Good morning, and welcome to Telenor's second quarter result presentation. My name is Meera Bhatia, and I have our CEO, Jon Fredrik Baksaas, and CFO, Richard Olav Aa, with me here today, who will go through the financial results and developments of the quarter. There will be the opportunity for questions from the floor, online and over the phone, and I would like to kindly remind you to limit yourself to one to two questions, and introduce yourself by name and company. In addition, there will be time for some brief one-on-one interviews at the end of the presentation. We end the session about ten o'clock. I now leave the floor to Mr. Baksaas.
Yeah, good morning, also from me to this second quarter 2013 reporting. We are pleased to present a report where we see growth picking up and margins improving, both actually on EBITDA and on cash flow. We had a slow start beginning of this year with flat organic revenues, but as expected, we have seen in this quarter an improvement as compared to the first quarter, with an organic growth of 2%. We expect this positive trend to continue the next quarters in this year, and as indicated through the unchanged outlook for the year, as you can see from the report. Richard will come back to this later. We also got a better momentum on customer acquisition and added more than five million subscribers this quarter. This is the highest number reported since Q1 2012.
The growth is driven by several markets, actually, where both dtac, Grameenphone, Telenor Pakistan, and India contributes to the five million this quarter. I'm slow on this one today. Must be the summer temperature. Sorry for that. In Scandinavia, in this quarter, we have seen a definite move to data-centric pricing in all our Scandinavian markets. And this reflects the change in user behavior. The unlimited voice and SMS are now included in bundle subscriptions at various sizes. It's been also an eventful period on the M&A side with two important milestones in this quarter. We have announced the acquisitions of Globul, the number two operator in Bulgaria, and in June, we were declared a successful applicant for a telecom license in Myanmar. I will come back to both of them later in my presentation. But first, to Norway.
In Norway, we have adjusted our mobile offerings by adding more data volumes to our service offerings, and also included unlimited voice and SMS to the bundle subscriptions. Increased market activities related to the renewed offerings have resulted in improved customer uptake, where we actually added twenty thousand new postpaid customers in this quarter alone. After what we have to say was a slow start at the beginning of the year. Unfortunately, though, revenues, ARPU, and EBITDA this quarter was negatively impacted by a one-time correction of the mobile content revenues from previous periods of NOK 114 million, stretching from Q1 2011 into 2013. Excluding this effect, though, mobile revenues remained stable compared to the same period last year. This happens in a market which is very intense by competition.
During the quarter, we continued to strengthen our network leadership position through significant investments both in mobile and fiber networks. The 4G rollout continued, including launch of 4G in many popular summer holiday areas in southern Norway. Population coverage has now reached 40%, and we believe we have roughly 300,000 4G-enabled devices in the network as we speak. Finally, we are also moving towards clarity on the 800 MHz here in Norway. There is an auction expected to take place in December this year, and we see this as a very important step to further improve the nationwide rollout of 4G.
With these renewed mobile service offerings, we aim to strengthen our relevance to our customers, and at the same time, monetize on the significant network investments that are being done in the Norwegian market. Telenor Sweden reports a very strong quarter with 24,000 new mobile subscribers this quarter, and a solid margin uplift. Mobile service revenues, excluding the handset-related discount, increased by 4.7%. The acquisitions of OpenNet and Ownit last year contributes to growth and strengthened also the position in the fixed broadband area. EBITDA in local currencies increased by 23% compared to second quarter last year. This improvement is driven by both increased gross profit and several operational excellence initiatives that now starts to pay off. Denmark, though, continues to be our most challenging marketplace.
The revenue development is heavily impacted by the 65% mobile termination rate cut from the beginning of this year. However, this explains only half of the top line decline also in the second quarter. The rest of the decline is explained by continuous price pressure and competition in the mobile segment as such in the market. The EBITDA margin in Denmark dropped this quarter below 20%, driven by a handset campaign on the iPhone 4. The new strategy, which focus on simplification throughout the value chains, is now being developed and is critical for us, in the quarters to come. Before moving to the operations outside Scandinavia, I should give credit to the Telenor Broadcast team.
Telenor Broadcast in this quarter reports a revenue growth of 1%, and reaches a margin of 32.6%, which we consider very strong. A lot of good work has now started to really pay off for Telenor Broadcast. Moving then more south in Europe. In Central and Eastern Europe, we see strong operational performance this quarter, despite continued challenging macroeconomic environment. In Hungary, the organic revenues, excluding interconnect, increased by 1%, and underlying EBITDA margin increased by 4 percentage points. We see the growth in subscription traffic revenues, which now is offsetting the decline in the mobile termination rate. The EBITDA margin of 39% is very solid, especially taking into account that 8 percentage points drag comes from the telecom tax.
