Welcome, both to you here in the audience at Fornebu, the participants at the conference call, and those of you that follow the press conference via webcast. My name is Erik Nord. This is a press conference about Telenor's purchase of Globul, Bulgaria's second largest mobile operator. The contract was signed late Friday evening, and Head of Region Europe, Executive Vice President Kjell Morten Johnsen, will now give you a presentation of the Globul case and how Globul will contribute to Telenor Group. After that, you in the audience and the participants at the conference call will get the opportunity to ask questions to Kjell Morten about the case. But first, the presentation, Kjell Morten Johnsen, Head of Region, Europe.
Thank you very much, Erik. Thank you. So good morning to you all, ladies and gentlemen, and welcome to Telenor on this Monday morning. I would like to start by thanking you for taking the time to come out here and listen to us. We think we have something interesting to explain to you. We would like to come across with some interesting new messages about what's happening in Europe for once. Europe is a continent that kind of drags along a macroeconomic story these days that is a little bit troublesome, but there are some very interesting opportunities as well. So I'll take you through some of the transaction highlights on the Globul case.
I will tell you a little bit about the investment case, and we will also look into the Bulgarian market as such, both from a macro perspective and a business perspective. We also have some ideas about how we want to develop the company, Globul, going forward, and in the end, we will take some discussions with you in the audience and those of you who are on the webcast. As Erik said, we signed an agreement on Friday afternoon, late afternoon, to buy Globul, the second-largest operator in Bulgaria. We didn't only buy the company, Globul, we bought a distribution company called , but this is an integrated whole, basically, a mobile operator and a distribution system. We think we have bought Globul at a very fair price. We think that we can create value based on this price.
This is a position that we have taken before. We know how to develop these kinds of companies. We are active in the region. We have been active, starting with Montenegro and Hungary, later on, Serbia. We are now entering a fourth market in the Central and Eastern Europe region. We also think that when you evaluate the numbers and go through where we stand on the Globul transaction, you will see that we have taken a quite conservative approach to M&A. This is a transaction that fits very well with our M&A profile. Looking at comparable transactions, you see that we come out with a good EBITDA multiple on this transaction compared to comparables in the region.
Going forward, whenever I mention a number in here, it will either be an analyst consensus or there will be company numbers provided by the selling party. We ourselves will come back with our own views on the future of the company when we've taken management control. Coming back to the investment case, this is a strong position in the market. It's a number two player with around 36% market share, but the size difference between number one and two means that this is a market with two big players and one significantly smaller. So our position is comparable to the one of the number one player in the market. We have been in a position like this before in Serbia, and there are many similarities. I'll get back to that.
We also see that we have an ongoing business that is generating a cash flow today. This is a company that will require investment. We will put our concepts in place, but this is a running business with an okay profitability as we speak. Looking at Bulgaria as a country, Southeast Europe have had many issues over the last few years. Bulgaria has some distinct different factors here. One of them is the macroeconomic side. On the debt ratio, a significantly lower debt than in the countries surrounding Bulgaria, which gives a bit more fiscal headroom for the government and the opportunity to be in charge of their own actions rather than looking at funding at all times.
This is despite the fact that the currency has been pegged to the euro, which may not have been a blessing over the last few years, may have made it harder to run a policy where you stimulate the economy. So despite that fact, the macroeconomic indicators are fairly benign. For us in Telenor, we have exposure to several of these markets from before. We've been through a lot of change in that region, and we've landed on our feet in a very good way. So we are confident that Bulgaria is very similar to what we have already experienced, and this is something that fits to our way of working inside the Telenor group. So we will be building actively on the change that we have introduced to the other companies in the region.
We do see opportunities to continue to work in the postpaid area, where we've had success in other countries. We will be executing a network swap. This is something that we've done in all the countries in the region, sometimes also in a multi-vendor setup, where we'd have to work with different vendors for different parts of the network. So we have a big flexibility in terms of carrying out these kinds of change processes. This will be needed also in order to deliver on what we think we can add to the company, which is a very good network experience, a good distribution experience, and the kind of things that have made us preferred by customers in other countries in the region. We see a low mobile data usage.
