Good morning, and welcome to the presentation of Telenor Group's results for the first quarter, 2019. My name is Marianne Moe, I'm Head of Investor Relations, and I have the pleasure of guiding you through the session here today. The results will, as usual, be presented by our Group CEO, Sigve Brekke, and Group CFO, Jørgen Rostrup. I hope you all have the presentation material available. As usual, after the session here in the auditorium, which is expected to take about one hour, there will also be a separate media session for media present here at Fornebu. That session will take place in the lounge on the fourth floor, and comms will take you to that session later on. Without much further ado, I leave the floor to Sigve for the results highlights of the first quarter. Please, Sigve.
Thank you, Marianne, and a very good morning to all of you, to a beautiful spring day in Norway. In 2017, we said that we want to launch a strategy to modernize Telenor. The Q1 results is a continuation of exactly that. You see in the first quarter that we have a steady performance in line with what we had planned for. Among the highlights in the quarter, I'm pleased to see a 2% subscriber and traffic growth in Norway, and a 20% growth in fiber revenues, also in Norway. In Emerging Asia, Pakistan, Bangladesh, and Myanmar, we see improvement across all our markets as data demand continues with our customers. We see an impressive double-digit growth, revenue growth, in Bangladesh and Pakistan.
I'm also very pleased to see more than 1 million new subscribers in the quarter in Myanmar. We also see now signs of revenue stabilization in our Myanmar operation. In Developed Asia, Thailand, and Malaysia, the prepaid segment has been under pressure in this quarter. But we are continuing to modernize these two operations as well, to migrate prepaid customers into data-driven postpaid packages. Thailand is still impacted by the transition we have seen now since last year from concession to licenses, but our network is catching up. We now have more than 15,000 base stations on air on our 2.3 megahertz spectrum, and we see that our network is now getting more competitive with our competitors. The Net Promoter Score is showing that day by day.
The financial performance for the quarter. It's coming in, as I said, in accordance with our expectations, and it's also consistent with the guiding we gave you for the full year in the last quarter. We see a flat subscriber and traffic growth, where growth in the mobile and fiber revenues are being offset by decline in the legacy, in the fixed legacy revenues. But if you exclude Thailand, as you can see on the left-hand side of this slide, the S&T revenues grew with 1.4%. Our efficiency program continues, now for the third year. We started with that in 2017, took down the OpEx with 3% in 2017, took down another three—more than 3% in 2018, and we continue with this.
This quarter, we reduced OpEx with 1%, and efficiency is now really becoming a way of work with Telenor, in Telenor. The EBITDA declined 3%, but this is explained by Thailand. About half of that, it's revenues, and the other half is the rental fees we pay in Thailand to TOT on the spectrum rental. And remember that we started to pay that in April last year, so from second quarter onwards, we will then have included this also on the year-to-year comparison. If you exclude Thailand, you will see that our organic revenue grew more than 2% in this quarter. And again, it's in line with the guidance, full year guidance we gave you in the last quarter. Let me spend a little bit of time on our Norwegian operation.
I'm very satisfied with how the Norwegian operation is now developing. The first quarter is showing a steady progress on our efficiency, but also on our revenue renewal agenda. The S&T revenues, as well as the EBITDA margin, is stable, despite continued fixed legacy reduction in the fixed legacy revenues. The growth initiatives that we have initiated, they are paying off, and it's resulting in a 2% ARPU growth, both in mobile, but also on the fixed, on the high-speed fixed broadband. And if you exclude the impact of a lower termination fee, the mobile ARPU actually increased 3%. The mindset that we have for our Norwegian operation is that it should be possible to continue to grow ARPU in this market. On the back of having the best network and on the back of continue to launch innovative services.
We have spoken before about the way we digitalize our customer journeys. This is now continuing in Norway, and we are using the customer insights we get to drive personalization, to be more accurate in our market spend, and also in our channel development. We also use customer insight to continue to do upselling to larger data packages. Let me give you a couple of examples on how we are driving value with the customer insight. 2 million customers are now using our common ID solution in Norway. With this, we can simplify the uptake and use of our own services, but also the partner services that our customers are using.
We see now that our customers, more and more, are using several services, and the ID login solution is then simplifying and making that more seamless for our customers. 160,000 customers are now active user of our family product. A family product, which basically combine the entire family into one service, so that you can check the family calendar, but even more important, that we can add partners. We see now significant interest from partners, like, for example, Norwegian Football Club, Norwegian Soccer Association, to integrate their services into this product. The third example is less than two months ago, we launched what we call Yng Goodies, which is a service for our younger segment. Again, we are bundling services here together with partners to be able to drive ARPU.
