Good morning, and welcome all to Telenor Group's Capital Markets Day 2012. My name is Marianne Moe. I'm Head of Investor Relations, and I have the pleasure of guiding you through the program here today. So let's have a look at the agenda for today. The key themes we would like to talk about today focus on how to monetize on mobile data, operational efficiency through continuous improvement, and also new operating models, and how to take positions in new services. The first session today includes the strategic direction of the group, and also after that, new operating models, including the perspectives from Uninor. After a short break, we will continue here with presentations from Telenor Sweden, Telenor Norway. Later on, also presentations by Telenor Pakistan, and dtac. After that, we will have a session on digital services and financial priorities.
As in previous years, there will, after the program here in the auditorium, be breakout sessions with management from Sweden, Norway, Pakistan, and dtac in the cafe area upstairs. That will be from 3:00 P.M. to 5:00 P.M., approximately, today. I will not keep you waiting much longer, so I will just invite our Group CEO, Mr. Jon Fredrik Baksaas, to the floor.
Yeah, thank you, Marianne, and heartily welcome to Capital Markets Day 2012 here at Fornebu. You sort of jumped straight into the main topics of the day, but I have to tell you a small personal story. I left my mobile phone at home today, so I feel naked. So, what do we do about that? Well, it's a problem, isn't it, when you leave your mobile phone behind? And I have come onto the main road, so I couldn't sort of take a return either. So, I hope that I can sustain the day or some few minutes here until someone gets it for me. So, doesn't that really show the necessity that this communication services and service industry is about? It's about connectivity.
It's about being, connected to what's important to you at every, single second, so to speak, and on all every kind of aspect that we are interested in as individuals, as companies, as institutions, or whatever it is. So, communication services is vital. And I, in a way, my brain works at, how could I forget the mobile phone, basically? And the reason was, and here comes the morale: Don't change habits. Don't change your routine. I plugged it into another socket for recharge yesterday than the usual one, and as a consequence, my brain didn't pick it up this morning. So that proves also a little bit on, the human factor. But anyway, heartily welcome. We have, hopefully, a good set of messages here today, and a good set of topics.
However, I want to start reflecting one year back. What was it that was on our minds at that point of time? And have we been able to move the direction of the company, of the group, in the direction that we were talking about at that time? We were in a period of solid growth also back then, and that growth momentum has continued in 2012. We are looking back at a year where in Asia, we can log almost 10 double digit, 10+ percentage points when it comes to top-line growth in all our established operations. And it's been done a fabulous work on maintaining that growth factor.
We see some changing trends here and there, but the overall picture is that the group-wide growth factor has been there consistently throughout this period. We will come back to the growth potential going forward, but we do consider that we still will maintain a good growth factor in Asian markets in particular. But it's not only Asia that brings growth dimensions and interesting aspects back into the picture. It's also that of Norway, and in Norway, for the time being, I think that we can say that the market is capturing a little bit of that phenomenal data growth that we see in the mobile systems, not only in Telenor, but also for other competitors in this market.
But we have, when we spoke with you last year, taken a change in the pricing profile, and, Berit will come back, deeper into that later today. But the bundles has done its work throughout this period. Then we also spoke about investing into future networks, and, we have carried out the network swaps more deeply and more widely throughout this year. We are concluding them in some of our markets, but there are still three markets that we are in the midst of executing the network swap. Thailand, Malaysia, and Pakistan is about to to start in this very, so to speak, which means that there will be high activity also in the coming year on the technology side, not only on the radio network, but also on other aspects of the networks, of course.
There are new licenses and new frequencies to fight about as well, not forgetting that very important aspect needs to be in place in our industry. As we didn't speak about it last year, namely, the fact that we could potentially lose the industry licenses in India, which we did in February, and we were not able to foresee that, of course. It came in as a big surprise that the Supreme Court intervened and canceled the licenses that were awarded in 2008, and Uninor was a victim of that.
Out of the 120+ licenses that were squashed, we had the number, and the storyline on how to get back on track in that has been endless, and quite a numerous set of events have been there. But it might be that we now are looking at a platform, and I will come back to that as well. Finally, on this introductory slide, the one on VimpelCom. On VimpelCom, we have restored the ownership position that we had before the Wind transaction came on board. After that, there has been new events, and for the time being, the competition authorities in Russia is maintaining a case up against the ownership composition in the company, and I will come back to that also.
The figures on the screen here are known to you from before. It shows the revenue growth on top, and it also shows the operating cash flow development in the group over the last four years. And we will point to what kind of development we can anticipate, and we'll have the ambition to work for in the Telenor Group going forward, based upon these figures as well. And this is then the result in the stock market. It's not every year that we have taken this curve and made it visible. This year we can do, because we're on top of the statistics.
We show a shareholder return factor, if you, i f we can name it that, t hroughout the last year, since September 19, 2011, of 30%+. And the Oslo Stock Exchange is 26%, and the European peers in the telecom sectors, as you can see, is around 15%+. So overall, the growth factor has earned us well. I hope also that there are investors that has felt that this year has been the beneficial being in the Telenor stock. Moving then onwards to the strategic elements. Last year, we described two fundamentally important dimensions in the Telenor Group. That of operation, but on two perspectives: the customer side, the market side, and that of efficiency. Through this year, we haven't changed that basic philosophy.
There is a strong feature in the marketplace, where the mobile data growth is growing tremendously, and if we don't change the pricing structures accordingly and the product settings in the networks, the new pricing features needs to reflect also the underlying consumption from the data networks. And we as operators, we are basically entertaining and pushing and try to boost the data growth as much as we can. And the handset side of this plays an immensely important role. Whereas customers before, when I got my first mobile phone, it was great because there was coverage, and we were concerned basically more or less only about coverage. Where could we use it?
We could use it because of the weight of the stuff only where the cars was, were rolling, basically, because they were so heavy. But suddenly, they moved into the handset format, and we all know what has happened after that. Then came more and more advanced handsets, and customers become more and more curious on what the new handset can deliver. Reflect only upon the hype on the iPhone 5 that came last week. The whole world was looking to the handset as such, not the connectivity part. But everything inside that handset doesn't play that well if there isn't a good connectivity part underneath it, so these things are obviously strongly interlinked. So on the customer side, we need to be aware of.
We need to entertain the changes in usage pattern, and we need to get on board those platforms that creates new relevance for our customers. We need to understand those changes in the ecosystems around us. The big topic in this industry basically is on how operators can so-called monetize on this phenomenal data growth. In Norway, we have been able to put in place new pricing structures that reflect this underlying development. Of course, there are many parameters that feeds into what kind of profitability level these operations would have market by market. But on the other hand, if we as operators do not entertain that development, we will, in the long term, run the risk of losing relevance and customer position. The other side of this equation is that of being an cost-efficient operator.
We are here to utilize the newest in technologies at every point in time. We are here to run the technology part as efficient as we can, and we need to be open-minded enough to understand that the way we were running the operation yesterday might be different from what we will be running the operation into the future. We are used to those kind of changes, and these changes are still very much present in this industry. That's why we need to push the topic of continuous improvement, and we need to be aware of, and make use of new operating models if they appear out there. And if we don't do it, then others will do it on our expense. Throughout this period, talking about data growth, the left side of this panel shows the development in Norway.
Last year, we were talking about serving the high-end user of the market with a more efficient pricing structure. That is exactly what we've done. The high-end market has got a more efficient package. The low-end and end of the market, we have been able to attract to a higher level in the pricing structures. Because the mobile phone delivers that much of new type of services based on the IP based upon the data connectivity, we are able to build a bigger base out of the accumulated customer base in Norway. And the blended result you can see here, which basically proves that increased usage also should return should it should give increased returns on the revenue side.
We are able to see that ARPU uplift in Norway for the time being. Is that only because of the fact that the Norwegian marketplace is probably the better economic climate in Europe compared to many other countries, or is it also an industry feature? Well, we believe it's an industry feature, and we believe that we have to move in this direction with pricing structures in the rest of the companies as well. These are, of course, different in time. There is a timing issue for everything here. When is the maturity there, when these kind of services really attract the whole of the market, and penetrate deeper into the different part and different segments of the market? In Thailand, an explosion in data, after 800 was launched for dtac, last year.
An incredible built-up demand, really, for internet services because of the delay of 3G, et cetera, for a couple of years back. Again, we see that 800 really build a complete new usage pattern, and in this case also, gives new revenues, and we need to continue and live on that wave. Both Berit Svendsen from being responsible for Norway, building upon what Ragnar and his team did before. Jon Eddy, coming in from dtac to talk about this and other elements of the dtac operations. So how do we improve on the customer side on this new ecosystem kind of changes? What kind of efforts do we put into the equation on bringing new relevance into the handset of our customers?
There are plenty of buzzwords in this industry for the time being, that we are in a way, fighting to get the right business models around. The cloud concept, M2M, and how the communication services will develop on IP-based technologies are one of these tremendously important questions. We will present to you throughout the day a couple of examples on how we are thinking in this space. This will not only be done by ourselves alone. It will be done based upon partnerships, and it will be based upon platforms that we will implement in these systems, like a global backend that I have in the right corner, bottom right corner of this slide.
I will come back to this slide when we introduce the digital services after lunch. In 2010, we described at the Capital Markets Day at the time, a long-term target or a medium-term target, probably more correctly, of 35% OpEx to sales, and a approximate 10% CapEx to sales figure for the Telenor Group. We are moving in that direction. There are, though, a lot of parameters that plays into this. For example, a 5% extra revenue share in Thailand and other elements. But on the underlying cost structures of existing operations, we are moving in this direction. This doesn't come for free.