We see a market with low smartphone penetration, and we are sure that it's a question of time before this moves faster, also in Bulgaria, and we will be a part of enabling that change. Again, returning to the regional aspect, clearly, Telenor has strong positions, number one in Montenegro, number one in Serbia, number two in Hungary, positions that we've held for many years, and we've shown good results. Globul fits in that geography. Returning a little bit to the macro context, and we've put in two of the countries where we are operating today, just for comparison. We see a high unemployment of more than 11% in Bulgaria, but also lower than in some of the other comparable countries.
We see some GDP growth in the market overall, and we see a fairly low debt level, government debt level. This means that there is a potential for some fiscal stimulus, which will also then give a growth impetus for us. Not trying to say that Bulgaria is so different from everyone else, that it's gonna be an easy ride, but they have the opportunity and also a track record of keeping strict control over their economy. Looking at Hungary, where we are operating today, you are up at 79% public debt. This country that's a country that has, over time, been dealing with a bit of negative growth, but also now seeming to be past the worst turn of that curve, coming back on a more stable macroeconomic development.
The mobile market overview, again, these are company-delivered numbers. These are not necessarily our numbers. We have a strong number two position, moving into a strong number two position, and we see opportunity for us to work both on the margin side and in the longer term, a bit on the position side, in the market in terms of our, our revenue market shares. In terms of revenues, you will know that the Bulgarian market, like so many others in Europe, have been through a series of reductions of termination rates. We are now moving towards the end of that cycle, so it's a huge difference between coming in the market at the start of the termination rate cuts and at the end.
We are getting much closer to the end here, but we have expectations for a reduction also in 2013. But that will then put us, or we will show you afterwards here, on some of the lowest termination rates in Europe. When we are through with the termination rate cuts, we get back to the underlying business. The underlying business gives a much more benign picture, and this is the one that we will build on going into the future. Stabilize the revenues, work on the margin picture, and get traction in the market based on a good network and a good distribution. We have enough spectrum to deliver a good performance in the market in an efficient way. We are not limited necessarily by the spectrum side.
The financial profile, compared to some of our other operations, would. We see that the profitability is slightly lower. We believe that when we go through with a full upgrade, we'll be able to adjust the CapEx profile somewhat. We also have experience from how we work with the bundle, going over to a more data-driven concept on pricing, that over time, will shift the market profile. We believe that we have done this before, and that we are able to carry that out again, also in Bulgaria. So our intention is, as always, to work on the margin picture also here in Bulgaria. There will be some effect from the neighboring countries, whether that be in terms of how we operate our networks, but also in terms of common concepts on how we go to market.
We have been through several new innovations in different markets that we try to transfer across the borders, and that works quite well. We have a lot of enthusiasm around that within the region. So basically, Telenor has, over time, developed in-house competencies that we are able to transfer successfully from country to country in terms of how we operate in the markets. We need to do that as well when we invite our new colleagues from Globul to us. Let me not say that... the most important thing always is that we are able to energize the people who are in the company. Please be aware we are taking over a company that consists of a lot of good people.
So what we want to do now is to energize them, and then on top of that, we will put in place the key success factors that we can add to the company. And you have all heard that there is some need for investment, and there will be need for new concepts. We will proceed with these things quite fast. There's no reason for us to hold back, so when we assume management control, these processes will be put in motion quite quickly. We will also make sure that the current initiatives in the CEE will involve our new colleagues in Globul. So going forward, the new game changer in Bulgaria, as in so many other countries, is the data opportunity. How we approach a new-...
relationship to our customer, where customers really value the data part much more than the voice part. This is an important part of how we structure our work in the Nordics. It will be very important in Central and Eastern Europe, it will be important in Asia, and we are very close to the forefront, to the frontier within some of these areas. We need to bring that with us going forward. I'm using here Serbia as an example, since that's the last acquisition we did in Europe. And when we did that acquisition, the expectation was that there would be a two-player market for a couple of years, and then a third player would come in. There was every reason to expect that. It didn't turn out like that. A third player came almost immediately, within 12 months of our signing, so to speak.