I can also mention the position we now take on digitalizing the healthcare in Norway, and we are working together with local governments to provide people with health solutions digitally, so that they can stay home longer. We also see a potential for starting to sell managed security services. Sorry. In Norway, we also see that if I adjust for the business transferred from as a group function into Norway, the OpEx decreased by 2%. This is driven by reduction of all main cost areas, being personnel, sales, marketing, and operation. Again, when we digitalize the customer journeys, we can reduce the manning in the call center, as one example. We're also implementing a new project way of working, more agile, to make both our IT project and product development more efficient.
As we communicated last quarter, we are modernizing our infrastructure with decommissioning of the copper network. This is to build a future-proof, fast, speed quality network for our customers. I'm quite proud that the Norwegian management team took the challenge to sunset the copper network much faster than originally planned. As we talked about in the last quarter, our aim is then to sunset this within the coming four years, and then to have migrated customers over to mobile and fiber solutions. Currently, the management is, if I can use that word, speed dating with local authorities to plan for how this is going to work, and to make sure that that we are the timing of decommissioning and introduction of replacement products are coming at the same time. This is a slide I showed you in the last quarter.
It was a slide describing our 2019 priorities. It was a slide that talked about the way we are modernizing Telenor, as we have talked about the last two years. Also, talking about the way we are continuing to drive digitalization of the core business, and how we are simplifying and making ourselves more efficient. In the slide, you also see that we are focusing on new growth areas, such as B2B business across our portfolio, not only in Scandinavia, and also how to return to growth in Myanmar and in Thailand. So how are we then trending in accordance with the priorities I explained to you? I'm pleased to see that we have made good progress on these priorities in the first quarter.
In Myanmar, the competition remained tough, but the management is now executing on a strategy, and our strategy is to build the widest distribution, have competitive data network, have innovative products and services, and not least, we invest on cost. This is paying off. As I mentioned, we are now back on very healthy subscriber growth, and we added more than 1 million new subscribers in the quarter itself. This is the strongest subscriber addition since the second quarter in 2016. In addition, we also see subscription and traffic growth is now showing healthy signs of stabilization. At the headquarters, up in the right corner, we are trying to make ourselves more efficient in all areas, implementing new ways of working.
We have launched in this quarter an initiative to modernize the headquarters functions, to make sure that the headquarters services are in line with what the business units need, and how to drive value in those business units. This initiative is expected to result in an OpEx saving of approximately NOK 500 million, whereby NOK 300 million affect this year, and another NOK 200 million next year. In Norway, we added 11,000 fiber connections this quarter, and we are now on track to target 60,000 new fiber connections within this year. This is 50% more than what we were able to do in 2018, and as you have heard us talking about now in several quarters, our aim to speed up the rollout of fiber.
This resulted then in a 20% fiber growth of revenues in this quarter. We have also launched now 5G pilot in five places in Norway to test out both the network but also use cases. And at the same time, we are maintaining the world's fastest network position. And although down in the left corner, still it's small in financial terms, we have launched IoT services in Bangladesh and Pakistan, taking learnings from Norway. This is meant to support the ambition to offer advanced services and strengthen our B2B position also in Asia. We have done over the last couple of years, constantly and step by step, executed on our strategic agenda. We are focusing on modernization and value creation within two core markets, in Asia and in Southeast Asia and in the Nordics.
At the recent announcement, where we announced that we would like to acquire 54% stake in the Finnish operator DNA, fits well into that strategy. DNA is a strong player in a very attractive growth market and will complement our existing operations in the Nordic region, and we expect to close the transaction during the third quarter. With this, I'm handing over to Jørgen.
Thank you, Sigve. Good morning, everybody. What all we do now is about modernizing Telenor. Whether it is the customer journey, whether it is the way to, the way we work and the upskilling of people, whether it is the corporate structures or infrastructure and network, and this will continue regardless. For growth, and these are the three pillars that we have used since Capital Market Day, 2017, and we thought it was good to use that once again, and put context into it. For growth, we see that mobile subscription and traffic revenues increased by 1% in the quarter, or 2.5%, excluding dtac.
The fiber revenues in Norway grew by 20% year-on-year, and then we see subscription growth coming in with 2.3 million new subscribers, of which 1.2 million in Myanmar. The development in Myanmar is therefore solid in the quarter, and we are sure it will be supportive for revenue development going forward. The continuous focus on efficiency is yielding positive results, and the OpEx reduction is 1% if you adjust for FX. Towards the quarter, we launched a new initiative, or the second initiative, I should say, addressing corporate function cost base. The first was done in 2017. Now, we feel ready, and we feel the development has continued, our way of work has continued, our portfolio and simplification work has delivered, and now we are ready for step two.