From first of August, this telecom tax on corporate customers will increase, putting additional pressure on the margin in Hungary. In Serbia, the migration from prepaid to postpaid continues. At the end of the quarter, 45% of our customers in Serbia were on postpaid subscriptions. Although revenue growth has slowed somewhat compared to previous quarters, performance is solid, with a 41% margin in for the quarter. The operations in Central and Eastern Europe are continuing to explore joint operational excellence initiatives, both based on regional scale as well as on group scale, which contributes to this, to this performance. Now we're ready to move to Bulgaria. The acquisition of Globul in Bulgaria was announced 26th of April. This acquisition have now been approved by EU Commission, and we expect to close the transaction during third quarter.
Globul is already a well-run company with a strong number two position in the Bulgarian mobile market, and we now really look forward to welcome our new colleagues in Globul to the Telenor Group. But also by leveraging on the Telenor scale and expertise and competencies in the region, we aim to further strengthen Globul's performance in the marketplace. Stein-Erik Vellan, who was the CEO of Telenor Serbia in the initial phase, will now head the Bulgarian operation. When the transaction is completed, we will work with the local management team to establish the ambitions going forward, and also expect to be able to share more of these details about plans and the further development of Globul later this year. Moving then to Asia, which once again constitutes the growth engine of the Telenor Group.
The data-driven growth continues in both of the more advanced and mature markets in Asia. For both dtac and Digi, we are very pleased to see that most of the growth is driven by service revenues, as both companies are able to offer attractive internet bundles, both for the prepaid and postpaid segment. In dtac, we see an impressive 11% service revenue growth and a solid subscriber uptake, as the company today, actually today, as we speak, launches its new 3G network on 2.1 GHz. The launch of the new network marks the start of the important transition from the concession to the license, and the company will now start to migrate subscriber base to this new license.
To support this migration, dtac will now speed up its investments in 3G network rollout, as reflected in the revised CapEx guidance from the company. This will take us to 50% population coverage on the new 3G network by the end of the year. Activities also to increase the 3G handset penetration in the customer base is also part of the migration plan, where affordable own-branded handsets were introduced in the second quarter. We still expect to deliver a healthy single-digit revenue growth this year on the back of solid demand in the mobile data area. Also in DiGi, DiGi is now on track to its expected 5%-7% revenue growth this year, and has a good momentum on mobile data.
Although voice revenues are under pressure, we still see that there are improvements in the revenue mix, where most of the growth this quarter is driven by service revenues. We reckon that 30% of DiGi's subscriber base is now on smart smartphones, and the company has also launched its 4G service network earlier in July. Also, more importantly, the growth is picking up in Bangladesh and Pakistan. The growth factor is improving after a fairly slow start this year. Both markets have their regulatory challenges, and are also characterized by intense competition. Grameenphone has good momentum on its increased market activities. And we see improvements on top line growth, and in this quarter, as much as 2.2 million new subscribers coming in from the new campaigns.
We believe, Grameenphone has improved its SIM market share this quarter. Also, in spite of seeing as much as two million new subscribers coming in, we have seen the EBITDA margin improving from previous quarters. In Pakistan, growth is also improving this quarter, and we have a 5.5% organic revenue growth to report. The subscriber growth of 1.3 million this quarter was the highest since Q2 2008. We have also continued to improve our retail sales channels and distribution, and we still see regulatory effects on intensified competition. Of the growth factor of 5.5%, 2% of this, 2 percentage points of this growth comes from financial services alone. We will have to expect intensified competition going forward.
It's hard work to position our services successfully, and Telenor, we're ready to compete for that position in the market. Moving then to India. We see around 7% underlying revenue growth in our six circles, and a significant reduction of churn versus the 2012 levels. Our ambition is to reach cash flow breakeven by the end of 2013, and this remains very firm. But that doesn't mean that we also need to improve the top line growth and customer intake going forward. The business transfer from Unitech Wireless to Telenor is still not approved by the Department of Telecoms, and the management is continuing to work with Department of Telecoms to complete this process, and also to formally receive the unified licenses as a result of the auctions in November.
And finally, to complete my presentation today, we were declared the successful applicant for the new license in Myanmar. This is another important milestone for us. We are in neighboring countries. We have done greenfields before. We have the competencies and the people to do this. And we are very much looking forward to to get started. Currently, we are awaiting the telecom law and the final license conditions from the authorities in Myanmar. Myanmar is one of the world's very few remaining greenfields, where penetration is still below 10% and offers, of course, an attractive opportunity, although there will be plenty of risks and uncertainties.
Once the final license is secured, we will enter with the aim of to leverage the whole competence package and experience from the Telenor Group and other track records in the region and neighboring countries, and, of course, have the ambition to become the market leader over time. But as we know, things takes time in telecoms, so we also know that there will be an investment period before profitability can be established. Although we cannot share details of the business plan at this stage, I should say that some of the market estimates on the fundings as we have seen them, they looks fair, they look fairly high.