Despite that factor, we have, we've been able to grow our revenue market share over time by several percentage points, and now become a clear number one in that market, driven by postpaid, a very good network and a good distribution in place. So these are the kind of track records we want to bring with us, and the competencies that we want to bring with us into the new operation in Bulgaria. By also being very clear on the direction we're going in the market, we're able to structure the operations so that they are driven by our go-to-market strategy, and then taking down cost levels. When you have a clear direction, a clarity of direction, you can have a clarity also on how to deliver in an efficient way.
So we see the OpEx to sales levels going down from around 34% to around 25%. Again, this approach and the thinking that has delivered these results also will need to be transferred into the Bulgarian market in order to make us so as a successful as we would like to be. So in summary, we are buying Globul, a strong number two player, with the potential to remain a strong player going forward at the tail end of the termination rate cuts in Bulgaria. We have every opportunity to leverage on the common concepts and the scale that we have developed within the CEE.
We believe that, seeing the price that we're paying for this company, it is very consistent with the approach we've taken, where we can use our strong balance sheet if we see a good opportunity to create value to our shareholders. So that would kind of be an intro to, whatever questions there may be from the audience, on the Globul case. So, Erik.
Thank you. Questions? Yes, please...
Hi, it's Espen Thorkildsen at . Could you elaborate on your, your CapEx and network swap initiatives, and if possible, give some kind of targets for that for the next two years? And also, if it's possible, highlight some kind of margin targets or OpEx to sales targets for the same period.
That's a good question that I'm not going to completely answer. But we will proceed with preparations for a network swap quite quickly in the market. That is a part of our business case, and this is something we've done before, so we have a reasonable... We have good experience with that. When it comes to setting the targets for CapEx to sales or OpEx to sales, at this point, we've done the due diligence, we've been through the company books, but we need to also assume management control before we can come out with specific numbers going into the future for this company. That is a little bit premature.
Okay. Other?
Hi, Chris Rolfe from DNB. Just a quick question. Could you share with us the interconnect, as a percent of sales, within Globul today, and how that has developed over the past few years, just to get a feel for, as you say, the underlying business has been more benign?
No, I cannot give you the percentage of that, but you can see that the rates have gone down substantially. We expect them to continue down to about a level of EUR 0.01, from where they are now at around EUR 0.02. So you would see that. We also had an illustration of this here, where you will see that, Bulgaria was at a level of EUR 0.10 here, back in 2009, still running around EUR 0.02. We expect it to go down towards EUR 0.01, so there is a substantial reduction. When you move from 10 to 1, there's not very much left to go.
Okay. Other questions? No, then from the conference call, do you have any questions there?
Yes, first, Jacob Bluestone, Credit Suisse.
Please go ahead.
Hi there. I've got three questions, actually. Firstly, as regards the new entrant, Bulsatcom, you didn't seem particularly concerned about them. Could you maybe talk a little bit about why, or perhaps I misunderstood, but could you perhaps talk about why you did not see them as a major threat? And maybe if you can also talk a little bit about, you know, whether they will be getting national roaming from you or another operator. And secondly, could you talk a little bit about the 4G license process, if that has started or not? And then thirdly, are there any material differences between OTE's accounting for Globul and Telenor's? Thank you.
I didn't get the second question. I'm sorry. The second one was?
The second question, please, can you please repeat?
Is there a process for issuing 800 MHz spectrum, please?
