on the Stockholm Stock tions, data communications and Internet access, Exchange, under NCOMA and NCOMB, and on the NetCom has the Tele2 brand in Sweden and the sub- Nasdaq Stock Market, under NECS. sidiaries Tele2 A/S in Denmark and Tele2 Norge AS in NetCom AB 48% 46.8% 100% 50% 17.8% Ritabell Tele2 AB (Estonia) (Tele2, Comviq and Kabelvision) Everyday.com SEC 100% Tele2 Tele2 A/S 4T Datametrix Optimal Projects Norge AS Denmark Solutions Telecom Poland 4 NetCom Annual Repor t 99
  7. 7. Business concept Based on customer needs, NetCom AB shall efficiently provide a high level of service when selling and delivering com- munication solutions for voice, data and images, to make its customers the most satisfied and loyal in the marketplace. Objectives NetCom AB shall be the leading telecom operator in the Nordic and Baltic region. The Company shall achieve solid, steady growth with improved profitability in both the business and consumer segments. Strategy • Based on its thorough knowledge of the marketplace, NetCom AB quickly detects trends and launches profitable communication solutions. • NetCom’s services are marketed under the Tele2 and Comviq brands. Tele2 is used primarily for the business mar- ket but even for fixed telephony and Internet access for private individuals. Comviq targets the consumer market for mobile telephony. Tele2 and Comviq are perceived as the price leaders. • By deploying new technologies at an early stage, NetCom generates fresh sources of revenue and boosts profitability. Profitability is ensured through cost-effective and flexible operations that adhere to clearly defined standards of quality. • Integrated services enable NetCom to better satisfy customer needs. Principles NetCom AB’s operations are based on three fundamental principles, intended to inform day-to-day activities. • Flexibility • Non pretentiousness • Cost awareness THE BUSINESSES IN BRIEF v v Tele2 AB offers mobile telephony, * Tele2 Norge AS has provid- * fixed telephony, Internet, data ed Internet and data com- communications and cable-televi- 76% munications services since 5% sion services in Sweden. The com- 1995 and fixed telephony pany’s services are marketed under since 1998. The company is the Tele2, Comviq and Kabelvision regarded as the private alterna- brands. Tele2 is used primarily for mobile telephony tive to the old state-owned monopoly. Tele2 Norge AS and data communications for the business market, serves businesses and private individuals. The company and fixed telephony and Internet services for private accounted for 5% of Group revenues in 1999. individuals. Comviq is used as a consumer brand v for mobile telephony. Tele2 uses the Kabelvision Other Operations includes * brand name in the cable-TV market. Tele2 AB Ritabell, which offers mobile accounted for 76% of Group revenues in 1999. telephony services in 8% Estonia; NetCom owns v Tele2 A/S Denmark has offered * 94.8% of Ritabell. Among fixed telephony, Internet and data the remaining businesses are the communications services in 11% operator Optimal Telecom; 4T Solutions, which Denmark since 1996. The compa- designs, markets and installs invoicing systems; and ny is the leading alternative operator Datametrix, which works with systems integration. in Denmark. It serves both business Companies in Other business accounted for 8% of customers and private individuals. Tele2 A/S of Denmark Group revenues in 1999. accounted for 11% of Group revenues in 1999. * Proportion of Group operating revenue in 1999. NetCom Annual Repor t 99 5
  8. 8. The NetCom Group Quality works to transfer voice, images, text, audio and video. The following quality guidelines apply to all activities IP is equally effective whether used on a mobile, fixed throughout the Group. or data network. “A vital means for achieving our goals is first-class The technology poses fresh challenges to telecom quality in everything we do. The basic foundation for operators. In particular, competition is coming from this is our principles and know-how. Our maxim is con- businesses such as software manufacturers, systems inte- tinuous improvement. The actual use of a product or grators and media content providers. IP has given these service must always meet the customer’s expectations. companies the ability to provide telecommunications We constantly place the customer at center stage, and services. our chief gauge of quality is his or her satisfaction. Our promises, our actions and our products must be per- Flexibility of small business ceived as embodying quality. Our customers must always Among the NetCom Group’s strengths is its success at feel confident in NetCom AB as a service provider.” combining the advantages of a small business – speed, flexibility and cost awareness – with the economies of Environmental policies scale available to big companies. In this market, it is not NetCom AB’s operations have only a limited impact on the big that beat the small but the fast that beat the slow. the environment. Nevertheless, customers increasingly In Sweden, NetCom offers businesses and consumers request the Group to confirm that its practices are as complete customized solutions as well as standardized environment-friendly as possible. The Group’s environ- services in fixed and mobile telephony, Internet, data mental policy states that environmentally certified prod- communications and cable-TV. ucts should be used whenever possible. In addition, every The Company has access to well-known brands, an effort should be made to manage waste generated by the extensive infrastructure and a broad customer base. Company’s offices in a sound environmental manner. Scrapped materials should be handled similarly. Finally, Telia controls access network purchasing decisions must take into account environ- One obstacle in Sweden is the legacy of the old telecom mental considerations. Mobile telephony in particular monopoly in the fixed telephony market. Telia owns the demands that the Group pay constant attention to envi- telecommunications network that was built by the public ronmental safety, keep up with research in Sweden and sector. This control of the access network, that is, the abroad, actively participate in discussions of health, the final link to the customer, guarantees Telia an effective environment and security and disseminate new findings monopoly on basic service subscriptions. A similar situa- through its web site. tion exists in Norway. The Swedish National Post and Telecom Agency The new IP standard (PTS) has proposed a change in the Swedish Telecom- Owing to the rapid growth of the Internet, the Internet munications Act that would open the national access protocol suite (IP, the Net’s basic language of communi- network for telephony to other telecom operators than cation) has become accepted as the standard communica- Telia. However, the proposed legislative changes leave tions protocol. And the spread of IP is spurring the con- several key issues unresolved. NetCom does not expect vergence of fixed telephony, mobile telephony and data any other operators to be able to compete commercially transfer. The protocol allows data communications net- until the second half of 2001, at the earliest. 6 NetCom Annual Repor t 99