It is another way to simplify the way we work, to serve the business units better, and also to realize the cost ambition of 1% to 3% reduction in 2019 and in 2020. As Sigve said, we believe the annual full rate reduction in cost will be approximately NOK 500 million, of which NOK 300 million should be reached already in 2019. In addition, we are now in the progress of improving the operational model for tower infrastructure in Norway, and we evaluate right now to combine three infrastructure operations here, aiming to improve efficiency related to how we operate these towers. This is obviously also related to all the work we do on our total power tower portfolio globally. Then the third pillar in our effort is the simplification dimension.
In the quarter, we have continued to sell down the VEON shares, and we have now reduced our position to below 10% in this company. We will completely go out of VEON over time. In addition, our financial service company in Myanmar, Wave Money, has entered into new joint venture agreements, which will further develop that company with partners. And we have also closed, finally, the sale of the bank we owned in Serbia in this quarter. Going forward, we are also then going to review a full or partial divestment of our real estate portfolio in Norway as a natural part of the modernization of the group. We are continuing to face challenges in Thailand, but at the same time, we are pleased to see the development in Myanmar returning to subscriber growth there.
And then, as Sigve said, keep in mind that we still have until September before we have analyzed the effects of the price regulations in Myanmar, but this increased subscriber base will hopefully be able to offset some of the price effects in the period in between. If we dive a little bit into these numbers, we have NOK 0.6 billion total revenue increase in the quarter, which is 2% compared to last year. This is fully explained, however, by favorable foreign exchange movements in relation to the Norwegian krone. We see subs and traffic revenue increased by 1.4%, excluding Thailand, which is fully in line with our revenue guidance and expectation. If we include Thailand, the subscription and traffic revenues remain stable, as Sigve showed you.
During the quarter, we see this strong subs and traffic development in Bangladesh with 14% and in Pakistan with 15%, and we are very pleased to see around 20% growth in fiber revenues in Norway, coming after intensive capital investment over the last couple of years. Then the group's growth rate in total is under pressure, somewhat from developed Asia, from fixed legacy, naturally enough, and also from Myanmar still. Thailand, 5% reduction in customer base year-on-year, and with a flattish RPU level, in the quarter, subs and traffic is down some 6%. dtac's situation remains broadly the same as in fourth quarter, and we continue to focus on retaining these high-level, valuable customers.
Fixed legacy decline preliminary, primarily, sorry, in Norway, continues along the same lines, basically as previous trends, pulling down the group's total growth by almost one percentage point in the quarter. So in other words, revenues continue to be somewhat under pressure from developed Asia, Myanmar, and fixed legacy services. We are very pleased to see the solid growth in Bangladesh and Pakistan, strong fiber revenue growth, and robust performance on the mobile side in the Nordics in the quarter. Efficiency improvements continue. We have said it every quarter since 2017. It continues to be one of our priorities. It is very exciting, I can tell you, to work on this, as well as growing and developing the company on the top line. In Q1, we see OpEx reduction of NOK 111 million, or 1% on an FX-adjusted basis.
As you can see on the right-hand of the slide, this is primarily a result on a net basis of efficiency improvements, within corporate functions, from continuous simplification effort and structural changes across staff units. It is high-value changes. It is very valuable for the group to achieve these results. It means that we are modernizing the group also from the top, and it means that we are providing better and quicker services and, and support for our business units. We also have overall lower cost in Sweden, in addition to the regulatory cost savings that we had talked about before in Thailand. We see that we're able to reduce, several elements. We are reducing continuously now, salary and personnel costs, operation and maintenance cost is influenced, and also other OpEx, which are those, regulatory cost savings, Thailand.
Then these improvements in the quarter is partly offset by higher energy costs for two reasons. One is the larger network in both Thailand and Bangladesh, and the second is the devaluation of currency in Pakistan and Myanmar, which has led to increased fuel prices in local currency. So we know that the OpEx development will vary from quarter to quarter. We continue this strong effort in order to reach 1% to 3% reduction towards 2020, and we still believe there is significant efficiency potential left in the group. If you took a look at the EBITDA development, we have a 2% growth this quarter, excluding Thailand. Again, well aligned with our financial guiding of 1% to 3% for the year.
It's based on some of the same factors that we had talked about, continuous momentum in Bangladesh, Pakistan, improved performance in other units are the key elements lifting this quarter's performance. Then it's partly offset by lower EBITDA in Myanmar after the fourth operator entered this market last June, and the price regulation changed from September. In addition, increased prepaid competition in Malaysia in the quarter is putting pressure on both revenues and EBITDA. The negative EBITDA performance in Thailand, as Sigve said, 50/50, explained by TOT lease costs, which came as a compensation for investment... and then reduced subs and traffic revenues from a challenged market position. If we include Thailand, we have a negative EBITDA growth in a quarter of 3.5%. The net income to Telenor's equity holders this quarter ended at NOK 3.9 billion.