Okay. Well, I'll start with the first one. Yes, there is already the opportunity for a new player to start a fourth operator in the Bulgarian market. That opportunity has been around for a while. We haven't seen any initiatives around that, which leads us to believe, correctly in our view, that there is no good case for running a fourth operator. Bulgaria is a fairly small market. To run four mobile operators in a market like that would be unusual. And at this point, with very high SIM penetration rates, it would be very unusual to start an initiative with a fourth player in the market. So we don't quite see that case, or we actually don't see that case. So, I think there's for good reason that that has not materialized.
Can I just follow up on that? Sorry. Yeah. Go on, and I'll come back after.
All right. As for details about the regulatory side, the spectrum, I would think it's better we come back through our IR department. And I also don't have any particular flags of different colors when it comes to accounting. Maybe your question is related to the fact that there are two different EBITDA multiples in play in terms of the announcements here, but that is just down to intercompany accounting in OTE. There are some management fees that obviously are payable from Globul to OTE. They would not be payable if when the company comes to us. So these things level out when you adjust for that.
If I can maybe just follow up on both those points. I mean, Bulsatcom only received their license at the beginning of this year, so, and it would have been fairly early for them to have had an impact, at this stage already. And they obviously have an existing subscriber base, that they can offer services to as well. So I don't know if you have any comments on those points. And secondly, actually, on the accounting issue, I was actually thinking of Telekom Austria when they acquired, Mobiltel, 6-7 years ago, and you had very high amortization charges subsequently, as the customer base, had been capitalized. So I wanted to check if there were any, issues like that, but I guess I can check that with IR.
Well, I guess on the Bulsatcom issue, I think the answer is more or less, like I said. Of course, you cannot have an impact in the market after such a short time when you had a license, but at least you have to start making preparations for a launch. It's not that easy to launch a mobile company. So when we don't see signs of that, that leads us to believe that they have come to the same conclusion as us, that that would not be a profitable project. But that is, of course, up to them to decide. So we cannot rule out that there will be the opportunity of a fourth player in the market. We just don't see that it makes any sense.
Okay.
Thank you.
More questions from the conference call?
Next? Jacob Bluestone, Credit Suisse, please go ahead.
Yeah, we're waiting.
Okay.
Bluestone, seems that you are muted.
Hmm? Okay, we have some questions from coming in on mail. Will we rebrand Globul and Germanos, Kjell Morten?
That's not on our agenda now. When we take management control of this company, scheduled for the third quarter of this year, our focus will be on making sure that the operations of the company are at the standard that we are satisfied with. Branding issues at this stage are secondary issues.
Do we have any plans to launch DTH?
Non-specific.
It's also a question about LTE and our perspective on launching that.
Yeah, and the LTE is basically needed when you have huge amounts of data traffic in the networks. Obviously, we think it's good for any country to embark on higher mobile capacities down the road. But first, we need to drive the market here with people with an uptake on data traffic, smartphones, so that these things hang together in terms of capacity needs and capacity utilization. But in general, of course, it's good for markets to move on in terms of better services for customers.
It's a question if we have a plan to be number one in the market?
Never ask competitive people if they want to become number one, because, you know, you never know the answer you get. Again, our focus will be on running the company in the best possible way. We would like to make sure that we stabilize, and we would also like to see an improvement in our operational parameters, whether that be in terms of our position in the market, but, or throughout our P&L. So doing a good job in the market should, over time, give you the opportunity to strengthen your position.
Okay. Other questions?
Next.
If not, we-
Jeffrey, go ahead, please.
Yeah, thanks very much. I have two questions, please. You characterized the macro backdrop as sort of fairly benign, but if I understand this correctly, there's quite some upheaval in the country over austerity measures, tax hikes. There have been a number of high-profile self-immolations. The government had to resign. So how do you actually see the fiscal and, in particular, the regulatory risk going forward? I understand a lot of the protests actually were focusing on the regulated utility prices, which has brought ultimately the government down. In this context also, I'm aware of commentary from Telekom Austria characterizing Bulgaria as one of the worst most difficult markets, actually, in the whole portfolio across Eastern Europe.