  9. 9. H I S TO RY In Denmark and Norway, the ability of Tele2 compa- nies to offer complete solutions is restricted by their lack Late 1970s: Industriförvaltnings AB Kinnevik decides of mobile telephony operations. to enter the telecommunications market. 1981 Kinnevik starts its own analog mobile telephony Radiation warnings for cellular phones network. Now and then, warnings appear in the media about radi- ation from cellular phones and base stations. Such dis- 1980s: Kinnevik prepares to provide traditional voice cussions could impede the further expansion of mobile and data communications. telephony services. 1986 A satellite link for data traffic is established. NetCom offers complete solutions 1989 An agreement is signed with the Swedish National By offering complete solutions from all of the Group’s Rail Administration on a joint fiber-optic network. business areas to a greater extent than previously, 1989 Kinnevik is awarded a license to operate a nation- NetCom has major potential for boosting sales to new wide GSM network. prospects in Sweden. The long-term goal is to be able to offer complete solutions in every market. 1990 Tele2 AB is formed. Another spur to sales is NetCom’s ability to offer 1992 Comviq GSM is launched. existing customers services provided by other companies in the Group. Such collaboration can also boost the use 1993 The fixed telephony market in Sweden is deregu- of existing services. lated. Given the global nature of its operations, the 1993 NetCom Systems is formed to own and develop Company is well positioned to transfer know-how from the Kinnevik group’s telecommunications companies in one country to another, too. The Group has significant the Nordic countries. potential in the various business areas sharing their exper- tise more than at present. 1993 Kinnevik and Orkla set up NetCom ASA in Norway. NetCom Systems owns 25% of the company. Major corporate transactions in 1999 1995 NetCom Systems launches the precursor to Tele2 Higher stake in Ritabell, Estonia Norge. In January, NetCom acquired 90% of the share capital in Tele2 Eesti AS, formerly AS Levicom Cellular (CellCo), 1996 The shares of NetCom Systems are distributed to and 19% of OÜ Levicom Broadband (BroadCo). Tele2 Kinnevik shareholders. At the same time, these shares are Eesti has a 52% stake in Ritabell, the Estonian mobile listed on the Stockholm Stock Exchange’s O list. operator, and 100% of a Lithuanian GSM 1800 license. 1996 Through its subsidiary Tele2 A/S, NetCom The acquisition boosted NetCom’s holding in Ritabell, Systems becomes Tele Danmark’s first rival in the Danish from 48% to 94.8%. BroadCo’s business includes telecommunications market, breaking up a monopoly Internet services in Estonia and several cable-TV compa- that had lasted a century. nies in Estonia and Lithuania. 1997 NetCom Systems’ shares are listed on the Nasdaq Investment in Suomen Kolmegee Oy, Finland Stock Market. In March, NetCom’s Tele2 AB reached an agreement January 1, 1998: The Norwegian telecommunications with 41 Finnish Finnet companies to acquire 20% of market is deregulated. the shares and votes in Suomen Kolmegee Oy. Tele2 AB will be the largest single shareholder. Suomen Kolmegee 1998 Operations expand into the Baltic states through has been granted a nationwide license in Finland for the acquisition of 48% of Ritabell, a mobile telecom a third-generation mobile telephony network, using operator in Estonia. W-CDMA/UMTS. Besides constructing and operating 1998 NetCom Systems AB changes its name to the network, the company will sell capacity to service NetCom AB. providers. The company will have access to the infra- structure already managed by the Finnet companies. 1999 NetCom AB boosts its Ritabell holding to 94.8%. Thus, the investments required should be significantly 1999 Carrier preselect is introduced in Denmark, less than usual. Sales will be made to end-users through Norway and Sweden. the service providers. Tele2 AB is authorized to act as a service provider in Finland. 1999 NetCom AB sells its holdings in NetCom ASA to Société Européenne de Communication SA (SEC) in exchange for newly issued stock in SEC. Following the deal, NetCom AB owns 17.8% of SEC’s capital. NetCom Annual Repor t 99 7
  10. 10. NetCom AB Internet and radio licenses in Poland dures that proved valuable and a great aid to quality In May, NetCom received a nationwide Internet service assurance. Nevertheless, it became evident that the com- provider (ISP) license in Poland as well as a license to panies should establish their own priorities to achieve operate a wireless local loop (WLL) in several population objectives not covered by the ISO system. Thus, Tele2 centers. The ISP license, valid for 15 years with a renewal and Comviq decided to suspend preparations for ISO option, makes it possible for NetCom to offer Internet certification and instead develop their own quality-assur- access throughout the country. The WLL license is for ance systems better adapted to customer requirements. five years and can also be renewed. In the areas covered The essentials of their previous quality assurance work by the latter license, NetCom will be able to offer both have been preserved and expanded upon. The approach domestic and international data transmission as well as has become more consistent, with a sharper focus on telephony access for households and companies through processes which need improvement. Support systems are its own WLL network. Approximately 14 million people, now more closely linked to the NetCom Group’s or 36% of the Polish population, live in the regions intranet, the backbone of its internal communications. included in the license. The license was awarded to Also, all employees and consultants have been trained in In2loop Polska; NetCom, with a 49% stake, is the