We have cost efficiency programs per OpCo and per section in each OpCo that works on a daily basis, so to speak. This time and this year, we will also point to the period beyond 2013. 2013 is not very far away. Meaning what do we do in the longer-term perspective? And this is where we are taking forward new operating models as new type of concepts to address also costing, cost structures and ways of operating into the next phase. So we are preparing for future efficiencies beyond 2013, and we have to do that because this industry is still in phenomenal changes all the way as we see it.
Which means that, the continuous improvement perspective needs to be there. The strength of, and the size of the group needs to bring forward new ways of thinking, and, in particular, Yogesh, from, Uninor will speak about that later on. And we need to deploy these kind of new things, including also new ways of working with partners. That is why we have launched what we call a program called Big 6 . And in this set, in this setting, we want to execute in the direction so that we can say also in 2015, that we are ahead, we are well positioned, and we are ahead in the industry if we compare to others. With that kind of mindset, forward-leading, forward-looking, we should be addressing the future.
We have the strength in the group, both by size and financial position, to think in these terms. In these Big 6 initiatives, which Ragnar Kårhus and others will talk about later on today and be more detailed on, we will see new ways of thinking in the group in the years to come. In Uninor, it's been quite a journey, and many of you have been critical to the Telenor entry to India, which was based on a phenomenal new marketplace by numbers and the Indian economy taking a new role in the world economies in general. We are in the midst of a new licenses process, which has got its initial terms as we've seen them, as decisions have been taken one by one.
But we've not seen—we have not seen the overall complete package yet confirmed, fully confirmed, for the process to start. This is to happen 28th September, so not very far away. We are in the midst of evaluating whether that platform gives us the possibility of entering the auction process, which starts 12th November, but which has a ticketing day, so to speak, at 18th of October. So by 18th of October, we will have a clear viewpoint on how we want to participate in the upcoming license process. We will not dive into the details of those parameters today. That will be done later, but we will dive into the operating side of Uninor.
How can a greenfield operation, under those kind of pressures that Uninor operations have been through the last couple of years, how can those learnings, in a way, also benefit the rest of the group? See, where Uninor have been searching for the ultra-low-cost position in the marketplace, and if you take a look at the comparable figures, we are almost there. And we probably, in Uninor, have a better scaling business model than competitors in this marketplace, because we are closer to the start-up phase than others, which also will have their kind of legacies and their kinds of operating structures.
The other side of the one of the other elements that has been very visible in the Telenor storytelling over the last decade plus, we are celebrating 20 years in Russia this November, is, of course, VimpelCom. We will not dive into the corporate conflict, the ownership conflict with our partner in VimpelCom at this stage, other than saying that the court case that has been brought upon the company by the competition authorities in Russia, we feel is out of merit. The basis of that court case is, was basically not there at its initial stage, and after Altimo bought up the common shares from Sawiris, we believe that another step of showing that the case is with no merits has been taken.
So it remains to be seen how this will be treated in the final rounds now in October. On the operating side, Telenor and VimpelCom have moved a couple of inches together when it comes to taking a look at operating efficiencies that we jointly can benefit from. And that comes from both groups' participation in the global vendor market, and how the future concepts in this industry will develop. And you might say that Northern Europe, in a way, is the early movers in at least the European geography in this digital development that is ongoing.
Which means that there are learnings in this group that will come to other markets that VimpelCom handles and the Asian markets of the Telenor Group, which are in many ways of similar character. There are areas here where we can develop efficiencies together, and we're working on these area by area. So to soon close in and get over to the next section here, we will move the Telenor Group in looking at what can we get out of the phenomenal data growth in the market based upon mobile technologies for the time being. How can we take these further? We do believe that services will play a more important role when customers make their choices in the future.
That means that also, we, as operators, needs to be present in the customer's mind when this development continues. Alongside that, on the operating side, we must never rest on bringing forward new efficiencies and think new on continuous improvement in all ways of operating, including that on new operating models. Also because there is a new vendor development out there. In a 2015 perspective, we therefore believe that we still shall be able to have a growth curve of the Telenor Group, which is among the best if we compare to the rest of the European telcos. We are present in markets which are still early in their adoption curve on services in general, and this will extend, and it might even go faster than what has been the case in the Nordic countries.
We also are looking for a NOK 5 billion efficiency program from now until 2015, through the means that I have just briefly described to you, and that you will see more of. In this industry, one could say that the NOK 5 billion efficiency program seems quite quite big, seems to be quite a sizable program. But on the other hand, we are a resourceful industry. We spend, we have high-spending cost structures in many areas, and in a five-year perspective, in a three-year perspective, it should definitely be possible to work on how we operate and also think in the lines of efficiency of NOK 5 billion. Then, of course, there will be new initiatives and new things that will happen throughout that period as well.
However, these kind of things, they will evolve, and we will be looking at operations as they are for an efficiency level of NOK 5 billion in this time frame. Under everything equal, which is not the case in this industry, however, we should be able then also to improve cash flow margins. Does that mean that all the NOK 5 billion will pour down into the net operating cash flow margin? Probably not. But there is a growth dimension there as well, and where we are in the growth curve, we should see scaling effects in our operations. So that also, there are shown effects also in the operating cash flow.
With those kind of targets for ourselves, we've set ambitions which our OpCos and the group altogether are committed to deliver. We know that when we put our resources into a specific direction, we also know that we get results. That we've shown before, this is a group of great competence. There are many people that are working in the same direction very competitively up against others, and we feel that we will be able to carry that spirit further also into the next period. With this introduction to today's topic, I hope that we can fill some of these subjects with interesting storytelling and interesting aspects.
You in this room, you have probably heard both this group speaking before, and you were able to compare us to other groups, whether we are what we pretend to be, and I hope that is proved throughout the day. So to my colleagues, I wish you all good luck, and we're going to start on the new operating side. And Ragnar Kårhus, who was the Head of Telenor Norway before, which is now at the core of this efficiency program that I just now described, will take the next leg. So Ragnar, the floor is yours.
Thank you. Yes. The direction for a more sort of industrial approach to the whole Telenor will work with operational excellence going forward was presented to sort of you as an audience on Capital Markets Day in 2011. That included the reasoning behind the establishment of Group Industrial Development, with a mandate to drive continuous operational efficiency, cross-market streamlining, and other synergies. I will, in this presentation, focus on structural changes and new operating models. But I will now underline, as Fredrik did, that to succeed with sustainable efficiency gains, we need to work both with continuous improvement in each business unit, and for us, that is through making operational excellence embedded in the local organizations, as well as then structural and cross-border changes, resulting in new ways of operating.
Doing this by focusing on both, we also achieve high results and secure a more balanced risk profile of our total project portfolio. We have clear targets for 2013, and also, as Fredrik presented, clear ambitions for efficiency gains towards 2015. Our work with continuous improvement will have its main effects on shorter-term performance on a continuous basis, whereby the structural changes and new operating models will be a significant contributor to the longer-term ambitions. I will now shortly describe how we work to institutionalize continuous improvement in our way of working. There are three elements I want to focus on within this work. Firstly, we work with a common methodology that we call Group Support Diagnostics. This is sort of primarily a toolbox for the business units, supporting both the analytical phase as well as the implementation phase of improvement projects.
Secondly, a yearly benchmark is an important part of the overall process, both to identify new improvement potentials, as well as measure effects of ongoing initiatives. And thirdly, continuously developing, executing on, and monitoring the progress on concrete improvement initiatives through an operational excellence agenda in each of the business units is key. We need also to adapt to the rapid changes in our business environment, responding to global competition, new technologies, and rapid technology shifts, as well as changes in the vendor market. To prepare for both these sort of threats, but also opportunities, we therefore see the need for structural changes and for implementing new operating models within selected areas. And these new operating models will be based on the following main assumptions: They must support both today's and tomorrow's market strategy and business models in the business units.
They should replicate best practices in the group, but we also need to take learnings from others, both within our own industry as well as other global industries. We must be prepared to explore partnership opportunities that go, that go beyond traditional outsourcing. And of course, we should continuously seek to utilize group scale advantages. Based on these assumptions, a set of new operating models have been identified, and these operating models will then be implemented through six group-wide programs. The Customer Service program will, in addition to the operation of the call centers, be closely linked to our work with multi-channel and management and the development of e-business solutions. Network Sharing is about opportunities we have for sharing of the network assets with the other operators in each market.
Web and Managed Services is focusing on how we can build out and operate our network assets in a more efficient way. IT Transformation is primarily focusing on efficient operations of our present IT portfolio or assets, as well as building transformation capabilities and planning for implementing tomorrow's IT systems. Telenor today has very sort of decentralized sort of roaming organization. The Global Roaming Hub program will work to establish one global organization responsible for optimizing all roaming agreements within the group. And finally, to move towards more centralized operations within the group, we need also to align responsibilities and process operations, as well as building skills and capabilities to deliver on such services throughout the group. And this is the prime goal for the Shared Services program.
Let me now go through each of these programs in a little more detail. The main focus for the Customer Service program will be to standardize KPIs and processes across the group to benefit from best practices on efficiency, customer centricity, and sales. It will develop innovative self-service solutions for customers across the group, focusing on web, interactive voice response solutions, and apps for phones and tablets. It will leverage scale on operations and sourcing, and develop common operating models that drive cost efficiency, including shared service centers, outsourcing, and offshoring. In addition, it will develop the customer service touch points to stronger sales channels. We estimate that these initiatives have a potential for improving efficiency between 20%-25% of the addressable cost base, in addition to a potential revenue increase from improved sales.