We entered Pakistan, just to remind you, which had a population three times that of Myanmar in 2005, and our accumulated investments in networks, et cetera, in Pakistan, was NOK 1.9 billion before reaching operating cash flow breakeven. Since then, both equipment prices and other elements in the value chain has come down and deliver higher degree of efficiencies. And in addition to this, the network sharing model will be utilized in its full potential in Myanmar, compared to the situation in Pakistan, where we more or less built all our towers ourselves. So we strongly believe that the Myanmar business case is under control seen from the perspective of the experiences in the group...
However, there are plenty of uncertainties when it comes to the overall framework, and the lack of institutional setup in the country that we also have to work with during this project. This is, though, a significant boost to the Telenor Group at this stage, and we really look forward to start delivering services to new customers in the country. With these words, I conclude my presentations for second quarter 2013, and leave the floor to Richard.
Thank you, Fredrik. I will take you through three items this morning. First, I will take a deep dive into the P&L, both for the consolidated entities, but also for the associated entities, as we have some movements there this quarter. And secondly, we have had a lot of activity on the M&A side, and also, on share buyback and our debt side. So I'll take you a little bit through the capital allocation principles of the Telenor Group, and see how the actions in the second quarter stack up to our principles. And finally, I will go through the guiding. So let's start with the P&L. I think we, as Fredrik said, we were a little bit concerned after the first quarter with zero growth.
I think we're now seeing the second quarter that we're growing in the right places. We're growing in data in Asia, which is very important value driver long term for the Telenor Group. And we see the service bundling in Thailand and Malaysia is giving very strong effects. And we have a good negotiating position with the service providers, the OTT players in those countries. In the voice-centric markets, Bangladesh and Pakistan, and also India, strong subscriber uptake in this quarter, and particularly towards the end of the quarter. So also there, we're growing in the right way. The growth trends in Pakistan is much lower than they've been in the past, and we had to watch that one as competition has heated up in Pakistan.
On Norway, we should have wished for more growth on the mobile revenues on the back of our heavy investments. Given the competitive climate, we have only been able to report stable mobile revenues in Norway. EBITDA strong this quarter, 34% margin, up 10%, improvement of NOK 800 million in EBITDA. Three main sources, India, losses coming down as expected, contributing close to NOK 500 million. Then the strong performance in dtac on the top line is also coming through on the EBITDA, with more than NOK 200 million improvement. And then the strong margin and cost development in Sweden of NOK 185 million.
If you recall, second quarter last year, we had a normal high customer service cost in Sweden, so it's a little bit inflated by that fact. Norway, we had the one-off effect on the CPA of more than NOK 100 million. So adjusting for that, it's a small positive improvement in EBITDA in Norway. Also important to note on the group units, we are having higher OpEx, so more than NOK 100 million this quarter compared to same quarter last year. And that's not related to VimpelCom and Uninor, as it used to be. It's related to more investments, even though they're not capitalized, but expensed into group industrial development and digital services. That will be important to drive top line growth and efficiencies in the years to come.
On the CapEx side, we are also investing more into CapEx, NOK 3.5 billion this quarter, 14% CapEx to sales, which is up NOK 500 million from same quarter last year. And you see from the pie chart where the money is going, about one third goes to Norway, more than NOK 1 billion in CapEx in Norway in the second quarter. Mostly related to modernizing both the mobile and the fixed network, 3G and 4G coverage and capacity, and more fiber build-out. We have to watch the CapEx in Norway carefully going forward, and we need to see that we get the efficiency and the revenue growth on the back of that, the CapEx spend.
Then we have the last two markets that have not fully swapped their network to all IP-based network yet. That is Malaysia and Pakistan, contributing 22% of the CapEx. Those swaps are progressing now according to plan. Very important in Malaysia to provide good data capacity, and very importantly in Pakistan, both to prepare for 3G, but also to take down energy cost, which is now at an alarmingly high level in Pakistan. And finally, and maybe most notably this quarter, is the increased CapEx in dtac on the 3G rollout on 2.1 GHz. And given the strong development in dtac, we have decided to increase the CapEx further. That is reflected in our guiding.
Despite the higher investments in group activities and the higher CapEx, we are delivering a better cash flow, NOK 200 million year-on-year up. And as you recall, we have then NOK 500 million higher CapEx, NOK 100 million higher OpEx on the group, which means that the underlying improvement from the business units on the earnings is more than NOK 800 million improved. And this is important to see these trends to understand that it's realistic to reach the NOK 28 billion cash flow target in 2015. That was a quick run-through of the consolidated entities, and then we have the associates, where we also have important events this quarter.
As you see from the graph, the associates typically contributes between NOK 1 billion and NOK 1.1 billion, mainly coming from our stake in VimpelCom. This quarter, associates only contributed NOK 230 million, coming from two effects. One is that we were diluted in VimpelCom. Our ownership went from 36% economic to 33% economics, in broad terms. When we're doing that, we have to expense some of the currency losses that's previously been booked to the equity. This is a very technical accounting explanation, and it has no cash effect. But that we cannot have as a part of our equity anymore, and it has to be recycled through the P&L. That explains most of the NOK 385 million loss related to the dilution in VimpelCom.