This is NOK 1.1 billion below last year, primarily due to decrease in net financials in the quarter. This decrease is driven by higher net currency gains, and also a gain on financial derivatives related to the VEON convertible bond in the first quarter last year. The decrease this year quarter was also then partly offset by lower depreciations in Thailand, following the end of the concession model, as we have communicated before. If we're looking at free cash flow, it was NOK 2.5 billion on level with last year. However, this quarter possibly impacted by the VEON shares of NOK 1.8 billion, partly offset by, offset by negative effects from deconsolidation of Telenor Banka and also of Wave Money in Myanmar of NOK 0.9 billion.
Underlying free cash flow, before these effects was therefore NOK 1.5 billion, a decrease of NOK 1.1 billion, partly due to higher income taxes, net interest paid, and also slightly higher investments in Q4 2018 versus Q4 2017, therefore paid a little bit more of those CapEx programs in this quarter compared to last year. Net debt to EBITDA this quarter remained approximately at the same level as previous quarter, at 0.9x EBITDA. And then going forward, we will have some elements which will, all other things kept equal, lift this ratio by 0.8. Half of that, a little bit more than 0.4x EBITDA, will come from ordinary dividend and share buybacks.
And the other half will come from hopefully getting confirmed next week that we can buy 54% of DNA, approximately 0.4 effect on the ratio. I need to take you through an IFRS 16 course that is necessary in order to be complete in our reporting, and my chief accountant insists, and I'm happy to do so, Torkild. As of 1st January 2019, the new accounting standard, IFRS 16, has been implemented. This standard relates, as we know, to how we should treat lease agreements. We will have then for 2019, dual reporting, both the new standard, IFRS 16, but also the previous standards that we have been reported on is kept and maintained.
This is in order to be able to give you granular and precise and good management discussions based on old accounting standard, because we are not able to produce full set for 2018 on the new one. This is according to the recommended practice for how to implement the standard, the same way as we did with the IFRS 15 change last year. Under this standard, there is no longer a difference between operating lease and financial lease. Previously, as we know, operating lease was booked on a running basis on the operating expense line in the P&L, with no corresponding liability on the balance sheet. It was a P&L exercise.
Under the new standard, operating lease will be treated in the same way as financial lease, and you have therefore balance sheet lease liability, and then costs move from operating expenditures to depreciation and to financial items. For Telenor, the majority of our operating lease in our portfolio is related to tower rentals, and as we have also given prognosis for, or estimate for, the liability increased by around NOK 25 billion-NOK 26 billion with IFRS 16, as stated also in the annual report. The effect from changes to the P&L is visible from this table here. EBITDA increased with 1.2 billion NOK in Q1, net income slightly negative. You will find a lot more information in the quarterly report, including in note one, and this is basically, as we explained, we thought it would be very little net income effect. Thank you for listening.
Outlook for 2019 then is maintained. For the group, excluding the Thai operation, the performance in Q1 has been very aligned with our expectations, and we are quite pleased with the total performance. We maintain our guidance, therefore, on an organic subscription and traffic revenue growth of 0% to 2%, and organic EBITDA growth of 1% to 3%, both excluding dtac. We also maintain CapEx excluding licenses and spectrum in the range of NOK 16 billion to NOK 17 billion, this including dtac. I believe that dtac will hold a sort of a capital markets day live in June. Is it the fourth of June?
... and they will then guide for the year, and that means that we obviously will guide with dtac from second quarter onwards. Thanks for listening. Let's move to Q&A.
Thank you, Jørgen, and we will have Sigve on the stage as well. As usual, we will start the Q&A session with taking questions from the audience present here at Fornebu.
Hello, my name is Frank Maaø of DNB. The EBITDA guidance will face fairly significant headwinds in the third quarter due to the reversals in Pakistan and in global services last year. Do you expect the group functions efficiency program to be key in countering those Q3 headwinds, or tough comps? And actually give some more details as to what that program will consist of, group functions efficiency program.
Yeah, we can give a little bit. We have defined how the new organization is going to look and what principles we are going to work on, and how we are going to develop it further. This has some consequences. Some activities will be reduced or changed, something will be stopped, and some people will leave Telenor. It's a people reduction, it's an activity reduction, it's a scope of activity change. Going forward now is the critical period in that activity and in that project, also with challenging discussions in finding the total set of solutions.
After summer, we plan to be working in the new setup, which means that apart from a financial point of view, I assume that's your key interest, that a significant part of the anticipated savings for this year, the NOK 300 million, will be then reduced in the second half. Some has already obviously been taken down, so it's a gradual process. Some of the activity will be phased out only at the end of the year, so there is a mix. But it's a fair part of this is, it's a fairly full half year effect of 2019.
Okay. Thank you.
Any further questions from the audience here at Fornebu? If no further questions here, we can then open up for questions from the conference call participants.
Thank you. I will now give Peter Nielson from ABG. The line is open, please go ahead.