Looking for efficiency gains through outsourcing and offshoring, we have gained experiences within this area in the group already. Yogesh Malik will shortly explain to you, will explain to you later on, how Uninor, sort of through transformative partnerships, have been able to both reduce costs significantly, as well as maintaining or increasing the quality of the services. Telenor Sweden has many years of experiences, both with in-house and outsourced solutions for customer service. Even in Asia, we see that there are potentials for offshoring, as in DiGi, in Malaysia. Norway, today, in fact, has both an in-house and an outsourced model for customer service and operation, both delivering quality services. Then, network sharing.
Network Sharing can be used as a tool for improving business unit cost and quality positions in each market. Sharing network assets with other operators can be done both through a passive and active sharing agreement. Passive sharing, meaning sharing primarily of towers, reducing CapEx, site rental, and power costs. Significant cost-saving potential are available, primarily if it's done prior to or during a build-out. It does normally not influence the competitive situation in the market or the ability to differentiate. Maybe with the exception, if you have sort of a coverage as your prime differentiator in the market. That is, to some extent, the case for Telenor Norway and for Grameenphone within the group. We see, for instance, in Norway, that sort of passive sharing is sort of partly mandatory due to regulation.
The active sharing means sharing of the radio access network and potentially also frequencies. That cater for significant additional savings if timing is correct. Timing is very much connected to spectrum auctions and to major network initiatives and technology upgrades. Active sharing may influence the relative competitiveness in the market, since the one you are sharing with and yourself will sort of have more or less the same capabilities and the same, same coverage in the market, sort of after the sharing. It's a long-term relationship, meaning that it's very important that one from the start has a common network strategy in place to cater for how the network will be developed over the coming years. We, of course, also see that the regulatory framework often are more challenging when we are talking about active sharing than passive.
Meaning that active sharing requires significant preparatory work to succeed. We estimate that the potential for OpEx and CapEx savings combined is about, is between 20% and 35% of addressable cost and CapEx space, with even greater potential if the timing is really optimal. Many of the business units in Telenor are pursuing particular passive sharing opportunities to some extent already, and I will give you some examples. You see Uninor is renting space in all towers from various tower hosts. On the one side, whereby Telenor Sweden is the business unit that has the most advanced network sharing arrangements in the group, combining both passive and active sharing together with managed services on the operation of the networks. And in addition, they have a different partner for the 3G network and the combined 2G and 4G network.
Lars-Åke Norling, the CEO of Telenor Sweden, will give you more details on this later today. We have also just recently entered into a combined passive and active sharing agreement in Denmark with the number three player, TeliaSonera. Even though not directly, you see that Telenor Norway also indirectly have passive and active sharing through wholesale arrangements or agreements and national roaming with other operators. That also goes to some extent for Grameenphone. Traditionally, Telenor and other operators have built out and operated the network assets from within their own organizations, having most of the resources and skill necessary employed internally. The vendor market, though, has developed significantly over the last five to eight years, and the traditional network vendors have developed managed service capabilities.
We see niche players offering field, for instance, field force services locally in some markets, and technology and connectivity have developed, facilitating cross-border operations also within the network area. This opens up for exploring efficiency gains through new ways of operating also within the network domain. We have, over the last year, established a common blueprint for network operations in Telenor, describing the strategic functions that we will continue to keep in-house, and also then the execution and production activities that can either be done from a common operations internally or through external partners. These new operating models will support both scalability, increased quality, and cost efficiency, and lead the organization with a greater focus on network strategy, network architecture and design, as well as performance and vendor management.
We have identified potential efficiency gains for between 15% and 25% of the addressable cost base within the network managed services area. You see significant savings already achieved from the managed services agreements that both Telenor Sweden and Uninor has entered into. In Sweden, we see efficiency gains of almost 40%, and in Uninor, over around 60%. In Sweden, this has been obtained also in combination with a significant network expansion in the period. Both of these examples will be presented in more detail to you later, in later presentations today. Then to a somewhat complex area, because IT is both large and complex. We look up on our initiatives in this within this domain as a journey, starting with the non-differentiating IT. We have established a global IP-based and high-capacity connectivity network within the group.
We have started the process of consolidating IT infrastructure, starting in Asia, through establishing an IT shared service operation, which we will extend to also include the European business units in the phase two. We have also started to explore opportunities for more efficient operations and development of the present application portfolio within what we call the application development and application maintenance area. Having these building blocks in place, having a more efficient operation of the present IT portfolio, we are better positioned both to focus and prepare for a renewal of our business and business support systems. A renewal driven primarily by the need for supporting future, future data-centric business models, more customer-driven processes, faster time to market, and also the need for reduced IT cost.
I will give you a short deep dive into the drivers for and the potential efficiency gains connected to process standardization and vendor consolidation within the application maintenance and application development area. Today, a well-developed market with global vendors are offering services within this area. This opens up for significant efficiency gains through consolidation of volumes, both within one business unit, within a region, as well as globally. That, that combined with having a few preferred vendors competing for the contracts. We also see that this have potentials for improved competitiveness in the market, each, each market, through shorter time to market and better quality on the delivery of the services, as well as increased operational flexibility. Cooperating with a few global vendors also have the potential of building capacity and capabilities to support business support system transformations later on.
The savings is estimated to between 15%-40% of addressable cost space, cost and CapEx space in each of the business units. Uninor, Telenor Sweden, Telenor Norway, and Grameenphone have already obtained significant efficiency gains from entering into such agreements. Uninor has seen a reduction in resources of around 40%, but at the same time, being able to increase the subscriber base of around 70%. Telenor Norway has reduced the application maintenance cost with more than 50%, and have also been able to, through improve demand management and development processes, obtaining significant savings also within the application development area. And as an example, sort of, of how this scale: Telenor Norway started out the process for on application maintenance with 130 vendors, and ended up with two.
And then adding a couple of more, also securing competition within the application development area. As I mentioned at the start, Telenor has today a very decentralized roaming organization. The Global Roaming Hub program will work to establish one global organization responsible for optimizing all roaming agreements within the group. That will enable us to reduce the number of roaming agreements from around 4,900 in the group today, to around 700 unique roaming agreements. And the business unit can then streamline the operations and need to manage only one single relation with the hub. And also, our roaming hub would cater for advance, for use, for seeking further scale advantages, for instance, through collaboration with other groups, and that could, for instance, be VimpelCom. To build centralized operational capabilities, we will establish a global shared service center.
A shared service center is a key enabler for delivering new operating models, and reaching our sort of targets, and we will start with the HR, finance and accounting, and IT infrastructure area. The scope will then be developed in phases, and we have estimated the efficiency gains to be up to 30% of the addressable cost base for the domains that is likely to be in scope. I will also mention that another important enabler for realizing the savings potentials with for new operating models is our global sourcing organization, as sourcing will be an important part of the establishment of the new operating models.
Our sourcing organization has developed significantly over the last years from a pure local procurement organization, through active identification of group-wide synergies driven from a centralized group unit, to one integrated global sourcing organization, being in operation since last Monday. The global sourcing organization are continuing to work with a sort of a SWAT team approach, similar to the one used for the network modernization projects, and the target is to cover more than 70% of total spending within global sourcing categories. In total, there are significant financial effects coming from new operating models when fully implemented. We will continuously work to realize savings, while at the same time, work long term. The savings is, sort of, estimated to around NOK 4 billion when fully implemented, and the largest savings being within the network domain.
Of course, these savings will be a significant contributor to the group operating cash flow targets for 2015, even though the full effect will come in 2016, 2017. Key takeaways as a summary from this presentation. I will underline again that continuous improvement and longer-term structural changes are both needed to succeed with our ambitious efficiency targets. That new operating models will transform to the more longer term, but also prepare the group for the future. We will implement new operating models through group-wide programs, and we will see significant contributions from these initiatives to the group cash flow target for 2015. We have in our work with identifying new operating models for the business units, gotten much inspiration from the work Uninor has done within many of these areas.
Uninor has clear ambitions of staying ahead, so to say, and continue to be inspirational to the rest of Telenor. So I will now hand over the word to my colleague, Yogesh Malik, CEO and Chief Operating Officer in Uninor, who will share with you how they work to develop the next generation operating model. Thank you.
Yeah, good morning. I'll take you through the journey of what we have been through when we talk about the operating model. We would have started, I would say, a year and a half ago, and so what you see here is a product of that. The key takeaways from this presentation would be threefold. One, that how did we come about this model? What is this model? That's number one. Number two would be on how can we create a sustainable and a competitive edge with this model? That's number two. And number three would be, how do we leverage it in the group, as Ragnar mentioned.
For myself, it would be around two decades in the industry, and I would say around more than five to seven geographies that I've worked with. Wherever I've worked, these are the two myths which come across, and they're very, very clear. If you are not having a good scale, you cannot be efficient, and if you really want to drive quality, you need to put a lot of cost on the table. It's the same we faced in Uninor as well. When we started, we started with the same, but we realized very quickly that we are not going to get any more spectrum from the government. It was 4.4 MHz in 1800, that is the spectrum we have.
We also realized that it is going to be, the intense competition will continue during that period, and of course, the time frame was very short. So we had to think different, because if we would not think different, I would not be standing here, that's first of all. The second would be that we would be riding the same thing, which means cost would just scale as the traffic scales. For us, thinking different was a premise which we had to ingrain into everyone's mindset in the team. So every planner, every engineer, including the top management, we had to start thinking different. The target model for us, thinking different, was how can we decouple scale and quality from cost? Because that is the problem we have with the conventional way of work. You increase traffic, you need to put in more cost.