More economic, kind of, easily to understand is the impairment of C More. That is a content aggregation company we have together with Bonnier. We own one third of that. They have quite weak subscriber development now in 2013, and based on the weak subscriber development, that results in losses in the company, and based on that, we decided to write off the remaining value of C More, and that is NOK 311 million. So those two effects mainly explains the drop from earlier quarters on the associates. Then, to sum up the P&L this quarter, we already been through the revenues and the EBITDA. On other items, there are some pluses and minuses.
On the very positive side, I would say that we have been conservative when it comes to the exit cost of the circles in India, so that comes in with NOK 47 million. And then we have the more typical restructuring cost in the Nordic units and some other effects. So, the EBITDA, after other items, is around NOK 8.8 billion, close to NOK 900 million improvement from last year. Depreciation is lower, bringing the EBIT to NOK 5.4 billion, which is NOK 1.1 billion stronger than last year, so strong improvement on EBIT. Then we have the effects on the associates, which we have been through.
Net financials, nothing abnormal this quarter, but we see from second quarter last year, we had high interest costs in India, we had some currency losses, and we had some movements on TRS we had in VimpelCom shares. That was negative. So strong improvements on net financials and profit before tax is up more than NOK 1.3 billion. On the tax sides, two important events this quarter. We had a reassessment of a dispute with the Norwegian tax authorities around our total return swap in VimpelCom in 2006. That was reassessed, and we got back NOK 500 million from Norwegian tax authorities in cash.
Then, the Bangladeshi government changed the tax rate for Grameenphone from 30%-35%, the corporate tax rate, and we have to expense that this quarter NOK 303 million. So, the underlying taxes are a little bit higher than we reported here. Minorities, strong profits in dtac and DiGi increases the expense to minorities. And then net income to Telenor shareholders stands at NOK 3.2 billion, which is up more than or close to NOK 1.2 billion from last year. Earnings per share are 2.1, which is a little bit below the underlying's earnings per share, as the associates line is weaker than underlying. Then, that was the P&L.
Then moving on to the balance sheet and the capital allocation. The debt level of Telenor didn't move that much, but there are some important gross and net explanations here. We have paid out to the shareholders of Telenor, including withholding tax, more than NOK 9 billion this quarter. In addition, we have paid out dividends to minorities in Asia of almost NOK 1 billion. So we have paid out more than NOK 10 billion in dividend to various shareholders of the group. We have got back approximately NOK 4 billion in dividends from VimpelCom, so net outflow for dividends is approximately NOK 6 billion this quarter.
That has been largely financed by our operation, and it developed basically as expected, but we have one effect that came in not as expected, and that was the weakening of the Norwegian kroner. So our debt is mainly in foreign currency, which has then increased the value of the debt with about NOK 1.5 billion. So that explains about half of the movement from NOK 28.9 billion to NOK 31.7 billion, NOK 2.8 billion increased debt. But as EBITDA is improving, even though we have a NOK 4 billion higher debt compared to same quarter last year, the ratio net debt to EBITDA is not that unchanged, and it stands comfortably at 0.95.
So, the debt is lower than the yearly EBITDA, and we have set the cap over 2x net EBITDA, so we're comfortably below that cap. Also, on the debt side, we have done a little work on the quality of the debt. We have issued two new bonds at quite attractive terms. Particularly proud of the Euro bond, I think. It's a 12-year bond at a coupon of 2.5%, which was done before the weakening of the krone and the long interest rate picked up in June. That is largely for the financing of the Globul acquisition, and also improving the maturity profile of our debt significantly. Also, did a U.S. dollar bond, a five-year of a coupon of 1.75. So this is now the maturity profile of our debt.
The blue is for the mother company, and the gray is the subsidiary, and you see it's a very comfortable level the next years. We've also been able to move some of the debt out past 2021, and the average maturity in all the debt is more than six years. Further, on the capital allocation, for the fourth consecutive year, we're doing a buyback. This will take the total buyback of the Telenor group to 10%. That is more than 20% of the free float in the shares we have bought back the last four years. 1% equals around NOK 2 billion, a little less than that at today's share price.
On top of the NOK 9 billion dividend, that will mean that we will pay out more than NOK 11 billion to Telenor shareholders with this buyback program. We aim to be finished with the program before the AGM next year, and then the Norwegian state will cancel shares proportionally. One percent is lower than we have done in previous years. The main reason for that is that we have a very good growth in our dividend per share, which we expect to continue forward as the Indian losses are going away, and we have good underlying cash flow growth in the rest of the business.
So in order to have a good shareholder remuneration, which is both competitive and healthy, we don't see that much need for share buybacks to top up going forward, although they have been very important in the period with heavy India investments. There is another factor as well, which I would like to point out, is that, as I said, we have bought back more than 20% of the free float of the share. And our shareholder base have also changed significantly in the last four years to more long-term shareholders, which are not that actively trading the share. And we have to be a little careful to reduce liquidity in the share too much, so people can also move in and out of the share with quite big blocks without being worried about spreads.