only quality-related issues. foreign shareholder in the company. In compliance with Danish telecommunications legis- lation, invoice procedures at Tele2 A/S in Denmark have SEC holding acquired through share swap obtained ISO 9002 certification. Tele2 Norge AS is con- To emphasize its European focus, NetCom AB, in ducting a process-oriented quality project targeting November, sold its stake in NetCom ASA to Société processes which need improvement. Européenne de Communication SA (SEC). For its 24.8% holding in NetCom ASA, the Company obtained Ongoing training new stock in SEC equivalent to 17.8% of share capital To strengthen the Group’s management corps, more than and votes. SEC’s activities span fixed telephony, mobile 100 managers from Swedish operations completed an telephony, the Internet, prepaid fixed telephone cards eight-day leadership training course. The objective was to and call centers. SEC operates in seven European coun- foster an attitude and approach among Company man- tries, markets with a total of some 240 million people. agers that would help them to motivate other employees. NetCom also has a management trainee program to No disruptions over millennium ensure a steady supply of competent leaders for the By means of comprehensive testing throughout 1999, future. Several new graduates are selected each year for NetCom AB made sure that all systems employed in the the year-long program. In three phases, participants gain Group’s business would successfully make the transition experience within the organization through hands-on to the 21st century. No problems arose at all. In addition work in sales, technology and the operations in Denmark to ensuring a smooth transition, much of the work was or Norway. worthwhile from other points of view. NetCom conducts training on an ongoing basis. For example, Swedish sales managers underwent advanced Reorganization lowers costs training in 1999. All new employees complete a two-day In June, NetCom AB carried out a comprehensive reor- basic course that covers NetCom’s business, goals, princi- ganization of its Swedish operations to better deal with ples and quality-assurance objectives. future competition and to hold down costs in the Group. About 150 positions were eliminated, just less than one- Employee bonus program third of which were permanent. The resulting savings NetCom AB sets salaries on an individual basis. Beyond will be at least SEK 80 million a year from 2000. the basic salary, every employee in the Group participates in a bonus system. The annual bonus can be as much as Quality assurance revised and reaffirmed 4% of wages. Bonuses are contingent upon the attain- Swedish Tele2 and Comviq previously pursued their ment of specific revenue, profitability and customer-satis- quality efforts in accordance with ISO standards. ISO faction objectives. The 1999 bonus was 1.0%, compared certification required a review of the companies’ proce- to 2.5% in 1998. 8 NetCom Annual Repor t 99
  11. 11. NetCom squeezes prices As in most countries, Swedish telephony services were long the reserve of a state-owned monopoly. The mobile telephony market was not dereg- ulated until the fall of 1992, when Comviq launched its GSM network. The market for fixed telephony service was formally deregulated in 1993. However, the Telia monopoly has lingered in several key segments. Price trends in competitive segments of the telephony market Mobile telephony Until Comviq GSM AB started in September 1992, a call from a mobile phone cost SEK 4.25 per minute. The same rate had applied since 1981. A Comviq call now costs as little as SEK 0.40 per minute, a decline of 91% since the market was opened. International calls via fixed telephony In 1993, Telia charged SEK 8.65 per minute for phone calls from Sweden to the United States. Now, Tele2 charges SEK 1.35 per minute for the same call, or 84% less. Fixed long-distance telephony Some long-distance calls for which Telia charged SEK 1.32 per minute in 1994 are now classified as local calls by Tele2, which charges SEK 0.20 per minute for them. The 85% disparity in prices is a direct result of competition. Price trends in segments where Telia faces little or no competition Local calls A local call that cost SEK 0.11 per minute day time through Telia in 1994 now costs SEK 0.23, up 109%. Service subscription fees Telia’s quarterly subscription fee for individuals went from SEK 217 in 1993, to SEK 315 in 1999. Lack of competition has allowed this 45% jump in price. Prices were effective in March 2000. NetCom Annual Repor t 99 9
  12. 12. Board of Directors Vigo Carlund Lars-Johan Håkan Ledin Sven Hagströmer (born 1946) has worked in Jarnheimer (born 1937) has an M.B.A. (born 1943) was president Kinnevik companies since president and CEO and an M.Sc. in Engineering. and chairman of the board of 1968, such as Partner Motor- (not a member of the Board) He worked for LM Ericsson Hagströmer & Qviberg from sågar and Svenska Motor AB, for many years before leaving its founding in 1980 until (born 1960) is an M.B.A. as president in the latter. In in 1987 to become president 1995. He is the chairman of He has been president and 1997, he became vice presi- of Millicom, where he is vice the boards of Investment AB CEO of NetCom AB since dent of Industriförvaltnings AB chairman of the board. Öresund and AB Custos and March 1999. He has held vari- Kinnevik (Kinnevik), and in Between 1995 and 1996, he has been a member of the ous positions at IKEA, Hennes May 1999 president. Carlund was president of NetCom Board of NetCom since 1997. & Mauritz and SARA Hotels has been president of Korsnäs Systems. Since 1996, Ledin Other board assignments: and served as president of ZTV since 1998. Member of the has been a member of the Acando, Arkivator, Bokförlaget a short while before joining Board of NetCom since 1995. board of SEC. He has been Atlantis, ProtectData, Quartz Comviq as vice president. a member of the Board of Pro and HQ.se. Marc J. A. Beuls Jarnheimer was president of NetCom since 1994. Comviq 1993–1997. He was (born 1956) has a B.Sc. in a member of executive manage- Holdings: 80,000 class B shares. Economics. He has been ment at Saab Automobiles with president of Millicom since Stig Nordin responsibility for the Nordic January 1998, and president countries, Russia and the Baltic (born 1943), M. Sc. of Banque Invik in Luxem- states and was president of Saab Engineering, has more than bourg since June 1997. Opel Sverige AB 1997–1998. two decades’ experience in the Beuls