Thank you. Two questions, please. Firstly, could you comment a bit on how you view the competitive environment in the Norwegian market at the moment? Obviously, there's been some structural changes since last year. There does seem to have been some increased competition on the B2B market, while FMC sort of seems to be still very modest, talked about in Norway. If you could comment on how you see the environment having developed, please. And also, just secondly, when do you expect you will be able to give us more detail on the decommissioning of the network in Norway, please? Thank you very much.
Yeah. Yes, Peter. It's quite funny because we get this question every quarter about the competitive intensity in Norway. And I will say that the Norwegian market is competitive, has been competitive, and will be competitive. So I don't really see any change. We have a competition from Telia both on the consumer segment and also on the business segment. And we also see the Ice, but also the MVNOs being very competitive. So I wouldn't say that there is any change in the competitive landscape in Norway. On the fixed mobile conversion, I talk a little bit about in my intro on the way we bundle services.
We bundle services in a family package, we bundle also third-party services into some of the products that we have. But there is no discounting game in the way we bundle, and I don't expect that to happen in the Norwegian market going forward either. It's more bundling for the benefits of the consumers.
So at this point, Sigve, you do not seem to have noticed an increased competition in the B2B pricing, et cetera?
No, that has been competitive all along. So with Telia now acquiring or strengthening their B2B position-
Yeah
... it will, it will enable Telia also to, to have a more integrated way of offering services to the B2B segment. So I, I don't foresee this being, the competitive landscape being, being very different. It, it has been, competitive, and it will remain, being so. What we are focusing on, it's, not, it's also to, to go into some of our, our, customers, being on the public sector or on the, on the corporate sector, with more integrated solutions.... So that's where our IoT play comes in. We are working together with the, with the government, local governments on, on digital, health, health solutions, as I explained, but we're also working together with the larger clients on, on more integrated services. Even on the SMEs, we are, we are now offering, cloud-based services.
So, the competition is kind of moving into more value-added type of services and more integrated type of service offerings.
The decommissioning, please?
Yeah, sorry, that one. Yes, we will, as we said in the last quarter, we will then come with more clarity on that, in probably in the second quarter call. And the Norwegian team is now working on both, as I said, how to face or how to time the decommissioning with also offering new type of services, but also looking at the financials of that. So, in some months, we will come with more clarity on that.
Very good. Thank you.
Next caller, please.
Thank you. And the next caller will be Henriette Trondsen from Arctic Securities. Your line is open. Please go ahead.
Hi, Henriette Trondsen , Arctic. On Sweden first, Sweden had slightly weaker than expected revenue growth due to the business segment, Telia and Tele2 also highlighted competition in this segment in their Q1 results. How do you see competition going forward here? And a second question on the DNA acquisition. Did you ever evaluate the potential return of the DNA acquisition against on increasing share buybacks or dividends? And if yes, how did you look at these options? Thank you.
Yes, Henriette. I think what I tried to explain also in my intro here and what Jørgen also explained when we had that conference call, when we announced the DNA, this is, it's in the midst of our strategy. We have said all along that we would like to strengthen our portfolio in Scandinavia, now being Nordics, and then acquiring a company like a DNA, very well-run company, in the growth markets, one of the few really growth markets left in Europe, we think what it's value creative. And we also talked about the way we are going to create some synergies there using our sourcing muscle or scale, but also on the B2B side. So of course, that was the discussion when we made that decision in the board.
Can I add?
Yeah.
Obviously, I fully, fully agree. The DNA deal, we, we viewed as value accretive from day one. We also view it to be an exciting growth case that will give us several opportunities going forward. We have also, and you will see, being cautious and tight on the synergy effects, if you compare it to other deal of the last year. So we are very positive to the DNA deal. And then obviously, we have evaluated it up against alternatives. We definitely share the view that the buying back share is value accretive. It's somewhat static, and even a CFO view it, that you cannot shrink to greatness. So we need to find a balance.
We will continue to award the shareholders directly, and we will continue to do moves structurally, which is awarding the shareholder in the future.
On your Swedish question, now when we have seen the Q1 results, both from Telia, from Tele2, and from Hutch, we actually took a slight market share in the first quarter for the first time in a quite long time. So, relatively, we are doing quite well in the Swedish market. But you are right. The B2B competition in Sweden is heating up. And we are now trying to take some of the learnings we have from the B2B segment in Norway, including what I talked about on integrated services or the IoT services into Sweden to see if we can be adding value in our B2B offerings.
Thank you. No further questions from me.
Next question, please.
Thank you for that. Yes, next question will be from Usman Ghazi from Berenberg. The line is open. Please go ahead.
Hello, thank you for taking my question. I've got two questions, please. Firstly, on these services that you're selling through partners in Norway, I just wanted to ask if you were accounting for the partner services on a gross or net basis in the ARPU. I mean, gross being that, you know, you would book the entire fee, and then there would be an expense for the partner in the OpEx. And net, obviously, being that there's just the net effect included in the ARPU. That was the first question. The second question was just on these claims in Bangladesh, which look fairly worrying, given the size.