You increase quality, you need to put in more cost. On top of that decoupling, we also wanted to make sure what we are working on is longer term, which means if we offer new services, we need to be offering agnostic. The core of the model, the core of the operating model needs to be offering agnostic. India is a big geography. Languages are very different. North is very different than South, and we want this model to be geographically independent. So these were the premises we based our thinking on as we were evolving through this, last year, year and a half, I would say. Now, why is it very different to think agnostic core? I'll just run you through that. If I look at us as an industry, I would say that, there are two areas.
One is toward the customer, second is how we do this job, how do we do the offerings internally? How do we enable them? Toward the customers, we can offer voice, we can offer data, we can offer financial services, and we are innovating, and that's great. That's good for the customer, that's good for us, that's good for the revenues. But when you look internally, when we talk about organization structures, business processes, architectures, I think they tend to develop over time, and they start becoming complex. As more years of operation come, they end up becoming like an iceberg, almost, that you don't want to touch, that you want to stay away from, because the moment you touch that, your market position may be in jeopardy. So the only injection we come on is the IT transformation, when we absolutely need it.
The injection we come on is 2G to 3G to 4G, which is absolutely needed. But in general, we are not really focusing as an industry a lot of time on the core, which is our strength. In Uninor, we decided to do that. And I think that this one is a little bit tedious, because at every moment, you will need to face a question which goes right down in the organization. This process does not really work this way. The organization is not really capable of doing this. Okay, we have done it last year this way, this will not work this year. So I think those were the challenges we were facing, and we decided to take this head on, because that is the only way we could deliver a continuous innovation on cost, on offerings, on the market, positions, on the operating model.
For us, core is not just, alone of the operating model. It is actually encompassed by three more aspects. The first one is target setting. We can have a company-wide target, but that would not take us much farther. We need the target till the last mile, which means every retailer, the sales engineers, the engineers who are planning the network, the sourcing guys who are procuring, they should know what is their target, how are they gonna make it happen? That's very, very clear in Uninor for us. The second one is hands-on management. I would say it's a little bit of a cliché. Hands-on, yes, we are hands-on, but what does that really mean? For us, hands-on means the top management needs to be involved in prioritizing the daily business. Top management needs to be involved along with the whole team in order to drive that change.
That is the hands-on management we are talking about. And execution is by far very, very important, otherwise, it's just a slide where it doesn't happen in reality. So for us, driving that execution culture and ensuring that we deliver as we promise is, is very critical. These three elements, together with the core, continuously innovating, we believe we have operating model which can deliver results in a sustainable manner. Fredrik had shown this before, to achieve a cost per minute, regardless of the scale difference, that was a promise we gave ourselves last year. We are there today. I would say increasing traffic by 40% while reducing OpEx by 2%, I think that is, was not thought through even within ourselves when we embarked on the journey, but we are there. And there is one more good news.
Our best circle, which is UP East, which is going to be the first one to break even in our plans, it's actually running at a cost per minute, which is lower than the incumbents. Which means there is a potential to go. And this model is able to deliver because we are continuously working on it, and we are not sacrificing either quality or customer position by adopting this model. I'll go through a little bit more in detail now over the next three slides, where I'll take a deeper dive on how do we really work on a day-to-day basis, till the grassroots level. The first one is on an overall perspective. If we have an area, a state, a circle, we can divide that into various regions, we can divide the country into various circles and all that. Certain circles are well-performing, certain are not.
Certain areas are well-performing, certain are not. Conventionally, if the P&L is more than positive in a good way, we tend to ignore the low-performing areas, and we just make sure that we can continue delivering the good P&L. With us, we cannot really afford that because of the constraints I have mentioned. For us, it's vitally important in the way we think that a cluster approach comes in, which means every cluster needs to be performing very well. Not only that, the P&L should be at the cluster level, which means the empowerment of that cluster needs to be there in a way that you can react and make changes happen right there. Where this is driving us towards is from sweating the assets towards profitable assets throughout the value chain.
It's not only unleashing potential, which is important of the assets, but it's also making sure that we utilize that in the absolutely right manner, creating profitability. Taking a step deeper, this is the UP East example, where you saw the cost per minute. We have taken a snapshot of December, and we have taken a snapshot of July. Last December, there were in this circle, there were clusters which were green, which were yellow and red. Green means we are covering all the costs which are related to that cluster, and the revenues are enough to compensate for that. We have a good position, but we can strengthen that even further to get a better counter share. Yellow means we need to do some interventions.
Those interventions could be on the product mix, could be on certain specific campaigns we are going to run. Red means we are on alert, which means that we really need to significantly do there something, where we need to improve. When we visited the cluster, which was red, what we figured out was that the distribution sales force, which was our actually sales force, was having a very high attrition in that cluster. So it was not the problem with the network quality, it was not a problem of the product, but it was a problem that we were not able to get the trade confidence as there was a huge attrition in the sales force. Once we repaired that, once we took control of that, we saw that that cluster started performing very well.
For us, this is very important that we can go to that micro level and really see what are the pain points and clear them out. When you touch the absolute grassroots, for us, there are two big assets, which is network and distribution. Network, we unleash the potential, we unleash the capacity. With 4.4 MHz, we are going up to 120 Erlangs right now, and we are able to manage that. So that's what we do on the network side. Distribution, we have a fully automated distribution till the last mile. And what we are trying to do with that, give autonomy to the retailer, get servicing to the retailer in time. But this is not enough.
In order to drive profitability at the grassroots, we want to make sure that the assets are utilized throughout the day, which means pricing efficiency, the measurement of that, interventions need to happen. And the second one is a geographical intelligence, by which the point of sale performance is actually mapped to the network utilization, and we can really improve that on the ground. These four tools give us, at the grassroots level, a good empowerment to make changes and to deliver them in a way that we can continuously increase our counter share. And this counter share could be for sale of the new SIMs or could be for recharge. That is the way we work. Now, what I've showed you so far is not because Uninor does this. I think we have a whole ecosystem which we work with.
That ecosystem consists of a lot of partners, a lot of established entities, I would say. So how do we work with our partners? Because that partners are serving a lot of other operators as well, in India, outside India. So what's different with Uninor? I would say the difference is, maybe in the initial time, we find it very tough, but once we are on the track, then we see the results. I'll take you through two or three examples on this so that you see how we work with partnerships. The first one is IT. As Ragnar mentioned, it's a difficult area, I agree.
In this, I have to give the credit to our partner, who was daring enough to come with us and really kind of rejig the whole contract right in the middle of the assignment, right in the middle of the whole journey. So that, of course, goes without saying that it's a very good step. But not only that, the reason why we did that is we saw the longer term, and the longer term was very, very aligned, that there is a common goal. Uninor has an operating model which will work, so it's not about the short term, but it's about the longer term. What we expect out of the partner is that they would share all the knowledge.
What we bring on the table is the daring attitude that we are ready to push the conventional boundary, and together, then we can work in a teamwork way, I would say. The traditional boundaries can be challenged between partner and Uninor as well. So here, what you see is that we have been able to grow the subscriber base while reducing the overall resources which are supporting our IT, at least by 40%. So since the launch, we are actually down by 40% and more on the resources which are supporting. And this is not trying to say that some of the work is outsourced to a different partner. Everything happens here. The reason why we could do that is we introduced alternates in our stack. We thought business process. We simplified business processes from time to time.
We removed over domain competence into a business service and a business process competence, and we tried to see what matters to the customer, what matters to the business, and take that angle while designing the whole thing. In network, we are applying some of the same. I would say there is a bit of a way to go on network. Conventional managed services, we have done it, and we are there. But is that enough? I would say for us, not yet. There is something beyond the managed services. It's not the unit price of the managed service reduction which will bring us to profitability, but it will be the continuous way we are going to work with cost per minute, the continuous manner we are gonna work to improve the customer experience, which will bring us there.
In this case, our partners are Ericsson and Alcatel-Lucent, and I have to say that, whatever interaction we have had with them, it doesn't look like a lot of operators are doing this. So it must be first in the region for sure, which we are sure. I'm not sure about the whole industry and the whole geography. What we are bringing on the table is, as a managed service partner, you have a much wider width on how operations work. And if we can collaborate, we can take costs down in a much more efficient manner than a unit price reduction. And I think that is the premise we are basing our discussions on, and so far, we have moved, I would say, on the customer experience piece. So far, we have moved on the ACPM reduction or cost per minute reduction.
On the third one, pricing efficiency, we are still, I would say, discussing on how to work together. So I think that is the area we are still exploring. Another area is call center, customer touch point, the most important customer touch point from my experience point of view. When a customer is in deep trouble, then the customer calls. Normally, a customer wouldn't call. I'm not sure how many times you call to a call center. So for us, it's very important that we get it right the first time. And this one, traditionally, we would look at it, we would increase the cost very significantly if we want to increase customers. What we decided is we are not going to follow that. We are going to actually look at why does the customer call and give no reason to call.
From there, we see how can we, with the self-help, with empowered self-help, and with business process improvement, how can we eliminate those reasons? And then look at the partner construct. Well, what is the partner construct? What is the incentive for the partner? What is the gain sharing? Can we reduce the repeated calls, which come on the call center for the same reason, much upfront? And I think working together, what we have realized is our cost per minute has gone down almost one-fourth, while our customer experience is actually almost on the same level, and I would say it will start improving.