previously held execu- 1998–1999 he has been vice forest products industry. He tive positions at Generale president of Industri- joined Kinnevik in 1989 and Bank in Belgium. He is a förvaltnings AB Kinnevik and built up TV3 in London. Lars Wohlin member of the board of president of Investment AB Nordin became vice president Société Européenne de (born 1933), Ph.D. Econ., was Kinnevik. Board assignments: of Kinnevik in 1991, and Communication (SEC) and head of the Swedish Industrial MTG, SEC and Arvid Nord- from May 1992 to May 1999 became a member of the Research Institute 1973–1976. quist HAB. he was president. Since 1999, Board of NetCom in 1998. He served as Under-Secretary Holdings: 2,000 class B shares he has been president of Invik of State in the conservative gov- Jan Hugo Stenbeck and 48,000 options. & Co AB. He was president ernment 1976–1979 and as Chairman of the board of Korsnäs 1993–1998. a Governor of the Riksbank Member of the Board of (born 1942) is chairman of the (Swedish central bank) 1979– NetCom since 1993. Other boards of Kinnevik, Millicom, 1982. Between 1983 and 1996, board assignments: Kinnevik, Invik and MTG. He has been Wohlin was chairman of the Millicom and MTG. a member of the Board of board of the property company NetCom since 1993. Holdings: 10 class B shares and, Drott and president of the through relations, 4,878 class B Urban Mortgage Credit Holdings: 787,027 class A shares. shares. Corporation of Sweden. He has been a member of the Board of NetCom since 1996. 10 NetCom Annual Repor t 99
  13. 13. Senior Executives Lars-Johan Jarnheimer Johnny Svedberg Jörgen Latte Fredrik Berglund Born 1960. Born 1962. Born 1954. Born 1961. President and CEO of NetCom AB Vice president of Tele2 AB, Senior Vice President Marketing and sales manager and Tele2 AB from 1999. M.B.A. New markets. B.A. Mktg. and Chief financial at Tele2 AB. B.A. Mktg. Employed since 1992. Employed since 1990. officer of NetCom AB Employed since 1995. Holdings: 2,000 class B shares and Holdings: 220 class B shares since 1997. M.B.A. Holdings: 30,000 options. 48,000 options. and 4,000 options. Employed since 1992. Holdings: 200 class B shares and 42,000 options. Henrik Ringmar Kenneth Gustafsson Ebbe Jörgensen Born 1969. Born 1951. Born 1938. President of Tele2 Norge President of Tele2 A/S Denmark Executive vice chairman of AS. M.B.A. effective January 2000. Tele2 A/S Denmark effective Employed since 1998. Employed since 1993. January 2000. M.B.A. Holdings: 2,000 options. Holdings: 8,000 options. Employed since 1995. Holdings: 1,130 class B shares and 22,800 options. Jeanette Almberg Björn Lundström Roger Mobrin Lars-Erik Svegander Born 1965. Born 1965. Born 1968. Born 1941. Director customer service Networks manager Operations manager Human resources manager at Tele2 AB. M.B.A. at Tele2 AB. M.Sc. at Tele2 AB. Technical at Tele2 AB. Employed since 1995. Engineering. secondary school. Employed since 1991. Holdings: 1,000 options. Employed since 1991. Employed since 1995. Holdings: 1,500 options. Holdings: 1,000 options. Holdings: 1,000 options. NetCom Annual Repor t 99 11
  14. 14. Financial Review NetCom increased operating revenue 37% in 1999, to Operating profit after depreciation and amortization SEK 8,193 million. Operating revenue advanced strong- jumped 120%, to SEK 1,142 million. The operating ly in mobile telephony operations in Sweden and excep- margin after depreciation and amortization also tionally well in NetCom’s operations in Denmark and improved, to 13.9% (8.7%). Norway. Net interest income and other net financial items Mobile telephony in Tele2 AB in Sweden contributed totaled SEK 241 million (SEK 276 million). The SEK 3,909 million, up 32% (SEK 2,958 million in decline was primarily caused by lower interest rates 1998). Fixed telephony and Internet reported operating despite the increase in loans outstanding. The average revenue 18% better, at SEK 2,630 million (SEK 2,223 interest rate on outstanding debt dropped, to 4.8% million), while Cable-TV’s revenues declined 20%, to from 6.6%. SEK 110 million (SEK 137 million). Operating revenue Profit after financial items rose, to SEK 4,179 million in Tele2 A/S in Denmark surged 78%, to SEK 974 mil- (SEK 232 million). The increase was owing to better lion (SEK 546 million) and in Tele2 Norge AS 163%, profitability in operations and a profit of SEK 3,228 to SEK 444 million (SEK 169 million). Other opera- million from the sale of the Group’s 24.8% shareholding tions, which includes Optimal Telecom, 4T Solutions, in its associated company NetCom ASA. Profit after Datametrix and Ritabell, boosted operating revenue to financial items excluding the gain on the sale of shares SEK 696 million (SEK 197 million), up 253%. in the associated company was SEK 951 million for full- Operating profit before depreciation and amortiza- year 1999. tion climbed 71%, to SEK 2,097 million. The operating Profit for the year also rose, to SEK 3,769 million margin before depreciation and amortization increased, (SEK 67 million). The increase reflected improved prof- to 25.6%, from 20.5%, as a result of a sharp rise in the itability in NetCom’s operations and the gain on the sale profitability of NetCom’s Swedish fixed and mobile tele- of shares in the associated company. phony businesses and reduced losses in Tele2 A/S in Earnings per share increased, to SEK 36.29 (SEK Denmark and Tele2 Norge AS. 0.64). Profit for the year excluding the gain on the sale Mobile telephony within Tele2 AB boosted operating of shares in the associated company was SEK 541 mil- profit before depreciation and amortization 45%, to lion (SEK 67 million), and earnings per share excluding SEK 1,858 million (SEK 1,277 million). Operating that gain were SEK 5.21 (SEK 0.64). profit before depreciation and amortization for fixed NetCom’s total assets at December 31 were SEK telephony and Internet equaled SEK 466 million, up 14,693 million, reflecting a rise of 44%, compared to 77% from the profit of SEK 263 million in 1998. SEK 10,189 million at December 31, 1998, as a result Cable-TV reported an operating loss before depreciation of greater investment in core operations and company and amortization of SEK 8 million (SEK 2 million prof- acquisitions. it in 1998). The operating loss before depreciation and amortization for Tele2 A/S in Denmark totaled SEK 47 Parent Company million (SEK 115 million). Tele2 Norge AS reported an The Parent Company reported a profit after financial operating loss before depreciation and amortization of items of SEK 