So I think it makes a lot of sense now going forward to pay more attention on the shareholder remuneration to the dividend than the buyback. Then just to make that absolutely clear, that although we have a lot of activity on the M&A side, and also on the debt side, and also the shareholder remuneration side with the buyback, our capital allocation stands firm. First and foremost, maintain a solid balance sheet below 2x net debt to EBITDA, a competitive shareholder remuneration, growing dividends, and 50%-80% dividend payout based on normalized net income, and then disciplined and selective M&A, and both Globul and Myanmar falls within that category. Then to the outlook.
Based on the second quarter and how we see, the rest of the year, we don't see any reason to, change our outlook. The revenue growth, we expect to be stronger in the second half than it, was in the first half. That comes from the strong, subscriber intake in Asia and the data services trends we see, particular in Malaysia and Thailand. We also expect, the revenue losses in Denmark to not, be that, high impact in, in the second half. And also remember that India and Bangladesh will have easier comparables in the, in the second half. To reach the kind of high end of the guiding, I think you need to see, more handset sales, to get, to the 4%.
So I think without any significantly new event on the handset sales, we shouldn't really expect to be at the, at the very high end of the range, but we don't feel it prudent to change the range, either, as we feel we are comfortable within. On the EBITDA, we guide around 34%, same as before. We have a lot of operational efficiency initiatives on our plate in the second half. If all of those are coming in with good success, maybe we will be able to do better on the EBITDA. We have said earlier that that-
... could be conservative, but where we are now, we don't see, strong enough reasons to change it, upwards. CapEx to sales, more investments in, dtac being released, which is good news, I think, because that comes on the back of strong, service revenue growth. I think it's fair to say that they expect to end up higher in the range, on the CapEx. So with a little bit of that voiceover, I think, we stand firmly behind the, that we maintain the outlook for 2013. Finally, I want to, announce the Capital Markets Day, 17th of September. That will be the next, event, here.
I think the main purpose of Capital Markets Day this year is to give more insight in how we're going to reach the NOK 28 billion-NOK 30 billion cash flow in 2015. We'll cover the big units, dtac and Norway, and also the efficiency agenda in Europe, in particular, both Denmark, Sweden, but also Central and Eastern Europe. And hopefully, we'll be able to give you more insights into Globul and Myanmar, but that depends on where we are on those processes. So by that, I wish you all a hearty welcome to the Capital Markets Day, and Meera, you can-
Thank you, Richard.
Take over.
Yeah, thank you.
Yeah.
We are now ready to take questions, so I want to invite Mr. Baksaas back to the podium. We will start here with the audience, and then move on to the phone. Please wait for a microphone to be passed on. There's one question here in the second row.
Hi, it's Espen Torgersen, Carnegie. With all your comments relating to the Norwegian market, CapEx, initiatives in the marketplace, change in price plans, et cetera, when should we expect growth returning to the Norwegian market? I don't read this as any question mark relating to if, just more when. And the second question relates to Denmark. Obviously, we've grown used to seeing weak numbers from Denmark, but the way things are progressing today, do you see the need for additional initiatives in the Danish organization?
Norway first, and it's good that Torgersen sort of last time you didn't say anything, if I recall. So now you're back in stage, yeah. Good. The growth here in Norway should already be here, really. There is a phenomenal growth element in data consumption as such. And the way the market has changed to these new pricing models should, in a way, point to also a bit of the effect that we had some quarters ago, when growth really happened in the mobile space. So it is actually the competitive situation and the pricing structure between the competitors for the time being, that doesn't, plus the one-time effect then.
But if you adjust for that one, we, the underlying market trends, we should, as an industry, be able to set pricing levels in such a way that we also participate in the enormous consumption growth, which is out there. So here, the industry really needs to work at the pricing intelligence, so to speak, in order to drive this in the right direction and to defend the big investments that are being done in the network capacities, not only by Telenor as such, but also in the whole of the marketplace. Then for Denmark, yes, there will be changes in Denmark over time.
We're looking at a simplification set up in the overall stack, which starts with really the joint network initiative with Telia, which contributes significantly to the cash flow situation, both as it is now and will do in the quarters to come. But yes, there will also be changes in the cost structures in the periods to come. Not to be specific at this point in time.
Any further questions from the audience here? None at all, then none from the internet either. I will move on to our conference call host to introduce questions from the phone, please.
Peter Kurt Nielsen, Kepler Cheuvreux.
Please go ahead.
Thank you. Just, just two questions, Fredrik. If I can, if I can just follow up, I mean, you mentioned, as we've heard from other Nordic operators, Fredrik, that we have now moved sort of basically across to the data-centric pricing, sort of in across the three, at least the three Scandinavian markets. Does that sort of shift, which obviously has had some initial negative implications for revenue trends, make you a bit more optimistic about service revenue trends going forward, that we have now sort of completed this move?