I'm just wondering how you, how you sort of put that together with, with characterizing this as a fairly benign macro backdrop. My second question is on the MTR cuts. You sort of highlighted that the rate of the MTR cut is coming down as we are approaching sort of the EUR 0.01. I suppose my question is, how do you actually see the retail market prices in the market? Because obviously the MTR cuts tend to precede retail price cuts. Do you, do you think the, the retail pricing has sort of is showing similar signs in terms of, you know, the rate of decline slowing down? Thank you.
Well, I'll take the first one on the macro and regulatory. What I was pointing out is that the country has a very low debt level compared to the actually most of the European Union, to be fair, very low debt levels. It has been a quite stable country with a fairly liberal agenda in terms of economic policy. And at the end of the previous government, there will be new elections now in May. We saw actually for the first time, a lot of activity in the streets, people having coming out in the streets to show that they were not happy with the developments within one specific area, which typically it tends to be utilities.
I think that if this had been one of the neighboring countries, this would have been less of a story because that's more common. I am myself, worked more than three years in Serbia, and I, when you would go in sometimes for meetings, in the government building, there would often be protesters outside. So I think, the Bulgarian authorities were not quite used to that, and we were not, from the outside, used to seeing this kind of engagement. So when that came, it came a little bit of a surprise. So I think that's what made it so visible for, both for them in the government and for people outside. I don't find that hugely disturbing. I think this is quite common.
We are quite used to handling countries and situations where you have to remain calm to see through complicated situations. And that may distinguish us from some of the other players around. So we don't see this as something dramatic in our view. When it comes to the termination and pricing the market going forward, clearly what we will see over time is that you will have more and more of the bundled products coming into the market. The industry moves step by step to higher voice bundles and pricing the data. And of course, we will see that kind of direction coming into Bulgaria as well. But it depends on the country itself, how fast is the smartphone penetration developing, how was the uptake on the data side?
So we will go through the motions in a similar fashion to other countries. A little bit faster, a little bit slower, depends on which country we're in, but generally, the direction is the same.
Thanks very much. Thank you.
Next?
Peter Kurt Nielsen, Schubert.
Please go ahead.
Thank you. Just one question, please. As you pointed out earlier, disregarding India, your last most recent sort of major acquisition at Telenor was in Serbia in the same region. I'm just interested in, is this a sort of opportunistic driven, or is it a sort of a deliberate strategic view on Telenor to up prioritize up sort of this this region? And are you looking to build a cluster sort of in this Eastern European region? Thank you.
I think it's natural for us, if we are to consider to do a transaction, to do it where we have experience and where we can build on competencies in the region. That is quite natural approach to take. Now, you know as well as me, that there are many things landing on our desks of opportunities in all kinds of places. Now, we're very selective about this, and the reason why we've chosen to go forward with Globul is that it fits very well. We have operations in the neighboring countries. We know the region. We've had success in the region. That gives us good reason to believe that we also can create value in Globul, given that we have paid a good price. We think that we have paid a fair price. That gives us the opportunity to create value.
Okay. Thank you.
Next.
Harry Zituni, Berenberg.
Please go ahead.
Hi, I've got four questions, if that's okay. The first is, if I can look at the multiple that you're buying this at, if you adjust for the MTR cuts and take out the EBITDA impact that will have, can you give me some idea, flavor of what multiple you're paying post MTR cuts, so when we're at a EUR 0.01 MTR? Second question is, you used Serbia as an example of execution and what you've done in that market, which has obviously been very good. But in Serbia, we've seen a very weak incumbent that you've been able to take advantage of. Are you looking at either Telekom Austria or Vivacom being strategically in a weak position that you will be able to take market share from them?