914 million (SEK 29 million loss in SEK 58 million (SEK 93 million). For Other businesses, 1998). The total included a capital gain of SEK 2,957 operating profit improved, to SEK 51 million (SEK 21 million on the sale of shares in NetCom ASA, a capital million loss in 1998). loss of SEK -1,912 million on a sale within the Group The cost of the stock option program for senior man- and SEK -19 million from losses on shares and partici- agement is based on the market price of NetCom shares. pations in associated companies. Total profit included The appreciation of the share during the year required increased provisions for option commitments to man- an increase of SEK 134 million in the provision for the agement equaling SEK -134 million (SEK -67 million), option program for 1999, compared to SEK 67 million necessitated by the dramatic appreciation of the in 1998. Company’s share price. Operating profit after Profit/loss after financial Operating revenues depreciation and items but before Capital expenditure amortization extraordinary items 8,000 SEK million 1,000 SEK million 4,000 SEK million 2,000 SEK million 750 3,000 6,000 1,500 500 2,000 250 4,000 1,000 1,000 0 0 2,000 -250 500 -500 -1,000 0 -750 -2,000 0 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99 12 NetCom Annual Repor t 99
  15. 15. DEFINITIONS Five-year summary Text in parantheses are adjustments that reflect full conversion of debentures. 1999 1998 1997 1996 1995 * Liquidty Income statement and balance sheet Cash and cash equivalents including items, SEK million unused credit facilities. Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,193 5,969 4,036 2,872 1,953 Net borrowing Interest-bearing liabilities (less convert- Operating profit/loss before ible debentures) less interest-bearing depreciation and amortization . . . . . . . . . . . . . . . . . . . 2,097 1,223 1,000 651 – 431 assets. Operating profit/loss after Investments depreciation and amortization . . . . . . . . . . . . . . . . . . . 1,142 518 392 254 – 728 Acquisitions and divestment of fixed assets and investments through financial Profit/loss after financial items . . . . . . . . . . . . . . . . . . . 4,179 232 – 37 29 – 1,456 leases and investments not qualifying as cash equivalents. Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002 3,269 3,156 2,276 – 910 Equity/assets ratio Shareholders’ equity (including the Shareholders’ equity, after full conversion . . . . . 7,002 3,269 3,193 2,923 – 910 convertible debentures) divided by Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,693 10,189 8,684 7,527 4,831 total assets. Return on shareholders’ equity Profit/loss after tax, less non-recurring Cash flow provided by operating activities . . . . . 1,771 990 411 610 – 759 items, minority share and standard tax Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,123 821 1,499 819 189 (and interest expense for convertible debentures after deduction of tax), Net borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 605 4,600 3,579 3,894 4,555 divided by average capital (including Net borrowing, after full conversion . . . . . . . . . . . 4,605 4,600 3,542 3,247 4,555 the convertible debentures). Investments, including financial leases** . . . . . . . . . 1,493 1,959 1,117 1,016 1,006 Return on capital employed Profit/loss after financial items, excluding non-recurring items and financial Key ratios, % expenses (excluding the interest Equity/assets ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 32 36 30 – 19 expense for convertible debentures) divided by average capital employed. Equity/assets ratio, after full conversion . . . . . . . 48 32 37 39 – 19 Capital employed Return on shareholders’ equity . . . . . . . . . . . . . . . . . 73.4 2.1 3.2 – 10,0 N/A*** Total assets, less provisions, minority Return on shareholders’ equity, interests and non-interest-bearing liabilities. after full conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.4 2.1 3.2 – 3.3 N/A*** Average interest rate Return on capital employed . . . . . . . . . . . . . . . . . . . . . . 43.6 6.7 4.8 1.3 – 24.5 Interest expence (excluding the interest Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 6.6 7.1 8.9 11.5 expense for the convertible debenture), divided by average interest-bearing liabil- Average interest rate, after full conversion . . . . 4.8 6.6 7.1 8.6 11.5 ities (excluding the convertible deben- tures). Per share data, SEK Profit/loss per share Profit/loss for the period (excluding the Profit/loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.29 0.64 0.50 2.80 – 44,107.40 interest expense for the converible Profit/loss per share, after full conversion . . . . . . 36.29 0.64 0.57 2.78 – 44,107.40 debentures, after deduction of tax), divided by the weighted avarage number from Tele2 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 1.10 – 1.24 – 0.46 – 0.12 – 28.15 of shares outstanding during the fiscal from Tele2 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . – 1.39 – 1.69 – 0.79 – 0.16 – year (that would result from full conver- sion of the convertible debentures). from associated companies . . . . . . . . . . . . . . . . . . 0.18 – 0.14 – 0.85 2.52 – 20,005.20 from sale of shares in associated companies . 31.08 – – – – Shareholders’ equity per share Shareholders’ equity (including the from Tele2 Sweden and convertible debentures) less minority other companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.52 3.71 2.67 0.54 – 24,074.05 interest, divided by the weighted average number of shares during the fiscal year Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.43 31.55 32.18 25.78 – 45,520.00 (that would result from full conversion Shareholders’ equity after full conversion . . . . . 67.43 31.48 30.86 28.70 – 45,520.00 of the converible debentures). Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.05 9.56 4.19 6.91 – 37,965.70 P/e ratio Share price divided by profit/loss per Cash flow after full conversion . . . . . . . . . . . . . . . . . . 17.05 9.53 3.97 5.99 – 37,965.70 share. Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – Cash flow per share Share price at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . 598.00 330.00 170.50 110.50 N/A* Is based on cash flow from operating activities before investing and financing P/E ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.48 512.92 344.43 39.40 N/A* activities. P/E ratio, after full converion . . . . . . . . . . . . . . . . . . . . . 16.48 514.17 298.12 39.81 N/A* Dividend per share Refers to the decided or suggested * Until NetCom was listed on the Stockholm Stock Exchange in 1996, it was a wholly-owned subsidiary of dividend for each year. Industriförvaltnings AB Kinnevik. ** Financial leases are included from January 1, 1997. *** Not applicable because of negative shareholders’ equity. **** The weighted number of A and B shares outstanding at December 31, 2000, was 103,850,246. NetCom Annual Repor t 99 13