And secondly, if I may just return to your comments on Denmark, Fredrik, because your network partner, Telia, mentioned the other day that they expect some costs in the coming period, sort of from dismantling of the old networks as you're rolling out new networks in Denmark, also via the sort of OpEx line. Is that also something which you're anticipating for the coming quarters? Thank you.
Well, we should be positive on revenue development, given the demand out there. We, the world goes digital as we speak, and, in this room, just today, we are heavy users of data, so to speak, only by sitting here. I don't know how many in this room that really has been on network activities while you're sitting here, but I'm pretty sure some of you are. So this is happening, and telco operators, in general terms, needs to understand that there is a phenomenal advantage for all consumers, all customers, all people, where you have this kind of ability to share into the Internet, wherever you are, and to-- for whatever purpose there is.
So in that context, telecoms really comes up very cheap, as a service in our daily lives. But also, given the competitive situation here, and to shelter also market shares, there will be, competition, which is the principle of this industry. But that doesn't take away the responsibility for all of, all players in the marketplace, being in Norway, Sweden, or, or Denmark, or other markets, for that matter, to sort of balance the, investments and the resources fed into, the equation, then there needs to be, revenue streams, following those resources. This is the same change as we saw under the ISDN generation, which came, 15 years ago. It's the same change that's happening, once again. There is a phenomenal change out there.
Consumption is positive, then we need to understand the dynamics of the market and price services correctly. And the correct prices is a combination of underlying cost structures and the competitive intensity in the marketplace. It has been so for many, so for all the years I've been around, at least. Then for the dismantling side of it, well, we haven't, in a way, dived into whether there are significant cost structure in dismantling. I remember some years ago, we had to take down some of the old lines, which were on old poles here in Norway. But I think we—I don't think we are sitting on a real important bill from dismantling.
There is a change out there in technology all the time, so old equipment is gradually taken out, and new equipment is gradually taken in. That happens all the time. We've also seen some speeded-up depreciations when we did the network swaps in order to get from the one generation to another. There will be some elements of this, but not very significant.
Okay, thank you for that. May I just ask a follow-up? When you talk about return on investment in Norway, are you happy with the way your fiber demand is sort of progressing in Norway?
Yeah, we are definitely satisfied with the fact that many customers appreciate the good quality of, of the network as it stands, but that doesn't mean that we're finished. We are, it is in with this generation, as it is with the, with others, and this summer doesn't change, is no change from previous summers, where people call me and say, "Why don't I have 4G on my specific, holiday space?" So there will always be pockets in the geography, which doesn't have, the same geography. And then the best way of getting that coverage is usually to point to the competitor and say, "He has a co-- he has coverage in this area." So that happens, also this summer. So, but ha- we have now 40%, population coverage by 4G handsets.
There are more than 300,000 handsets out there. As for my own use of 4G, I can see gradually that this comes and grows in the Norwegian geography, and that will be the experience of all customers of Telenor in Norway. There is a phenomenal network out there, and 3G high speed is also a very good service, but once 4G is working, then, of course, you really don't want anything else.
Okay, thank you.
Next question, please.
Next.
Laurie Fitzjohn , Citigroup.
Yes, go ahead.
Thank you. Firstly, just on Norway, with the shift to unlimited voice tariff, and mobile minutes growth accelerated to 14%, I mean, are you seeing this cannibalize the fixed-line voice minutes and revenues at all, or is this sort of, you know, this market minutes growth in addition? And then secondly, on India, I mean, how much spare capacity is there in the network, and at what point do you think you'll need to start investing in new tower sites? Thanks.
I didn't quite get the second part of it, so maybe you have to repeat that, or maybe Richard got it. But as to the first one, on Norway. Yeah, now I forgot the dimension of your question again. Maybe Richard can help me.
No, I think what you're seeing in Norway now is a shift both on the fixed and the mobile side to a demand for much higher capacity and speeds. So the earlier question about also the fiber investments, we see a strong need for fiber investments to the home, and we see good profits on the fiber investments. We had a slow start on this because we were uncertain about the profitability in the earlier years, back in 2008, 2009, 2010, 2011. But we have speeded that one significantly up now and also did an acquisition last year, and that's because we see very good returns on the fiber to the home, and it's a lot of single households, so CapEx is significant, so we need to see those returns.
We also see good returns in the fiber to the corporate market. But the voice is continuing the same trends as before. Nothing new there on the traditional fixed voice. But the main challenge now on the revenue side is to monetize the significant investment going into 3G and 4G coverage and CapEx. And we cannot be happy with just stable revenue growth on back of those big investments. So I think you can isolate it analytically as that if that was of help.
Could you please repeat the second question on India?
Sure. Just asking how much spare capacity is there in the network, and at what point do you think you'll need to start investing in new tower sites, rather than, you know, running on your existing tower sites? Thanks.