Third question is really on convergence. If we look at Telekom Austria, they've acquired fixed line assets in Bulgaria. Vivacom is an integrated operator, so what's your view on fixed line? Do you think you're going to need to acquire fixed line assets in Bulgaria to go with this acquisition? And then my final question is really on more M&A in the region, just following on from what Peter Kurt asked you. Now, if we look at the moment, Tele2 Croatia has been rumored to be for sale. That's an obvious fit in terms of the regional footprint. And then also in the Czech Republic, it looks like there's going to be new entrant spectrum made available. Are either of those two opportunities something that you would be looking at? Thank you.
Okay. Let's, let's start with the first one. Again, the numbers that we show you today, the multiples we show you today, they are based on, the numbers that we have out from the company, and, and also on, on analyst consensus estimates. So that's how we derive these numbers. When it comes to, setting them up in different, shapes and fashions, depending on scenarios going forward, we will, of course, do that. We will do that when we are in control of the company. So but, but of course, to, to make, an adjustment for different MTR per, scenarios is pretty easy to put into your spreadsheet. So, so I, I don't have that, those kinds of numbers on the top of my head.
But again, when it comes to what we expect of numbers going forward, we will do that when we are in control of the company. Yes, you mentioned this Serbia execution in the Serbian market. The Serbian market has had a very low growth for some time, and yes, there may have been some advantages there to competing with an incumbent that has been for sale. At the same time, there's also been a very aggressive move from VIP. So there is a mix here. We see the exposure of Telekom Austria and Vivacom, and fixed is kind of a. Sometimes it's great to have fixed.
If fixed means that you have fiber, or sometimes it can be that you have a very good coax position that has been upgraded to a DOCSIS 3 situation, so you have a good broadband position. If fixed means that you have a lot of old copper networks and DSL, that may be a very mixed blessing. And I think that when you look at those, the players there, that there's a range of mixed blessings. Where the Bulgarian market is now, we don't need a huge push towards fixed in order to provide data capacities that are needed. If that changes in the future, we'll of course get back and tell you about our strategy for the company.
But to serve the need for the foreseeable future, for data communication in Bulgaria, we will handle that on the mobile platform. So that kind of answers the question for now on that. When it comes to M&A in the region, I think you know the answer to that. We will not comment on Tele2 or new entrants or other things on this. But you didn't expect that, did you?
Probably not, but I thought it was worth going for. Can I just follow up on the first question? Can you give me some kind of flavor for what the positive EBITDA contribution from MTRs were in 2012, given that's a number that you should have to hand?
No, I'm sorry, I can't do that. We can do that afterwards through IR. I can give you more numbers.
Okay. Okay, okay, thank you.
Next?
Dominic Klamon, HSBC.
Go ahead, please.
Oh, yeah, hi there. Just one question. Left a follow-up on the macro situation. Again, Telekom Austria is also talking about the big brain drain problem, which leads to population decline. I'm just wondering if you expect a stabilization of that population decline anytime soon, or what's your view on the total pool you can sell to?
Unfortunately, there is a demographic challenge both in Bulgaria and in Serbia for a number of reasons. There's no reason to believe that that will immediately stabilize, so that there is a challenge on that. When it comes to hiring, getting access to good people, please remember that when we run these mobile operators in countries like Bulgaria and Serbia, we are very often among the most attractive employers in the country. Meaning that it's a lot of people who really would like to join us to develop their career through our system. We see people in call centers with master degrees, who come in there and sit there for two years to get a foothold in the company and then start developing their career. So it's...
There's a lot of smart people around. We just need to attract them, and we need to make them enthusiastic and make them fans of our company, and then we can resolve those issues. We can move on going forward. And then we sometimes bring in people with very specific knowledges from other countries. They can come from our Asian operation, or they can come from the Nordics, wherever, because we need a specific competence, and then, of course, we make that available for the operation.
Okay, maybe, maybe just one, one more question, if I may. On, on that fourth license, would you consider buying it if, if that would be something the regulator would allow at some stage, if it's not used to, to roll out a, a new network?
I don't want to get into that question. I don't want to comment on that.
Okay. Thank you.
Next.
Nick Lyall, UBS.
Yes, go ahead.