I was just wondering if you'd give your view on potential settlement, et cetera, regarding those. Thank you.
We need to think about your first question, so let me answer your second question. Yes, you are right. We have an audit claim against us in Bangladesh. This is not new. This is something that we have known about for quite some time. We are absolutely disputing that claim. We think that neither the audit itself nor the content in the audit is right. So we have been quite clear on this, and we will continue to dispute that. We expect this to be solved in a dialogue or in the court system. It's part-industry issue also, part of this is also claims that the competitors are having.
I'll assume the answer is gross and in revenues and cost, but Marianne, do you want to comment on it?
I, that's also my understanding. So if we're talking services like insurance, secure ID, et cetera, we have a revenue element, and then we have a cost associated to that. So it's booked in revenue and cost lines, correspondingly.
Great. Thank you. Thank you for that. Our next question comes from Henrik Herbst from Verition Fund Management . Please go ahead.
Yeah, thanks very much. I guess this question or, yeah, is sort of tying into Usman's question. When you're now growing service revenues in Norway, but your EBITDA is still shrinking, I guess part of it is the cost allocation, the changing cost allocation beginning of last year, where you allocated central costs out to Norway. So can you maybe talk a little bit about the... What EBITDA, if you would have reported positive EBITDA growth ex that, and then also on the, if you can give any color on the margin on those partner revenues that Usman was asking about? And also, I didn't really understand your point on the towers. Are you looking to consolidating tower portfolios in Norway, or... Sorry, I didn't get that point. Thank you.
Yeah. So on towers, we what we said last quarter was that we are going through now the complete tower portfolio that we have in the company. This is to have a review of it, how do we operate it today, and what, what do we want to do going forward? We also made a point at that time that we have very different models, fit for markets, fit for local markets in our portfolio. So we don't have one way of handling our towers and operating our towers by choice, because the markets are very different. And we are basically today within all kind of setups.
We have towers that we are only using ourselves, we have towers that we are sharing, we are in tower JVs, we are borrowing space on others' towers. You have every model within our portfolio. We have a review of that, and we'll, we'll, we'll discuss that with you and, and make decisions as we go along. You should expect an industrial type of development on this. We think that tower is an important part of our telco business and of our total infrastructure. That being said, in Norway, we have, for various reasons, also historic reasons, three, three individual or three separate operational environments and companies on the tower side. A natural next step, we believe, is to merge or bundle those environments together into one environment on the tower side in Norway.
It is not decided yet, but I just want to make a comment of it so that you can know where we are, because also we will start to have those discussions and take those decisions internally now, and it's good to share it. On your Norway issue, yeah, we... As I said, if you adjust for the transfer of the cost from group to Norway, and you have an OpEx reduction in Norway for this quarter as well. We are going to continue with our digitalization journey in Norway, digitalizing the core business, being customer part of it or being the IT or infrastructure part of it. So the efficiency focus in Norway is going to continue.
At the same time, we are happy to see now that we have a 2% SMT growth in Norway. So I don't want to comment more on the margins going forward. When it comes to the partner services, I don't have any details on that either, but you could follow up with Marianne or I later. But take two examples. One example on the family package I talked about. In the family package, we are working together with the soccer association of Norway, where we basically are integrated the soccer practice into the family calendar. So there is a one-shop, one-stop calendar for all the family members, also then taking in the soccer practice in the calendar.
It's not a paid service, but it enable us to then get families to join that family package, and with that, get family members to join Telenor, and also, of course, a churn reduction. Another example is on the Yng Goodies, where we are offering a VG+, also the biggest newspaper in Norway, their subscription services into that offerings. Again, to give goodies or extra benefits to the customers that are enjoying that service. So those type of service offerings we are using to drive ARPU, but also to reduce churn.
Yeah. Well, just to add to that, when it comes to additional services on top of the connectivity in Norway, we don't have the absolute revenue numbers to share with you, but it actually contributes positively to the ARPU this quarter with the NOK 3. So, on the other hand, we have a lower top of revenues of NOK 4 . So it's a different effect. By the way, I am also being a bit corrected on the previous questions on how we book revenues. There is, when it comes to the insurance services in the swap program, that's booked net. For others, I believe the comment was still correct. Sorry, may we have the next caller, please?
Thank you. I will now give you Ulrich Rathe from Jefferies. Please go ahead.
Yeah, thanks very much. So my first question is on, on this comment on the real estate portfolio in Norway. I understand this is a work in progress, so you probably won't want to sort of talk what exactly you're gonna do, but, but in terms of just giving us a sense of the scale of this, you know, what, what is the, the value you have and, and where is this going? Second question is on Pakistan. There's a comment that the network taxes are now likely to be reinstated, the telecom taxes are likely to be reinstated. Can you, can you comment whether there's a scenario where they come out better or indeed worse than, than they were before they were removed? And the last question is on the, on the sort of this reallocation of central cost to Norway.