We are on the capacity side in the Indian network. We are not at its full end, so to speak, as of yet, but it would be helpful to get to the new license set up, where the number of frequencies increases from 4.2 MHz-5MHz. That would be helpful in some of the regions, some of the circles, and it's the best performing circles that are looking at that element. But there is no...
The situation in India is so that since we don't have the business transfer and the formal new license is not signed in as of yet, then we are restricted to do the new deployment of base stations which we have in stock from some of the other circles that we have closed. And we're coming at a point in time where this comes up as a bottleneck for us.
But it's also fair to say that the Indian organization have been very innovative in kind of increasing the capacity utilization on the network. And if we had now got the new licenses, which we have already paid for, and get the 5 MHz, I think there would be very limited need for capacity investments for the next periods. However, we see very good potentials in improving coverage because we have a lot of idle equipment from the circles that we have shut down, so we can reuse that equipment for coverage. But then we desperately need the business transfer and approvals to go ahead, both to do that and to utilize the extra 0.6 MHz of spectrum. With that, we've been in pretty good shape in India.
This shows that once again, not only in India, but specifically in India, the regulatory decisions that governments are taking—it takes time to get it into operative decisions and formalities done. And remember back last year, how this was going back and forth, and now we have the decisions in principle, but we are still lacking the formalities of some of these elements. And where we have seen a softening then on the Indian authorities, this approach to foreign ownership to telecoms as such, and that is, of course, welcome in this setup, in this setup.
Next question, please.
Next.
Barry Zeitoune, Berenberg.
Please, go ahead.
Hi, yeah, I've just got another question on Denmark, please. I'm just interested to know why you think that the add number, particularly the postpaid adds, where you lost 20,000 subscribers, was so weak. Given that you were subsidizing the iPhone 4S this quarter, and that was one of the reasons that your margin was impacted, and also you changed your pricing during the quarter to make it more competitive. I would have thought that that should have led to an improvement in your subscriber intake. I was just wondering if you can share some thoughts on how you do expect to improve your subscriber intake in the coming quarters. Thank you.
I, I think, the Danish market is a, is a very competitive market. The new management that came in in Denmark, they have focused more on customer retention and customer quality than chasing gross adds the last six months. We had hoped that that could be kind of a part of a, of a more quiet marketplace in the Danish market, but we see that our competitors then eat into our postpaid subscriber base quite heavily in the first half this year, which is a negative trend. But I think that one, six months, is that we try to be more prudent in the pricing and not chasing gross adds.
Then we changed to data-centric pricing, which is the trend in all the Nordic markets, but that was done in June, so we shouldn't expect that much effect of that already in the second quarter. And the iPhone 4 subsidies, they were given to customers committing to a higher ARPU going forward, so that should hopefully also then give effect going forward. But a little bit of caution, the Danish market is extremely competitive, and as you rightfully pointed out, we have lost post-paid customers now for six months. So that will be very important to coach and follow very closely in the second half.
If I can just ask a follow-up. Have you seen an improving trend since your new pricing came out, in terms of your customer positioning? And then in addition, you know, given that you had focused on retention, so heavily, do you think you need to focus on actually gaining share from some of your competitors more than just focusing on retention? Thank you.
I don't think we should dwell into the detailed trends in Q3 right here and now. That would not be fair to people not listening in. I think we have to come back to them when we report Q3. When it comes to retention versus acquisition, I think there is a limit to everything.
But I think going forward in Denmark, we have to focus on service and retaining customers and bundle in good services to our customers long term, because in a four-player market, if everybody focus heavily on acquisitions and gross adds, there is only—there'll be only one kind of result of that, and that is low profits to everybody, and sustainable low profit that will not cater for good investments going forward.
Thank you.
Okay, thank you.
Next question, please.
Thomas Heath, Handelsbanken.
Please go ahead.
Thank you. A few questions, if I may. Firstly, on the tax one-offs, if you could just go through the cash flow impact there, given that Bangladesh is partly a restatement. Second, on the improved profitability in Sweden, do you consider this sustainable, and to what extent is it an effect of a slow handset quarter? And then thirdly, if you would be willing to elaborate a little bit on the recent discussions in the EU about the roaming charges and allowing operators to compete in other European countries at regulated and the MNO rates. It seems this could be quite a big issue, and perhaps how you see this problem and what you can do about it. Thank you.
Should you take the tax first?
Yeah, I can start with the tax. The tax has a cash flow impact of NOK 500 million, and we got the check early July. So that's an easy one.
The one in Bangladesh?
The one in Bangladesh is coming in for the tax year 2012, so that will have to be paid on the part of the paid taxes for 2012. They have a fiscal year from 1st of July 2012 to 1st of July 2013, and this tax was introduced then in June, so that will have to be on the tax bill for 2012.
Sustainability in Sweden on the good performance there. This, of course, heavily depends on the activity level in the market as such. So part of these improvements on the OpEx side is definitely sustainable. However, the decisions as to how much you fuel in the markets, place as such is, of course, a kind of variable decision that you take on a rolling basis. So, but with the performance that we have had this quarter, we do believe, we do feel that we have a pretty good momentum and that we are on top of what kind of actions that we should take in order to monitor the situation going forward.