Hi there. Yes, Nick from UBS. Could I just ask on, you seem quite upbeat on the ability to create synergies here or at least increase margins over time. So what exactly have you spotted in the operation that you think you can cut costs? So which areas in particular do you think are quite sort of fruitful for cost cuts here in the asset? And secondly, I'm just interested in your comment on lots of things coming across your desk. Are you seeing more operators or cash-strapped operators who are presenting you with more opportunities for M&A, do you think?
I personally believe that when, when you want to reduce costs, you do it by being clear about where you want to go. So, you don't start by saying: I want good cost, I wanna, I wanna do something, I wanna go in this direction. So we know that we have, a proven track record on changing networks, setting up a very efficient, system around that. We know that we have, worked a lot to improve our competence when it comes to distribution, and to apply, this clarity of mind and, and a very good segmentation, supporting that as a platform. That gives the opportunity to run an efficient organization. And then what the end result of that will be, depends, of course, on the competitive pressures in the market and other things.
But I believe that we have a good starting point for running operations in an efficient way going forward. Again, your other question is also a little bit of an invitation to discuss M&A with a little different touch to it. I believe it's fair to say that we've gotten an opportunity to buy this company because we have been diligent, we've been keeping a strong balance sheet and been given the opportunity by someone who has decided to do a change to their portfolio for their own reasons. But beyond that, I wouldn't go any further into it.
That's great. But just back on the, on the cost point, on Globul, there's nothing specific, though, in the cost base that makes you a lot more confident about cutting costs here, is there? This is just a general point about, you know, versus Serbian operations, we can do similar things. But Globul doesn't have any specific cost issues that you would flag?
If you look at where they are today, I mean, they run a fairly decent EBITDA margin. So we should be conscious that what we are buying here is an ongoing operation with a lot of people who do a good job. But we would like to add some more elements to it in the way we operate the business. But I would not highlight that we have found one specific thing that we can just jump in and change. That would be unusual.
Yeah, that's great. Thank you.
Next?
Maurice Patrick.
Please go ahead.
Oh, hi, guys. Yes, Maurice from Barclays. Just really a question on the financial framework for the bid. I know you talk about the multiple being a low one comparable to others, but just a sense of what your WACC assumption was, why you think you can create value from the acquisition. Thank you very much.
I think when you look at the acquisition, there are a couple of things that you pointed out. One is the ratio, the EBITDA multiple, which compares well. The other thing that we have not put that much emphasis on is the relatively low tax rate in Bulgaria, which, in a way, gives you a better gearing factor on the investment. All of these things are, of course, always subject to change, but the way things stand like right now, that is a positive element that lets more of the EBITDA translate through the P&L into the cash flow for us.
So, those are a couple of the overall things that gives us reason to believe that we are buying this at a decent valuation.
WACC, sorry, just to follow up. What WACC are you, what WACC are you assuming?
Won't get into that.
Okay. Thank you.
Next?
Thomas Heath, Handelsbanken Capital Markets.
Please go ahead.
Thank you. Thomas Heath here. A few questions, if I may. Firstly, on smartphone penetration, if you could give any hint of where we're at today. Secondly, just if you could confirm that these licenses are tech neutral, and that you could roll out LTE if you want to in this spectrum, as I believe you could. Then thirdly, on the EBITDA in Globul, we can see a sort of quite shrinking absolute contribution in euro terms. If top line has been driven, sort of been lowered mainly by MTR cuts, it's not self-evident, and that pressures EBITDA in the same way. So maybe if you could give a little color on the pressure on EBITDA over the past three years in the business you just acquired. Thank you.
On the smartphone penetration, we see here, like also in other places, a level in the low tens. So clearly, a quite significant time lag versus, for example, Sweden, which would be at a level of, definitely in the sixties. So there's a time lag here. Obviously, a question of time as the price of smartphones are coming down for the entry levels. And to your other question on the rollout, there are no technical issues related to a rollout, whether that be a 3G network or an LTE network. It's more a question of the timing and the regulatory side around it. So for us, to roll out a network is a pretty standard fair thing to do together with our partners.