Could you comment a bit on the rationale for doing this? That would be interesting. Thank you.
For doing what? The last question, for doing?
Is for moving the central cost into Norway partially.
Oh, okay. Okay.
Just the transfer.
You want to go?
Yeah.
I can do Pakistan. No, those, the new tax regulation is very similar to the ones that we used to have that was removed. So, this is something we have anticipated. And, we hope, or plan to pass on most of these taxes to the consumers, but it's yet a little bit too early to say what type of effect that will have on, the growth that we have now seen, in this quarter. Let me take the allocation first, and let's start one notch up.
We have talked several quarters about the fact that the savings for the business units needs also to be seen in light of the fact that they have taken on board more costs from the central unit over time, and in particular, in 2018. This is related to both a better distribution of cost following new principles. It's tax related in a positive way, make sure that where the service is consumed, it's actually participating in taking that cost. And it is also, as I've said a couple of times, a good discipline in it that the users are paying for it because then they can participate in the discussion of whether they want the service or not.
So it's a good also discipline in everything we do. When it comes to the particularities in Norway, this is partly the reason then, and it's also another reason for Norway. We have just at times looked at the granular level, small units, small things we are carrying out. Is it a group activity to be taken care of? Or is this something that should be in Norway, and we are sitting next door to each other? And these movements back and forth, when we take these decisions, we'd also have we shift cost from one place to the other. So it's the key element is the first one.
We have systematically moved out more cost to let the user pay, while the corporate center at the same time has been more increasingly efficient. And that's why you see such a large change in the cost base on group. It's these two effects together, and you shouldn't underestimate the value of putting them together. Then real estate. No, we are not going to say very much, more actually. We have in Norwegian context, a large real estate portfolio, I think it's fair to say. But it can be small in a global context, but in a Norwegian context, it's large.
We have less use of that today than we had previously, and this is also related to both a shift in technology and a shift in way of work and how we operate regional units and so on and so forth. So this goes a little bit in hand in hand also with the copper development and also somewhat actually with the tower discussions that we're carrying out in Norway. These things are somewhat related, and we are now evaluating a partly or full exit out of this portfolio. We will, of course, come back with more information when we make our decisions.
Thank you very much.
Next caller, please.
Thank you. Thank you for that. Can I... I'm just, well, next caller will be Roman Arbuzov from JP Morgan. Your line is open. Please go ahead.
Thank you very much for taking my questions. I had two questions, please. The first one is on Malaysia. You have mentioned increased competition in prepaid, but I was wondering if you could elaborate a little bit on the trends in the market in terms of who's driving the competition and whether you're responding, and, you know, what are the prospects for a turnaround later in the year? That would be very helpful. And then secondly, you've mentioned 5G use cases in Norway and the pilot rollouts as well. I was wondering if you could just give us some examples of those use cases, and also just talk us through if you've reached any initial conclusions, perhaps on 5G monetization. Thank you very much.
...Yeah, let me take Malaysia first. I think U Mobile, the smallest operator, is the most aggressive one driving the unlimited data offers on prepaid. And that has impacted the entire industry. However, we see now that more and more prepaid customers are getting out of that tactical, price-sensitive segment and migrating into postpaid. So we are continuing then to build our postpaid base. That's partly a distribution game, that's partly a brand game, but it's also offering more types of postpaid services. So we are doing quite well on postpaid. The first quarter was tougher on prepaid than we expected. However, we are still guiding that the year-on-year revenue growth should be flattish or stable.
So we expect then that the coming three quarters you will see a better performance also on prepaid. So it's the unlimited data, and it's especially on the migrant segment in Malaysia. On 5G, I think the most important use case right now is actually to test out 5G as a replacement product for fiber, also a fixed mobile product. We are testing that out several places, both we actually are doing that on 4G as well. We are also testing it out with autonomous ferry in Tromsø to see if 5G can be operated there. We are testing it out with a fish farm also up in Tromsø.
We are testing it out with the medical sector, the emergency services. It's still too early to say which one of this type of tests will be then possible to monetize. We need a few more months on that. I think that we want to continue to run these three pilots that we have until the end of the year, and then see how this can be taken into a commercial offer during 2020.
Thank you very much.
I believe we still have-
Thank you.
3-4 callers waiting in the line. May I ask you to limit yourself to one question and maybe one follow-up, please? Next caller.
Thank you. Well, we have Terence Tsui from Morgan Stanley. The line's open. Please go ahead.