Because as this goes into maturity, you will see that the customers say that, "Yeah, this operator tells, serves what it tells, and is living by the promise it gives." And that's very, very important for us to develop that expectation, because we are not going above the line advertising our customer service. For us, it's important, as we touch, get that touch point from the customer, we serve it at the right manner. So I've been through, quite a bit, here. I hope that at least explains the way we are thinking, that explains, the challenges we have faced, and the way we are handling those challenges, the conventions which come our way, and how do we handle them. What I would say when it comes to the Big 6, as Fredrik mentioned, as Ragnar mentioned, we are totally on with that.
So I think that is, there. Not only that, as a group, we are leveraging on what we learn from, the market as well. Spectrum efficiency is one area. Spectrum is a scarce resource. How do we utilize that? And I don't think we have, much lesser spectrum anywhere, than India, so there's a lot of learning there. Distribution, the fully automated distribution, we have taken a stand that it would be applied all through Asian markets, so that, that is under progress right now. We are talking about a cluster approach. It's nothing. In my view, it's not a rocket science, but it is an approach which needs hands-on management down to the grassroots level, and I think that can help us both in voice and data. That is what we are leveraging.
Partnerships, we need to prepare the ecosystem for the new generation, and we need to work together. It takes two to do the dance, so I think we need to work together on that. When it comes to the model, there'll be three key takeaways from this I would like to leave it. One is that it is geographically independent. It's applied through all the circles in India. Second one is its core, the core is very solid. It's offering agnostic. And the third one is that we decouple the scale and quality from cost in a way that we can increase traffic without scaling cost. Thank you.
Thank you, Yogesh. We will now open up for questions to Yogesh and Ragnar. Please wait for the microphone to be passed around, and I also kindly ask you to limit yourself to one question and one follow-up. I think the first question was that part of the room, yes.
Thank you, Marianne. Does that mean no questions for Fredrik at this stage?
Fredrik will get back to join Richard, the Group CFO, in the Q&A session towards the end of the day.
Okay. A question for Ragnar then. Ragnar, you talked about the OpEx savings from the new operating models, of which the largest you say are coming from network sharing. You gave a number here. Is that number based on existing network sharing agreements, or are there expectations built in here for future agreements yet to be signed? And you talked about, and we often hear about the positives from network sharing. One of your most recent is in the Danish market, and I gather from the outside that things are not running completely smoothly here. Is it possible to discuss a little some of the challenges and problems you're seeing with network sharing agreements? Thank you.
So the figures are presented for network sharing is sort of the combined savings then on both the OpEx and the CapEx, because sort of when you share assets, sort of, that's very much about CapEx as well. The figures are presented is those figures that sort of will, that is, is the savings that will come into the accounts as from 2012 and onwards. So part of the savings, for instance, in Denmark, is included. But the rest looks sort of within the potential that is not sort of realized yet.
Existing agreements or new agreements to come?
Mainly new agreements. And then with respect to the challenges of network sharing, yes, it's sort of not a straightforward, easy thing to do. As I mentioned, it, network sharing, and particularly the active one, is a long-term relationship. And it requires that you have at least seek to have in place a common view on how the network should be developed. And even better, if you are sort of able to have a common view on how it should be managed and operated. Because sort of, and then there are different models that you can sort of choose on, or choose between to sort of put this in place. But yes, there are challenges. There are. It's possible to overcome them.
I think you have to sort of, when you do these kind of changes, you have to be prepared for the transition period in a good manner.
Thanks. It's Laurie Fitzjohn from Citigroup. You've spoken a lot about increased centralization, more use of global, global units. I mean, are you starting to see greater cross-country synergies that we haven't seen in the past in telecoms? And because of this, do you see this impacting how you compete with operators who don't have such global scale, such as Telenor? Thanks.
I think what we'll see is that we will do this partly in steps. I mentioned sort of that it's important that we develop the skills and the competencies, among others, through sort of having in place a shared service centers, and that we start with those domains or those areas that are sort of not necessarily that close to the customers, and to get sort of to cater for that experience.
But we also see that it's possible to utilize the experiences, for instance, from the network swaps, and use the sort of sourcing as a tool for having business units combining sort of the scope through sourcing processes, and also using that as a tool for working with the business units on vendor management, for instance, and on further developing standardized processes in cooperating with certain vendors. So that sort of is the plan. Anything to add from your experiences with this, Yogesh?
I think there is a clear potential there, you know, and centralizing means from the name it looks very big and scary, but actually you can do that in many efficient ways as well. So I think we are going to take that approach.
Next one is Jakob Bluestone.
Jakob Bluestone from Credit Suisse. You talked a bit about the revenues you expect or the benefits from the cost savings that you're looking to achieve. Can you talk a little bit about the cost of actually implementing them and maybe some guidance on what we should be looking for in terms of restructuring costs or write-downs of assets?
I think there will be sort of cost connected to putting sort of these new operating models in place. The figures I showed you, sort of around NOK 4 billion, is an estimated net figure. I think sort of what the restructuring cost will be is also very much dependent on the sort of on the operating model that you end up with or choose. Because let's say even if you enter into an agreement with an external partner, sort of how that partnership, whether that sort of will include sort of the employees that you have in your sort of presence, in your organization today or not, is sort of part of the deal and will influence all the transition cost.
I also think that, particularly within the network area, we're looking primarily for sort of sharing assets and see whether we can connect that to sort of future build outs, because there are technologies coming, in many of the business units in the years to come. So, yes, there will be costs, there will be restructuring costs. I think we'll also come back to those as we sort of see the various deals are materializing.
If I can ask a follow-up. You said it's a net figure. Obviously, the other targets for cost savings or growth figures, what is it net of? Is that net of the restructuring costs or?
It's net of the restructure. We have. It's included an estimated, sort of restructuring costs within each of the domains, where sort of we see that will come, an estimated.
Just to add a little bit on an example on how we kind of moved into the new model as well, because one of the areas is customer experience, as Ragnar mentioned. The experience we have from India, that is completely not only available, but we are working together. So, I think it's the existing organizations also, which are heavily involved. It's not a lot of new cost, in a way. We need to seek smart ways there.
The next on the list was Thomas Heath. Heath, I believe.
Thank you. Thomas Heath with Handelsbanken. Question for Yogesh here. You showed the cost per minute in India and how that sort of decreased and has lower in your best performing region. On that chart, you sort of have a flattening out level, but you also mentioned the traffic has grown quite a lot. So if we look ahead, do you expect to hold this level of cost per minute and continue to grow traffic, or is there a risk?
Yeah, so on the graph we showed, you might have seen like certain bigger dips and certain straight points. And the reason for that is it was not just the traffic, which was driving the cost per minute down. There was some structural improvement, especially on the network and on sales process, which we did. We are working on them, so I don't see cost per minute increasing. I think our effort is how do we become much more efficient than the incumbents? So reaching that is not is a milestone, but not the target. For us, the target is to be much lower than the incumbent on cost per minute.
But it's, it's just interesting, they're quite parallel, these curves, right? So is it, is it reasonable to think that the total group moves down towards the best performing circle?
Yeah, I think it's a good speculation, I would say. But, well, what we aim to is if we can reach around 8% less than the incumbents, I think that would be a very, very good target for us to look into. It takes time. It's every cluster to go in and make sure that it performs. It's.
We have time for one more question before the break, and, Maurice Patrick was the quickest one.
Hi. Hi, it's Maurice Patrick from Barclays. The focus on India, on cost is very clear from the slides you've shown. Would love to get a sense of the extent to which you've pushed those competencies and focus on cost throughout the rest of the Telenor organization, how far you are through that process?
Well, once again. Sorry, you've clearly focused a lot on cost inside Uninor and driven out the things we've seen here. I wonder how far you've pushed those concepts throughout the rest of the Telenor organization. So how much of that have you already realized and been seeing elsewhere in the group?
Oh, well, well, I would say here, and Ragnar can, of course, comment. I think, we are at the cost journey, not just because we are Uninor. I think, if we didn't have experiences from Asia, if we didn't have the, global program, we wouldn't be there, on starting to think different. So the areas I mentioned, they're very, very clear focus in the group. What you see as big six program, but there is a lot of other areas going on, and especially on spectrum, especially on the transformational partnerships and on, leveraging, distribution excellence. So there, there's a lot of work there. But it also, I think, we have to also admit that there's a lot of, ways of work and, systems, and people need to adapt and change.
But I see a lot of receptiveness there in the teamwork which we are doing.
Mm-hmm. Thank you, Ragnar and Yogesh. There will now be a short break with the refreshments served in the cafe area upstairs, and we will meet here in about 15 minutes with presentations from Telenor Sweden and Telenor Norway. Thank you.
[crosstalk]
Welcome back! Just before we go on to the next session, just a quick comment to clarify potential misunderstanding regarding the targets we gave in the beginning of the session. The NOK 5 billion gross savings towards 2015 OpEx a nd the numbers presented by Ragnar is not the direct; it's not a breakdown of that number. The numbers presented by Ragnar is the total savings on OpEx and CapEx, and he is, of course, these programs are feeding into, contributing to the NOK 5 billion target. But we also have other cost-saving potentials in terms of continuous improvement in the business units. Then let's go on, and the presentation now is with Telenor Sweden and CEO Lars-Åke Norling. Please, Lars-Åke.
Thank you. Yeah, this presentation will cover a short introduction to Telenor Sweden, also our view on the market developments, as well as a walkthrough of our key focus areas. That's monetizing mobile data, strengthening our fixed triple play position, as well as our OpEx agenda. Starting first with Telenor Sweden. We have a strong market position in consumer mobile, in enterprise mobile, and in fixed consumer broadband. We have about 2.3 million subscribers in mobile, and roughly 500,000 subscribers in fixed consumer broadband. On average, market share, revenue market share per segment is about 20%. Looking at brands, in the mobile segment, we have Telenor as the main brand, and in the fixed consumer segment, we have Bredbandsbolaget as the main brand. That's our triple play brand. Focus in mobile, post-paid voice and data.