We are where we are on market share, and we have the ambition to safeguard that one and improve it gradually, if possible. Then on the EU roaming, that's a big topic. There was a meeting in Brussels yesterday over the issue. EU has given mixed signals on how roaming is going to develop. Firstly, they say that structural roaming mechanism should be implemented by all EU operators by July 2014. Personally, I believe that that structural opening up of roaming possibilities for customers moving from one country to another doesn't necessarily bring anything new to the industry as such. On the contrary, regulation of this element of what we're doing will reduce innovation in the competitive space landscape.
So I don't personally think that that is helpful to anything else than to take roaming rates down, which is basically done, has basically been done in the Nordic region, for example, through straight competition, which is a much better element to get the right prices in the marketplace. However, there is an imbalance on roaming rates in Europe, where northern countries basically feed southern countries with roaming revenues. And I think Brussels have, to a certain extent, got tired of seeing that roaming rates that it takes a long time to get roaming rates down.
But in a way, if you introduce regulation to a part of our value chain and to a part of what we're doing, then the players in that part of the value chain will sit as quiet as they can until regulation starts to have an impact. So it's in a way, self-enforcing. If you take a look at how the super profit in the long distance for fixed line disappeared some years ago, it disappeared out of sheer competition between players. And I think that had been a, should have been a much better development curve for roaming prices as such. And as you can see, in most of Europe in these days, the service offerings are gradually attacking the roaming rates if you travel in Europe.
Then there is still elements of super profit involved in roaming rates if you cross continents. So let that be a comment over a very big issue.
Thank you.
Thank you. Very clear. Just a follow-up on the last question, if I may. Do you see any risks that a regulated MVNO tariff in EU countries would let one operator introduce MVNO business in another country? So opening up a wave of MVNO with a Serbian operator offering end user products in Norway, for example, at a regulated low tariff. Do you see any risk of that? Thank you.
Well, the MVNO system, at least here in Norway, is a practice on that, which has been an active element of how to develop the three-player market in Norway. So, to do that, I don't really see that as so feasible as you may indicate. However, the regulatory approach that Brussels have taken to European telecoms is so that it has been too much consumer-oriented, to the extent that it has been more important for the politicians to show actions up against consumer tariffs, rather than to look at the incentives for investments of the industry. And really, this philosophy in your in Brussels have basically taken the industry in Europe to a standstill.
And in many cases, we can say not as relevant as is this common for Scandinavia. But if you compare continental Europe to United States, which has had a harmonized approach to regulation, 4G has just happened. 4G has not happened in Europe, and it would have been much better for Europe as a whole if 4G had happened also in Europe, because it would mean a lot on the activity level for this industry. And a higher CapEx level in European telecoms would definitely also increase and give some ease to the employment situation in Europe.
This is the big question, whether the regulatory approach in Brussels basically have established thresholds for the industry to really boost investment into the next generation of networks, also being in lack of harmonized spectrum. It's the key, the key was really harmonized spectrum for United States that got 4G on the road.
We are slightly running over time, so we have room for one more question on the phone.
This is an important question, you know?
Absolutely.
Yeah, yeah, yeah.
One more question, please.
Jakob Bluestone, Credit Suisse in London.
Please, go ahead.
Hi, there. I'll keep it to one question, although I'm afraid it's also a slightly bigger one as well. Just looking at what's happening in Europe today with consolidation in Germany, just wondering if you could share your thoughts on the potential for in-market consolidation within your European footprint, and if there's any particular market where, where you see similar sort of moves happening? Thanks.
Yeah, that question is definitely a follow-up on the previous topic, really, because the question of consolidation in Europe. One say that, well, there are 60-70 operators in Europe, whereas only four in the United States, and then they compare the geography. But in a way, in... And I won't share into the questions on what will happen and what might not happen. But the question on consolidation is there, and there are companies out there which are still carrying a high level of debt. But there are probably others that might look into Europe from outside and see whether this is an opportunity to move. But this is generic views, and there are plenty of voices out there, so don't let me add anything to it.
In the Telenor case, we are concentrating on, on the portfolio we have, and we have extended into two new market this year, and we are focusing on getting them, on stream.
But just as a general comment, I would say that in our capital allocation, of course, we prioritize sharing, in-market sharing, like network sharing and so on, if that's possible, like we're looking at now in Myanmar, and also in-market consolidation if it's possible. In several of our European markets, it would be good, and also Asian markets, it would be good with within market consolidation, but it takes two to dance, and it's not so obvious to see the consolidation puzzles in the various markets we are in. But as a general comment, we would very much welcome that if it can be done at sensible terms.
Thank you.
Thank you, Fredrik and Richard. This concludes our session here today. Thank you all for joining us. And for media present, I'm compiling a list for one-on-one interviews.