So that is commercial decision and it's a regulatory decision. And obviously, when you look at the market dynamics, leading a little bit into your EBITDA question, you see a big change in the landscape, and obviously, that leads to competitive pressures that may have impacted the EBITDA line. And these are the things that we're going to work much harder on when we go in and have management control of the company in terms of the positioning and the segmentation of the markets.
So follow up there. So it sounds like it's, it's good old price pressure that's been driving down EBITDA then, and that is it right to believe that you hope that you can segment the market and make it more stable through commercial practices?
And what we've seen in other places is that when you start getting a substantial growth in data communication, if you are onto the sort of old relationship to the vendors, you very often have a cost structure that is proportional in a way to your data streams, and that doesn't work. That just doesn't cut it in 2013. So having decoupling those lines and getting into a kind of relationship we have with vendors in other countries is one of the crucial elements to keep up profitability when we move more and more to pricing the data rather than pricing voice.
Okay, so it sounds like it's more, if I understand you right, then it's more about having an efficient network that allows you to take out costs than necessarily stabilizing the price level. So you'd expect prices to sort of come down with technology, but you're taking out cost at the same time?
Yeah, the reality of running a mobile operator is that you have to work both for the top line and the cost at the same time. There's no doubt about that.
Okay, thank you.
Next.
Stefan Gauffin, Nordea.
Please, go ahead.
Yes, hello. Most of my questions has been answered. I have a question relating to synergies left. Could you just give some more information on what kind of synergies you have by having a neighboring country rather than sort of general operational excellence synergies? So any synergies coming from being operational in Serbia and Hungary as well as now in Bulgaria?
Mm-hmm. Well, there are at least two things here. One is we are now trying to run these operations more as one operation, technically, and that does give some scale. And I would not be trying to say that those numbers are enormous in terms of their savings, but they do give very tangible savings. But the other part of that thing is that we're also building a competence base. So when we now take over a new operator, we have a competence base that we can draw on. We have people who have been sitting in running three operations in their daily life and then being part of evaluating this new operator.
So we have people who can, to a larger extent, hit the ground running, and we can put them into a, an environment that is known to them. They are culturally ready for it. They understand how a market like Bulgaria, Hungary, Serbia, or Montenegro works. There are differences, but they are not dramatic differences. So that gives us the opportunity to hit the ground running and be fairly efficient in and fast in turning making the changes that we think will be needed in the company.
Okay, thank you.
Last question.
Hello, we are Capital Weekly, Bulgarian newspaper from Sofia.
Please, please, go ahead.
Hello, we are Capital Weekly. We have the following questions: Talking about network swap, are you talking about network sharing with another Bulgarian operator, and could you mention its name? Secondly, talking about bundles, are you going to invest in internet operators and TV operators here in Bulgaria, or building new networks, or what? What is the concrete need for investments in Globul, let's say, for the next three years? Thank you very much.
Mm-hmm. Okay, let me answer in general on the first question, when it comes to network sharing. We believe that in most markets, it makes sense for people to share passive resources. In some markets, it also makes sense to share active resources. Now, whether we will do that or not in Bulgaria or any other market, is something that we have to come back to. That's not something that we would have an opinion about today. The general approach is that when it does not impact competition in the end user market, it's good for operators to cooperate on the things that are basically driving costs and not the competition in the market.
When it comes to any ideas about whether we would like to enter this and that, and we will buy something, then obviously we will not make any comments on that. And I would like to underline that our primary focus when we buy this company is to go in, exercise management control, optimize the operations of the company so that we can deliver a good customer experience in an efficient way in the market. That's our primary focus. Any of the other speculations are secondary or tertiary issues for us at this stage. That's exactly where our focus is now.
Okay, that was the final question, and then it's time to round off this press conference. Thank you for the participation.
Thank you.