Focus in broadband, in fixed broadband, is triple play over fiber. Telenor Sweden has worked with a transformational agenda since 2010, improving key capabilities. We have improved our cost structure with an ambitious OpEx agenda. We have gone from a very unclear brand position for Telenor to a brand position emerging around flexibility, being the flexible operator, a customer-centric position in Sweden. Both having flexible services, but also acting in a flexible way towards our customers. An example of that is our subscribers can always both upgrade and downgrade their subscription during the commitment period. We also have made a big sales transformation of all our sales channels, with especially good results in stores, where we have new concepts in all our stores. We have secured right locations and new routines.
Also, in external retail, we have made a strong comeback, also with innovative concepts. We have a shop-in-shop cooperation, for example, with MediaMarkt. That's really successful. We've also transformed our entire network. We've gone from a weak network position to a very strong network position, one of the strongest network positions in Sweden, both on voice and on data. We have a nationwide 4G network. We have a 3G network with really good coverage and very good capacity, and it's a 3G network that's in large extent is modernized through swaps. We also have a 2G network with additional functionality, now with EDGE, but also with quite a lot of increased coverage. A number of new base stations coming from the cooperation network sharing that we have with Tele2.
Also, the transformation agenda has resulted in a stable financial development. We've increased our top line with roughly SEK 1 billion since 2009, or 11%. Strong growth in mobile, coming from increased smartphone penetration. We have a decline in fixed, say, along with the market, driving from coming from a decline in DSL and voice. EBITDA, also a strong improvement. We improved EBITDA with SEK 500 million since 2009, or roughly 20%. That improvement is coming both from cost savings, but also improved contribution from mobile. In 2012, we see a pressure on the financial development due to the price war we have between Tele2 and Three.
It's both, putting a slight pressure on ARPU, but, as well, increasing sales costs to still get the volumes in, in a very, competitive environment. Looking at the ARPU levels, we see a flattening out of the mobile ARPU. We have a pressure from regulatory on interconnect and roaming, but we also have a pressure on service revenue. We see a pressure on voice, especially from the price war, but also on messaging, where we see iMessage taking a lot of the SMS traffic. But we contract that with data, but not all the way. But a large explanation also for service revenue, ARPU going down, is also mix effect.
We have had a very strong growth in mobile broadband in the last year, and mobile broadband has lower ARPU than smartphones, also explaining a, a big part of that effect. Also from, from quarter four last year, we changed the subsidy model for, for handsets, going away from the traditional handset subsidy model to instead working with discounts related to handsets affected service revenue. But looking at overall ARPU revenues, total ARPU revenues, that's we see that increasing year-on-year, sorry. So the fall in ARPU is counteracted by very strong growth in the mobile customer base. So shortly about, you know, Sweden, now a little bit, the view, or our view on the market development.
We see that in the years to come now, we're gonna have a significant shift from voice to data, both in fixed, but especially in mobile. And it's gonna be very pronounced. It's hard to tell how much it's gonna be data in 2015, but I would guess it's a large part of the mobile revenues are gonna come from data in 2015. We also see regulatory pressure on interconnect and roaming, and that's not gonna vanish. Interconnect rates are going to zero. That's gonna affect, of course, revenue, not as much bottom line. And we do see this intensified competition on the Swedish market, especially with Tele2 and Three, then both going for the price position where they have a price war.
But, but we do foresee a rather stable market going forward with a growth in mobile. Not as high growth numbers in mobile as we have seen in the past years, but still a growth. But the decline in fixed, coming from a drop in DSL and voice. But of course, if this price war continues on this level, it will, of course, affect also the mobile growth in the years to come. Another strong trend in Sweden is data consumption. Swedes love to consume data, both in a fixed domain, but also in a mobile domain. In the fixed domain, we have a very high penetration of fiber in Sweden. 45% of all the households in Sweden are connected to fiber today. Quite substantially more than in Denmark and in Norway.
This fiber race was started by Bredbandsbolaget, actually by myself at that time, because I was part of starting up Bredbandsbolaget. But that means that a lot of the subscribers in Sweden are sitting with a very high-speed connection. That means also that they consume a lot of data, especially streaming. Streaming of music and streaming of video, often in HD. And what we see now also in the mobile domain, that the Swedish mobile customers spend quite a lot of more data than compared to Norway and Denmark. About four times as high usage in Sweden per customer compared to Norway.
The reason for this is that we have really good data networks, mobile data networks, both on 4G and 3G, and historically, also very high caps, even if that's changing now on the Swedish market. But we also see that the mobile subscribers, they take the behavior from fixed into mobile. So a lot of majority of our mobile subscribers are using the mobile data for streaming, of course, consuming data. But we also see that a lot of subscribers also replace DSL entirely with a mobile solution, often a mobile home router. So short about the market development, market trends. Now to the first key focus area: monetize on data. And we see an opportunity in the Swedish market to establish a future-proof model for monetizing on data. But that requires that all operators in Sweden act rationally.
We see a huge demand for data, high smartphone penetration, and also usage, both in mobile broadband and smartphones, that's increasing. We also see that the demand is gonna surpass the supply, the data supply in the networks. Some of the 3G networks in Sweden are getting full. We're not there yet, but some of the competitors' network are full. But of course, to monetize on data in a good way, you also need to have a very good network, because the customers, consumers in Sweden, they are really demanding. They want to have good speeds, they want to have good capacity and good coverage for data. And like I said in the beginning, we have a good network position.
We have a nationwide 4G network, we have a 3G network with good coverage and capacity, and that's also fully, almost fully modernized with the swaps. We also have a very strong spectrum position in Sweden, both with high-end spectrum for capacity and low-end spectrum for coverage. And especially, you see together with Tele2, in the network cooperation, we have a 4G, 2G. Our combined portfolio is really good. We see four main principles for monetizing on mobile data. Number one is that you clearly need to differentiate your product portfolio on the data component, components. Differentiate on speed, on volume, and on functionality. Second, pay for data volume. We've basically have had this unlimited concept in Sweden, where we definitely are moving it from now.
Today, we have fair usage policy on all our subscriptions, and moving also to hard caps, and that's gonna continue. So it's definitely gonna be charging for volume in Sweden. And pay for functionality. For example, we sell tethering to use your phone as a Wi-Fi router, as an add-on. We also sell roaming data roaming as an add-on to the consumers for a fixed price per day. And lastly, we only sell bundles. All our small screen offerings are bundles of voice, data, and messaging today. And an example of this is our latest portfolio, where it's all bundled data, messaging, and voice for all the package. And we also clearly differentiate the portfolio now on data, both when it comes to speeds, but also volumes going up.
And like I said, tethering is sold as an add-on. And the low-end product is really limited to enable up-sale potential to higher packages. So that was the first key focus area. The second key focus area is to strengthen our triple play position in fixed. And looking at the fixed market, we have a rather big decline in fixed in the fixed and voice. But we do see a growth in triple play over fiber and cable. And like I said, we have a very high fiber penetration in Sweden, with 45% of all households in Sweden connected to fiber. Out of those, our market share is 26%. So we have 560,000 households now with Ownit connected to fiber. And our aim is to strengthen our triple play position.
We want to be one of three major triple play players in Sweden, competing with Telia and Com Hem. We use Bredbandsbolaget as our triple play brand, and we have a high potential here because we only have 14% of our customer base in Bredbandsbolaget on triple play today. Most are on dual play. That means that we can increase the ARPU, and also triple play enables lower churn. Important also here is to leverage on the Nordic scale. TV is a scale game, so leverage on the Nordic scale, both for content and for platform. Second part is that we want to increase the number of homes connected.
We want more homes on fiber than the 560,000 that we already have, both from organically, where we connect real estate that's close to households where we're already connected, but also through selected acquisitions. Lastly, we want to also be a key player in the Swedish open net model. And there's a number of fiber networks in Sweden that are opened up on a wholesale basis to other service providers. So you, as a subscriber, can choose from different service providers. That's both a requirement from large real estate owners, but also a really good tool for improving and increasing penetration in the fiber networks. And looking at the total fiber market in Sweden, we see a good growth with almost 500,000 households from 2008 to 2012.
We see that this growth is gonna continue, mainly in the open net model with open networks. But if you see that Telenor's share of the fiber household, we had the decrease from 2010 to 2011, from 23% down to 19%, but a very strong comeback in 2012. So now we're up to 26% market share. And the reason for this is two acquisitions. It's Open Broadbandnet and Ownit, two companies that we acquired the last six months, but really moving our fiber position forward. So that was shortly key focus area around triple play and fixed. The third key focus area is operational excellence and our OpEx agenda. We work with four areas here. New operating model, we already heard quite a lot about today.
I'm gonna deep dive a little bit more in that as well. But we work here with partners when it comes to execution and production, and we focus our internal capabilities on developing the business and developing our customers, and not drown in production. We want to get away from from too much production focus. The other part is network sharing to improve our cost and network position towards Telia. That's a must. Then we have product and process improvements. That's also really important, both to scale more efficiently, but also to have more satisfied customers. And we steer a lot of our IT development today to improvements and not only developing new things. We also use NPS, Net Promoter Score, as a tool for asking the customer what areas they dislike the most, where we perform the worst.