  16. 16. NetCom Share Data Listing on the Stockholm Stock Exchange Cable & Wireless had been NetCom’s third largest NetCom’s A and B shares were first quoted on the shareholder, controlling 9.2% of the votes. In mid- Stockholm Stock Exchange’s O list on May 14, 1996, 1997, Invik & Co. AB converted its holding of con- when the stock was distributed to shareholders in vertible debentures in the Company. The conversion Industriförvaltnings AB Kinnevik. After the distribu- represented 6,700,000 B shares and expanded NetCom’s tion, Kinnevik held no shares in NetCom but retained shareholders’ equity by SEK 335 million. a convertible debenture corresponding to 25,555,555 During the second quarter of 1998, convertible shares. In 1996, Kinnevik sold shares obtained from debentures were redeemed for 755,555 class B shares. converting part of the loan to institutional investors and With this conversion, NetCom no longer had any out- Invik & Co. AB. standing convertible debentures, and since that date there has been no change in the number of shares. Listing on Nasdaq At December 31, 1999, NetCom AB had To attract interest in the United States for the 103,850,246 shares on issue and no outstanding Company’s shares and to increase liquidity in trading convertible debentures. outside Sweden, NetCom’s shares were listed on the One class A share represents 10 votes, and one Nasdaq Stock Market starting January 22, 1997. A B share one vote. month later, 2,000,000 new class B shares were issued. NetCom issued the shares with the aim of expanding its Shareholders circle of international shareholders and bolstering trad- At year-end 1999, NetCom had about 54,000 share- ing in its shares on Nasdaq. The proceeds from the holders, compared to about 56,000 one year previous. issue, totaling SEK 220 million, were applied mainly Institutional shareholders controlled 60% of the capital to ongoing capital expenditure, especially to develop and 74% of the votes at December 31, 1999. NetCom’s Danish and Norwegian operations. In conjunction with the issue, Industriförvaltnings AB Analysts who cover NetCom Kinnevik sold the majority of its remaining convertible Some of the analysts who cover NetCom are: debenture loan in NetCom, converted into 6,000,000 Ulf Hellzén, Swedbank, Peter Dahlander, Carnegie, B shares. Richard Rosenbacke, Enskilda Securities, Lena Hansson, Warburg Dillon Read, Peter Kurt Nielsen, Alfred Berg, Other debt instruments James Sawtell, Goldman Sachs and Johan Broström, In the spring of 1997, on two occasions Cable & Hagströmer & Qviberg. Wireless sold its shares in NetCom. At year-end 1996, Ownership structure, December 31, 1999 Current distribution Number Pctg. of Pctg. of Class A Class B Class A+B of votes capital votes Invik & Co AB ................................ 8,405,792 2,563,166 10,968,958 86,621,086 10.56 32.48 Afti AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,178,730 2,178,730 21,787,300 2.10 8.17 Brotherton Corporation NV . . . . . . . . . . . . . . 1,384,316 4,607,228 5,991,544 18,450,388 5.77 6.92 Förvaltnings AB Confidentia . . . . . . . . . . . . . . . 886,900 886,900 8,869,000 0.85 3.33 Stenbeck, Jan Hugo . . . . . . . . . . . . . . . . . . . . . . . . . . 787,027 787,027 7,870,270 0.76 2.95 Nordbankens Allemansfond Beta . . . . . . . . . 612,450 842,400 1,454,850 6,966,900 1.40 2.61 Chase Manhattan Bank . . . . . . . . . . . . . . . . . . . . . 21,300 3,762,647 3,783,947 3,975,647 3.64 1.49 Industriförvaltnings AB Kinnevik . . . . . . . . . . 60,000 3,290,000 3,350,000 3,890,000 3.23 1.46 State Street Bank & Trust Co. . . . . . . . . . . . . . 3,079,728 3,079,728 3,079,728 2.97 1.15 Livförsäkringsbolaget Skandia . . . . . . . . . . . . . 198 000 962,269 1,160,269 2,942,269 1.12 1.10 Total, ten largest shareholders ...... 14,534,515 19,107,438 32.39 61.66 Other shareholders ......................... 3,561,117 66,647,176 67.61 38.34 14 NetCom Annual Repor t 99
  17. 17. Share Price, Stockholm Stock Exchange Class B Share, The Affärsvärlden General Index Weekly Trading Volume, ‘000 shares weekly high/low 1,000 900 800 700 600 500 400 300 20,000 200 18,000 16,000 14,000 12,000 10,000 100 8,000 6,000 4,000 2,000 50 0 96 97 98 99 00 (c) SIX Share Price, Nasdaq Stock Market NetCom, weekly high/low Nasdaq Composite Index Weekly Trading Volume 110 100 90 80 70 60 250,000 50 200,000 40 150,000 30 20 100,000 10 50,000 50 0 97 98 99 00 NetCom Annual Repor t 99 15
  18. 18. Tele2 AB Sweden is a Swedish telecommunications company that sells and delivers, in a cost-effective manner with first-class service, profitable communication solutions to its customers. Tele2 AB 16 NetCom Annual Repor t 99
  19. 19. Mobile Telephony Operating revenue, SEK 3,909 million (2,958), +32% Operating profit before depreciation and amortization, SEK 1,858 million (1,277), +45% Fixed Telephony and Internet Operating revenue, SEK 2,630 million (2,223), +18% Operating profit before depreciation and amortization, SEK 466 million (263), +77% Cable-TV Operating revenue, SEK 110 million (137), -20% Operating profit before depreciation and amortization, SEK -8 million (2) T ele2 offers services in mobile telephony, fixed newsletters and brochures. Comviq has been a pioneer in telephony, the Internet, data communications cultivating customer loyalty, often broadening its efforts and cable-TV. The company provides every- to include other Tele2 businesses. In the Collect club, thing, from customized communications solutions for customers of Comviq, Tele2 and Kabelvision can collect large corporate groups, to standardized packages for indi- bonus points for services used. A certain number of viduals and small businesses. points entitles a customer to a discount on a particular The company’s services are marketed under the Tele2 product or service. and Comviq brands. Tele2 is used primarily for mobile telephony and data communications for the business H I S TO RY market but even for fixed telephony and Internet services for private individuals. Comviq is used as a brand for mobile telephony for consumers. Both brands are posi- 1981 Comvik AB commences operations in the Swedish tioned as flexible, customer-friendly price leaders. Tele2 market for analog mobile telephony. uses the Kabelvision brand name in the cable-TV market. 