Oh, good morning, everyone. I had a question on the VEON sell down. Maybe you can just spend a few moments recapping the details of the exchangeable bond, please. I'm just interested because you obviously own some shares in VEON to help cover the exchangeable bond.
Yeah. We have the option to repay the bond, which is due in September, either by cash or by VEON shares. And then there are certain thresholds for the value of those shares in such a payback, in such a transaction, where Telenor, within a certain threshold, will sit with a gain, so to say, and the bondholder outside these thresholds will sit with an upside or be compensated. All this was detailed out when we launched it, and the information is available. I don't want to speculate on what we are doing related to this. We will come back to that when we are ready.
Terence, are you still with us?
Right.
If not, then I suggest to move on to the next caller, please.
Yes. We have Nick Lyall from SocGen. Please go ahead.
Yeah. Morning, everybody. It's, it's Nick with SocGen. Could I just ask one on Thailand, please, please, guys? On the, I mean, the numbers still seem very, very weak in dtac. There's no sign of an improvement in subs, and the ARPU is slipping faster now. So what makes you confident you can still reach growth for the full year, given the first quarter looked very poor? Thanks.
Well, I wouldn't say that the numbers looks very, very weak. They are not as we expected. And it takes time to build up the new network. And remember that we have been through a tremendous network transition, migrating the network into new type of spectrums. However, we now see that that's catching up, and it's giving a good competitive network offers for the customers that are now starting to use, especially our 2.3 GHz spectrum. We have never said that the year-on-year will return to positive, but during the second half, we should return to positive growth in Thailand.
We see now that the customers that are now living in areas where we have upgraded the network with the 15,000 base stations we have on 2.3 are now staying with us. And we see that we are able to continue also to migrate prepaid customers into postpaid customers, the same thing we have been doing the last year. So, I will say that we are not giving more guidance on this, and as Jørgen said, there will be a capital markets day for dtac in June. But the overall target we have here is to return to growth during the second half, when our network then is on a competitive level.
... Okay, thank you.
Next question, please.
We'll take the next question from Henrik Mobi from Nordea.
Thank you for taking my questions. Coming to Sweden, trends are looking pretty bleak there, in order to drop around 2% to 3% in local currency in both postpaid and prepaid. You are highlighting the pressure in B2B as a big factor explaining this, but how did B2C develop in the quarter, and can you please elaborate on how you view the competitive environment in B2C Sweden? And secondly, on that note, you have been showing fairly strong subscriber trends in the past three quarters in postpaid, but how much of that is machine to machine? Thank you.
No, it's not, it's not a lot of machine to machine, if that was your question. It's real consumers. As I said, the Swedish market is competitive. I think we are doing very well on the consumer segment, and as I also said, we are slightly taking some market share there. It's on the business side that we now are facing competition, and so is the rest of the industry as well. So I think we have now put plans in action to be competitive on especially the consumer segment. But as I, repeating myself, on the business segment, also trying to add more value-added services and avoid only competing on price.
Thank you.
Okay. Then we have the final question of the day, please.
Yes, we'll take the last question from Usman Ghazi from Berenberg. Please go ahead.
Hello, thank you for taking a follow-up. Just on Malaysia, I just wanted to clarify that you know, when I look at the Digi presentation, it seems to me that the bulk of the revenue loss, so this 5% subscription and traffic revenue loss, is coming from an IFRS 15 accounting effect, where you know, Digi moved to leasing handsets rather than subsidizing, and that is causing an unwind in the mobile ARPU. I mean, the impact of the prepaid competition seems to be much less you know, at around 1.8% revenue decline. So similar to Q4 last year, but this removal of the handset ARPU and the service revenues, that's what's causing the bulk of the impact.
At least that's from Digi's presentation. So I just want to understand, you know, when Telenor is presenting the service revenue decline at 5% to 6%, I mean, is it, is it putting the accounting effect in the service revenues, or, or am I missing something? Thank you.
Well, there is an accounting effect as well, but I... We need to come back to you. I don't believe this is the bulk is the accounting effect. I think there is a significant increased effect from the prepaid subset traffic in itself, and that is the, if not bulk, I will not put a characteristic on it, but it's a significant effect from that. And that is a larger effect from that in this quarter, and we expect that to be different in the following quarter. So we expect this combined with the continued uptick in the postpaid to bring us to flat development year on year, at the year end. So year on year, we believe will be flat.
Okay. Thank you very much.
Okay. That was the final caller in today, and it also ends the session here. Thank you very much for attending this presentation. For those of you who didn't get through or had follow-ups, I believe we got through with all questions, but if you have any follow-ups, please don't hesitate to contact investor relations. For media present here at Fornebu, as I said at the beginning of the session, there will now be an opportunity to ask questions to Sigve and Jørgen, I believe, and also Petter- Børre Furberg, head of Norway. My colleagues in comms will take you to the room where that session will take place. The fourth floor. Thank you all.