So we ask the customer, and then we try to fix those things, of course, first. Structural improvements. There's a great market potential out there, but you need an efficient organization to meet that market potential. And we've just made a reorganization, 1st of June, having now three business units. We have, broadband and TV for the fixed, enterprise for large enterprises, and mobile mass markets. But we also, at the same time, downsize our organization with 170 employees. Last area, sales and marketing efficiency. We spend a lot of money each year to acquire new customers and also retaining existing customers, and this has to be done as efficiently as possible. Both getting the right customers in, in our target group, but also having a really good return on investment of all, the, the acquisition and retention that we do.
Like I said, I'm gonna deep dive a little bit more in the new operating model, both talking about the partner model, but also network sharing. Partner model, like I said, partners for execution production focus ourselves on developing business and developing customer. And that's the main reason for doing this, is to focus, not to drown in production. But also since we work with best-in-class partners, we also achieve quite a great cost efficiency, also better quality than we did the production our ourselves, and also be able to scale up and scale down when you have big projects. And we worked with this model since 2010, we have come far already. In the IT domain, most parts is already sourced to partners, to CSC.
We have a new RFQ out for the last part that's going to be closed in quarter four. In the network domain, we have field service and transmission sourced to Ericsson, and we have a managed service RFQ out for network elements and service platforms. It's going to be closed in quarter four. And then customer care is partly sourced today to Transcom. But we have a new RFQ out to see is there a potential for a full sourcing of customer service, and what are the benefit, benefits with that? Last part, support functions, where both facility, the HR and ERP, we're going to leverage on the group shared service model. Network Sharing, like I said, this is really important for us to improve our cost position and network position towards Telia.
We would never be able to compete with Telia on network if we didn't do network sharing. We have two network sharings in Sweden, full active sharings both. We have a network sharing with Three on 3G in outside of the main city. So we have our own 3G network in Stockholm, Gothenburg, and Malmö, which is very good because of capacity reasons. But the rest of Sweden, we share with Three. That's a cooperation that has been going on since 2001, and so far, we've saved roughly SEK 5 billion in CapEx, and the run rate now saving on OpEx of SEK 250 million compared to running the network on our own.
Network Sharing with Tele2 since 2008 also saved a lot of money, roughly SEK 1 billion in CapEx and a run rate of OpEx savings of SEK 70 million. Now, that's going to increase over time. But also the network sharing with Tele2 has also gained a huge increase in number of base stations, so especially 2G, also improving our coverage position on the Swedish market. And we see that the operation excellence agenda that we work with now has given results. We've improved our OpEx to sales from 40% in 2009 to 35% in 2011. We see a slight upward pressure in 2012.
Two things: increased sales costs, also deriving from the price war, but also we have increased our mobile customer base quite a lot last year. It's also affecting the cost in customer service. That's two things we naturally work with to decrease. But with the plan we have, and all the actions we have in the plan, we do see that the trend on the OpEx to sales is going to continue downwards, and our aim is to be below 33% OpEx to sales in 2015. Main areas is the four areas that are covered, but large savings from the new operating model and also having this efficient organization in place, but also quite a lot of savings from process and product improvements and being more efficient with sales costs.
So, now I've covered a short introduction of Telenor Sweden. I have given a view on the market developments, and I have walked through our key focus areas: monetize mobile data, to strengthen the triple play position, fixed, to be one of three major triple play players on the Swedish market, and our operational excellence agenda. And if we do this right, our financial ambitions for 2015 is, like I said, to have an OpEx to sales below 33% and a cash flow margin above 20%, both coming from reduced CapEx levels, because we finished soon with the build-out of 4G, but also from improved EBITDA margins from business. Thank you.
Thank you, Lars-Åke. I guess there are some questions for you in the audience, and Stefan Gauffin from Nordea was the first one. Please also remember that you have the opportunity to ask more questions to Lars-Åke later today in the breakout session.
I have a question relating to OpEx savings from closing down the old 2G network.
Yeah.
I believe that currently, you're running, at least part of your old 2G network.
Yes.
As, at the same time, building the new 2G and 4G network.
Yeah.
Can you say how much you're going to save on OpEx during 2012 and 2013 from closing down the old 2G?
We are in the process now of closing down the 2G. We merged just this weekend, the West Coast and south of Sweden. Some of the savings are already included in the SEK 70 million per year number that I give. But like I said, SEK 70 million is what we see now in savings. I think we're going to move up to roughly SEK 120 million-SEK 130 million per year when it's fully merged networks, roughly.
Okay. Thank you.
I believe the next one on the list was James Britton from Nomura.
Thanks very much. My question's really around the business market. We spent the day yesterday in Sweden, and the constant feedback was that the business market is getting a lot, lot tougher. Can you just clarify your current position in that business segment, and how you expect yourself to defend your share as Three and Tele2 start to encroach on that space?
First, I would say we, we have a very strong position in enterprise, especially larger enterprises, where we already from Europolitan time has had a great position, and we're still leveraging on that. We have a great sales force, and we also quite substantially focus on having a mobile exchange that's top class in the market, so that our customers can go fully mobile. But I would say we've been working with this segment for such a long time, and we have good connection, a very good sales force, and a good way of handling our customers, which is really important. If you move up to from the really small customers to larger customers, it's a different way of selling, but definitely a different way of handling and taking care of your customers.
We have 20 years of experience of that, and we're gonna also, like I said, we have one business area now just focused on enterprise fully.
Do you expect to hold your market share?
Definitely. I expect more than that.
No more questions? Okay. In that case, let's move on, and thank you.
Thank you.
That's okay. The next speaker today is Berit Svendsen, CEO of Telenor Norway.
Good morning, ladies and gentlemen. It is a pleasure for me being here today presenting Telenor Norway. One year ago, I was here with you after being in the position for just one week, and I have to admit that I wasn't really into everything I presented last year. I will assure you, this year, I really agreed what I said last year, and the story continues. I'm going to focus on building a fixed and mobile network for the future, monetizing on the network investments we are doing, and also building a future-proof operating model. Let's first take a look at the Norwegian market, because the Norwegian market is actually a very stable and robust market to be in. It has a very good economy.
Going forward, we expect a flat development for the revenues for the total telecom and TV market in Norway. Regarding volume development and data consumption, it's another story. There is a huge growth in broadband and fixed. There is huge consumption, data consumption in fixed broadband and small screen data. Also, there is a growth on the large screen data. Users, they expect capacity and coverage everywhere, and there is less distinction between voice and data. Telenor Norway actually has a very strong position in the Norwegian market. We are a market leader, both within TV, fixed voice, broadband data, both on fixed and mobile, and on mobile voice. During the last year, we have actually strengthened our position on the mobile phone. We are losing market share on the fixed broadband due to fiber providers.
If we look at the financial development, despite strong competition, we have had a very stable financial development. We had also a good momentum through the first half year of 2012. There is a shift in revenue streams in the Norwegian market and also in Telenor Norway's revenue streams. TV and internet increases, and voice telephony, fixed phone, is actually decreasing. The EBITDA margin is increasing again. It means that we have good cost control, and I will come back to that later. On the mobile side, we have a good story for you. One year ago, I told you about the bundle packages, and how the bundle packages and smart pricing will actually been able to increase profitability and usage on the mobile network. And that actually has happened.
52% of our postpaid customers on the contract side, they do have bundle package after second quarter. 51% of all our customers, they have a smartphone, and there was a 4% increase last quarter. There is still a huge potential for customers buying smartphones, because now the elderly segments are actually taking smartphones into use. And we see, we do see a connection between the smartphones and our packages, because it's much better for a customer to have a package plan when they do have a smartphone. When customers are migrating to bundle packages, our ARPU increased by 7%. In June this year, we also saw an increase in the SMS usage. We had a 10% increase in SMS volume, and on SMS, we had a 24% increase year-over-year. So there is a huge increase in the telecom market, volume-wise, in Norway.
Due to more than 100,000 more customers for the last year and a good ARPU development, we have had a positive mobile service development. We have 2% more postpaid customers. Customers are staying longer with us, and we are using smart pricing. This is actually driving the mobile ARPU upwards. And we also have an optimal use of three brands in the mobile market. However, on the fixed side, we do have a job to do. 100,000 customers are choosing other services than plain old telephony services every year, and since we call it plain old telephony service, it has been out there for a while, for over 100 years. We have currently 800,000 plain old telephony customers left.
The fixed revenue is actually decreasing NOK 400 million each year because of these customers choosing other services. Since everything started on the fixed side, it's on the fixed side, we do have most of the complexity and cost due to old technologies, lots of IT systems, and heavy processes. I will now go into how we built our fixed and mobile network, and how we are going to monetize on the network building. Every day, we are investing in fixed and mobile broadband infrastructure to meet customer demand. We completed the network swap last year, and we do have modern Huawei technology in our radio network. 43% of our mobile base stations have an IP broadband backhaul.
Up to now, 3G has been our main focus, building out more capacity and coverage, and at the end of this year, we will cover 90% of the Norwegian population with 3G. In a few weeks, we will launch 4G in Stavanger, Bergen, Trondheim, and Oslo. This is a perfect timing, because the first handsets will be available on the market in the fourth quarter. One of our main goals is to monetize on mobile data investments. We will continue to migrate our customers to bundles. At the end of third quarter, we will have even more of our customers on the packages. We are upselling when customers is growing out of their existing packages. We are using smart pricing to increase the prices in areas the customers are not so aware of.