1986 Kabelvision HB begins operations. Complete range of services 1986 Tele2 commences operations under the name of Tele2 is the only telecom operator besides Telia that can Comvik Skyport AB. offer a complete line of services for mobile telephony, fixed telephony, the Internet, data communications and 1990 Comvik Skyport changes its name to Tele2 AB. cable TV. Technologies for mobile telephony, fixed tele- 1991 Tele2 AB starts providing data communications phony, Internet communication and data communica- services and is awarded a fixed telephony license. tion are converging, so the capability to provide total solutions constitutes a major competitive edge. More- 1991 Tele2 becomes the first Swedish company to offer over, customers show a growing desire to fulfill all of Internet access. their communications requirements through one supplier, and that favors Tele2. 1992 Tele2 offers domestic and international leased lines. 1992 Comviq GSM is the first Swedish company to Smoothly functioning customer care open a GSM network. Crucial to Tele2’s success is its close relationships with customers and its ability to respond quickly to new 1993 By dialing Tele2’s 007 prefix, businesses and pri- demands, preferences and market conditions by offering vate individuals can call abroad more cheaply than appealing solutions. through Telia. A well-run customer service operation is crucial to maintaining loyalty. Tele2 has an in-house support func- 1994 A similar service is introduced for long-distance tion for large corporate customers in fixed telephony, calls. Internet service and data communications. Individuals 1995 Internet use takes off. and small businesses turn to call centers, which are run by Transcom, a Kinnevik company that specializes in this 1997 Comviq launches its prepaid card. area. If a case turns out to be a technical fault that neither 1998 The prepaid card makes its breakthrough. Sales of support services nor the call center can resolve, it is the prepaid card rise dramatically. passed on to specialists at the company’s technical sup- 1999 The Swedish preselect reform allows people to port for customer care. choose their own phone company for domestic and Customers wishing to close their accounts are referred international calls. Number portability initiated for fixed to employees trained to handle such matters. telephony in metropolitan areas. Tele2 reaches out to its customers in a number of ways. They receive discount prices to various events and are kept informed of the latest developments through NetCom Annual Repor t 99 17
  20. 20. Tele2 AB Tele2’s mobile telephony operations grew apace in 1999, fueled by Tele2 AB Sverige new types of subscriptions and a sharp increase in the number of customers using prepaid cards. The Company expanded its share of the mobile telephony market. Mobile Telephony FAC TS I N B R I E F v Tele2 markets its cellular services under the Comviq and Tele2Mobil brands, which use the same GSM network. Comviq targets con- sumers, whereas Tele2Mobil aims solely at businesses. The mobile telephony services are to be perceived as price leaders. v Tele2 markets its cellular services through independent dealers who are autonomous retailers or distributors or members of a chain. The business market is also canvassed by the Company’s sales force and by tele- marketers. 18 NetCom Annual Repor t 99
  21. 21. N U M B E R O F C U S TO M E R S , M O B I L E T E L E P H O N Y 1,600,000 Quarterly data 1,200,000 800,000 400,000 Prepaid 0 Postpaid 98 98 98 98 99 99 99 99 1/ 2/ 3/ 4/ 1/ 2/ 3/ 4/ Q Q Q Q Q Q Q Q • Including prepaid card users, the number of Europolitan concentrates on business clients as well customers increased 28%, to 1,641,000. as private individuals who use their phones extensively. The company had 17% of the market. • At year-end, 909,000 customers used prepaid With 46% of the prepaid card market, Comviq has cards, an increase of 48%. a strong market position. • Prepaid card users accounted for 81% of new Prompt response to changing demand customers in 1999. Comviq’s and Tele2Mobil’s strengths include attractive prices, a broad customer base and well-known brand • Excluding prepaid card customers, subscribers names as well as the ability to quickly adapt to new cus- averaged 123 minutes calling time per month, tomer demands and market conditions. Their competi- up over 13%. tive edge is further enhanced by the capacity to provide comprehensive packages including mobile telephony, • Average monthly revenues for the same catego- fixed telephony and Internet services. Support systems ry rose some 14%, to SEK 418. are the weakest link. A major opportunity to bolster the mobile telephony O ne reason for higher revenue per customer was business will appear in 2000 when Sweden’s PTS offers that 1999 saw a breakthrough in the use of licenses to open networks for UMTS, the third-genera- short message service (SMS). Mobil Info users tion cellular standard. NetCom plans to apply for a have access to various SMS services – in addition to license. The PTS will announce the winners of the messaging – that are practical and entertaining. Share licenses towards the end of 2000. It is possible that the prices, last minute discounts on charter flights, sports fourth GSM-license will be issued. scores, directory assistance and decision making assis- The mobile telephony business can easily benefit from tance are all available. An automated name and address know-how in NetCom’s other businesses, for example by directory was launched in November. Customers have learning about corporate sales from the fixed-telephony access to all listings for the fixed network as well as num- business. bers for Comviq and Tele2Mobil subscribers. On average, Comviq subscribers sent five times as Advanced service offering many SMS messages a month in 1999 as they did in Comviq and Tele2Mobil develop new services as the 1998. For prepaid card users, the figure tripled. market makes its needs known. Comviq and Tele2 give the customers access to one of the world’s most sophisti- Expanded market share cated ranges of mobile phone services. The aim is always Mobile telephony penetration in Sweden is near the top to provide customers with advanced services, running the in world rankings. In 1999, according to PTS, some gamut from easy-to-use answering machines to more 63% of the population between 16 and 74 years of age complex applications like data and fax transmission over had cell phones. The sector is highly competitive. Besides the GSM network. Comviq and Tele2Mobil, Telia Mobile and Europolitan The most widely used premium services are the IQ have been in the GSM telephony market for several Svar and T2 Svar voice mailboxes. IQ Text and T2 Text years. In 1999, Tele1 Europe joined the fray. Instead of enable customers to send and receive SMS messages. IQ having its own infrastructure, Tele1 acts as a service E-post and T2 E-post serve a similar function for e-mail. provider. T2 Datanät and T2 Fax allow business customers to con- Comviq and Tele2Mobil had 34% of the Swedish tinue working wherever they may be. In addition to GSM market. working as usual with hand-held or personal computers With a market share of 49%, Telia Mobile is the and GSM telephones, customers can transmit and largest operator. Primarily due to its broad coverage, Telia receive faxes and data. Individuals have access to similar Mobile leads in small towns and rural areas. A good services. number of Telia Mobile customers still use NMT tech- Customer turnover (churn), excluding prepaid card nology, making them prospects for GSM services. customers, amounted to 24% for full year 1999. NetCom Annual Repor t 99 19
  22. 22. Tele2 AB Mobile Telephony Revamping subscription packages Positioning system for GSM handsets Comviq’s business concept is simple: Make mobile tele- In collaboration with CellPoint Systems, Tele2Mobil phony available to as many people as possible and at the launched Position, one of the first positioning system lowest prices. anywhere for GSM handsets, in November 1999. The Comviq has designed several different kinds of sub- system can pinpoint the location of a person or vehicle scriptions to suit varying customer calling patterns. carrying a mobile phone. It works indoors as well. A In 1999, this system was reorganized to further sim- password-protected web interface shows users a map plify matters for customers. The contracts are designed identifying the location of the GSM phones. Once the so that a customer can switch among five different service location has been determined, an SMS message is sent to subscriptions, as his or her calling behavior changes. Five the handset, which compiles data from nearby base sta- changes are allowed each year without incurring a charge. tions. The data is forwarded to a server, which calculates Customers have the choice of being billed for a subscrip- the coordinates and produces the map. A red ring encir- tion or paying up front for a prepaid card. Comviq’s five cles the position on the interface map. The phones are subscriptions are: basic with or without minutes (Grund equipped with a specially programmed SIM card. Freight and Grund med pott), discount evening with or without companies, home help and security companies are a few minutes (Joker med pott and Joker) and daytime with customers who can put such a system to good use. minutes (Dag med pott). Customers can choose between a contract that can be canceled at any time or one that is Roaming with operators abroad binding for 12, 18, or 24 months. The reworking of the The global GSM network is constantly expanding. subscription system cut the cost of recruiting new cus- A total of 323 operators in 128 countries have adopted tomers, particularly dealer commissions. the GSM standard. Tele2 AB has signed roaming agree- Comviq also offers prepaid cards for mobile phones. ments with 134 operators in 72 countries. Roaming Comviq Kontant, Sweden’s first prepaid card, was launch- enables Tele2 customers to use their Comviq or ed back in 1997. The success of the card was key to Tele2Mobil subscriptions in any of these locations. Comviq’s rapid growth. In 1999, Comviq introduced its Kontant Utland, Instant web-based enrollment which allows prepaid-card subscribers to make and Tele2 introduced new technology to simplify setting up receive calls outside Sweden. Handsets do not need to be new subscriptions. New accounts can be opened from programmed in any way. Instead of being debited to the a retail outlet over the Internet, allowing customers to prepaid card, international calls are billed to the user begin using their mobile phones right away. Some 2,000 back in Sweden. The charge for international calls are retailers will eventually have access to this software. based on the rate in that country. IQ Svar can also be used abroad, as can SMS and e-mail services. The network’s unique cell structure In terms of coverage as well as capacity, Comviq’s and Tele2Mobil offers business subscriptions Tele2Mobil’s networks expanded more rapidly in 1999 Tele2Mobil offers various subscriptions to businesses, than ever before. Both the 900 MHz and 1800 MHz all of them including the basics: voice mail (T2 Svar), networks far surpass the geographic coverage required T2 Plus, e-mail (T2 E-post), call forwarding and SMS by the National Post and Telecom Agency. Those regula- (T2 Text). T2 is intended primarily for callers who tions dictate that all cities with at least 10,000 residents average five minutes or less per day. T2 Max offers the and all roads classified as European highways in 1990 same service package but caters to those who tend to call must be covered. more. Tele2Mobil also has a prepaid card for businesses: The unique Super City cell structure provides better Tele2Mobil Kontant. In addition to lower calling rates, a coverage in metropolitan areas and permits Comviq and company with multiple subscriptions can also reduce its Tele2Mobil to expand capacity in a highly cost-effective basic monthly service charge. manner. Super City is patented in Sweden, and patents Business Zone is a new service that allows employees are pending abroad. at their place of work to make calls from their GSM Moreover, Tele2 has developed a new method for phones at rates on a par with fixed telephony. The virtual installing GSM 1800 capacity in the existing 900 MHz private network (VPN) service enables users to call num- network. Equipment for the 1800 MHz band is con- bers in the fixed or mobile network from a cell phone structed in cells already in place, making network expan- using speed dial numbers. sion both flexible and economical. In autumn 1999, this new capacity was installed in Stockholm, Gothenburg, Malmö and a few other metropolitan areas. The process will continue throughout 2000. 20 NetCom Annual Repor t 99

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