We do have new services where we are doing backup of your old mobile phone. We are helping customers taking a smartphone into use, taking all the data on the old mobile phone over to the new phone. We will use speed as a differentiator going forward. The user are also being provided with new services. Even if Telenor Norway has a good market position on the broadband fixed area, the competitors have actually taken the lead regarding fiber broadband. We have put up ambitious plans to increase our market share on the consumer side from 16% today, up to 32% in 2015, and on the business side, from 10% today, up to 38%. We will have a targeted approach, and we will be able to monetize an increasing ARPU, learning on the consumer side from our cable TV business.
On the regulatory side, there are still some regulatory uncertainties on the mobile and fiber. Mobile termination rates was set down in Norway the 1st of July, as the second last step towards symmetrical termination in the Norwegian market. The last step is actually planned 1st of January, 2013. There is still uncertainty about it because, Tele2 has an appeal, and the authorities has to take that, or has to consider if they want to take that into consideration. On the fiber side, there are no regulation. We do have an active dialogue with regulatory authorities about conditions, to find acceptable conditions going forward for making it possible to have profitable fiber rollout. One of the main tasks we have is to address the copper challenge. 60% of our OpEx belongs to the copper network and the copper products, and most of these cost is actually fixed.
It's not variable, it's fixed cost on a fixed side. With the decreasing revenue from the POTS customers taking other services into use, the cost and complexity is still there, and it needs initiatives going forward. If not, we will have a problem to have a profitable business on the copper network going forward. So the last item I will cover today is actually how to strengthen our cost position, and it's two item I will cover, is actually about planning for a new operating model and implementing ambitious operational excellence initiatives. We are planning for a future-proof new operating model. We will focus the copper business and the products belonging to the copper business into a specific unit that aims at modernizing the copper network and radically reduce cost and complexity. Also, being the main driver for the technology shift we have.
We are also going to have an organization that can speed up the fiber and TV deployment in the Norwegian market. We are also focusing on having one technology organization, aiming at being the best at both building out fixed and mobile broadband and operate the same technologies very, very efficient going forward. For the copper network, we will have three focus areas. We will modernize the copper network, where the copper network is actually in a very, very good shape. We will decommission the copper, where we have alternative infrastructure or where the competitors have actually laid out alternative infrastructure, and we will also aiming at having a very efficient operation. We are running pilots, testing out, that I will come a little bit back to, for all the three areas, modernizing the network, decommission the network, and also having an efficient operation.
Our goal is to outpace the plain old telephony service within five to seven years. North of Lillehammer, there is a place, where there are around 700-800 households. In those circles that we see here, we have double infrastructure in 80% of the houses. It means that we have a copper infrastructure, and we have a coax and fiber infrastructure into these houses. This is the first one of the first areas that we will actually phase out the plain old telephony service, giving the customer the choice of having a broadband telephony or a mobile, if they just prefer a mobile home telephone. After that, we will, of course, also sell, sell up to the customers TV and broadband, and when we have done that, we will actually phase out the copper infrastructure. So this pilot has already started.
Regarding operational initiatives, we have put up initiatives for NOK 2 billion going forward. Those NOK 2 billion will be diverted into a volume reduction. When we start to phase out both the plain old telephony service and the copper network, we will reduce the volumes on both the ordering and default handling for these services. We will right-size the organization. We will simplify the delivery and fault-handling chains. We will optimize use of buildings. We will work better, even better, with installation force. And there will also be a cost increase going forward because we are going to have heavy investments on both mobile broadband and fixed broadband. So there will be a cost increase of NOK 900 million, making the total program a net cost reduction program of NOK 1.1 billion.
We have put up ambitious cash flow improvements going forward. We will be able to reduce OpEx to sales significantly, with those cost initiatives going forward. We aim at having 33% OpEx to sales in 2015. If we succeed with our fiber deployment, being able to start to deploy in a faster way and being able to monetize on these investments, we will continue to build out fiber in the Norwegian market. Of course, we will continue to build out mobile broadband in the Norwegian market. In this way, we will position Telenor Norway well into the future by building even more fixed and mobile broadband networks to keep up with our customers, by being able to monetize on the mobile network investments that we have already started to increase in the ARPU of the mobile customers in Norway.
Also addressing the cost initiatives by building a future-proof operating model. That was the story I had for you today.
Thank you, Berit. I guess there are some questions for Berit as well. The first one from, Soomit, sitting over there. And also ask for Berit, please remember that you also have the opportunity to ask more questions in the breakout sessions later today.
Hi there. Yes, Soomit at New Street Research. Question on mobile and a question on fixed, please. On mobile, in terms of the 52% of post-paid customers on bundles, what would you naturally expect that rate of increase to be? And would you envisage the need to introduce further promotions, perhaps to sort of give that another leg up at some point in the future? And then on fixed, you touched on regulation, but in terms of the fiber targets you've given, talking about shutting down the copper, and the plain old telephony, what is your current understanding for regulation over fiber, given everything you've talked about today? Thanks.
Your first question was actually how many customers that we can expect to have on bundles in the years to come. You know, I think if you look at the smartphone development in Norway, I think, we do have a target of around 75%-80% of all the customers in Norway having a smartphone in two to three years. And I do think we will see the same development on our bundles, because as soon as you get a smartphone, it's even better to have a bundle package. On the fiber regulatory issues, you know, we are discussing with the regulatory authorities, and, it's a little bit early to say, but I think, you know, it's in Europe's interest, actually, to have good regulation on fiber.
So, so they get, you know, a lot of fiber out to the households, because it's, it's a goal within the European community as well. So I think we will, we will get, good conditions going forward. I expect that.
Just on that timing-wise, when would you expect to hear anything on the regulation of fiber?
You know, I think, I think it's also up to us to be a little bit in the, in the front of the discussions, and that's what we aim to do. So I think that will come within a year, I expect.
Okay. I think it was Ole Petter Kjerkreit, sitting there.
Thank you. I have a question regarding the CapEx to sales ratio. This has increased to about 15%, and you, o ver the last 12 months, and a new guide for 15%+ in 2015. Very well, you're not saying anything regarding the coming years, 2013, and 2014. Since you are already now at 15% and you guide for 15%+ in 2015, does this imply that we also should expect around that level for the years until 2015?
As I said, when we have started to roll out fiber, and we have good results on monetizing on that fiber, and we do see that we can have a good fiber uptake with good ARPU in the two to three years to come. But actually, the speed of the deployment depends on how good we are at monetizing it. So I would say, if we are here in 2015, and we have the same CapEx to sales figures, it's because it's a success for us. And then we have a very good performance also on the income and on the EBITDA side.
Mm-hmm. I think the next one was, Terence Tsui f rom Morgan Stanley, and after that, Peter Kurt from Cheuvreux. And I'm afraid that's all we have time for here in the auditorium.
Thanks very much. Just a follow-up on the previous CapEx question. I was wondering if perhaps you can quantify the various components and how much you think each component will be worth within the CapEx budget, such as the LTE spend, the fiber roll-outs, and maybe the modernization of the copper. Which one is relatively the most important, do you think?
I didn't get it correctly.
I wondered if you can just give us a split of the CapEx come 2015, how much of it is gonna be on the LTE? How much will be on the fiber? How much will be on the other situations?
I, I don't think I should, you know, split the total CapEx budget totally. That's not what we should do today. But you can say that we have, we have a very good CapEx process, putting up priority for all the CapEx use in Norway based on non-discretionary and discretionary. And we have put the prioritized areas up ahead, so we are very able to see if we are we can monetize on the investments going forward. And we have a goal of around 30,000-40,000 new fiber installations each year. This is the goal going forward.
Thank you. If I can remain on the same issue, please. It's obviously a massive increase in your planned CapEx spend, and it's also a massive change to Telenor's approach and strategy for the domestic market. I'd like to ask you a bit, when was this decision taken, and exactly what has prompted you to take this decision? Is it the loss of market share or more specifically? Thank you.
Everything depends on, you know, what type of ambitions you have to be in the, in the, in, the future fixed market. And I think we have put up an, an okay plan for, not being too ambitious, but being ambitious enough for actually being able to have the market, to be one of, on one of the market leaders on the fiber side. And we should do it, focusing very on monetizing on the investments.
Okay. Thank you, Berit. There will now be a lunch break, and we will meet here, in about 45 minutes with presentations from Telenor Pakistan and dtac. Thank you.
Okay, welcome back to the second half of the program here today. We will start with a presentation of Telenor Pakistan by Lars Christian Iuel, CEO of Telenor Pakistan.
Thank you very much. The honor of starting up after lunch is always a pleasure. Just a little introduction about myself. I've been in Telenor for about 15 years, primarily within product management, sales and marketing, and the cellular part of Telenor. My plan for the presentation is to give you a general market overview of Pakistan and our interpretation of it. I'm also planning to make a little flashback and going back to Capital Markets Day in 2010, where the previous CEO, Jon Eddy, well, who was the CEO at that time in Telenor Pakistan, made some promises for where we were gonna be in 2013. And as you can already understand, it's probably good because he's sitting in the room.
I will also look a bit forward and say something about our ambitions for the strategy period from 2013 to 2015. When one is looking at Telenor Pakistan and the market macro outlook, it might be a gloomy picture. It's economic growth has not stagnated, but it's fairly low. The inflation has been high. It seems like it's cooling down a bit, but we have huge energy issues with load shedding in June of up to 14 hours and a circular debt. And we have some security challenges, I would say. We have a regulator who has generally been very good to the industry.
I would say that probably in Asia, the most transparent and predictable regulator. They have had some issues, though, among them, CG. I joined Telenor Pakistan in 2008, and from the first day, I heard from both the regulator and the industry that within six months, the auction is gonna happen. As you know, that's more than four years ago, but our best guess now on the auction is that the existing government is trying to get it done with before elections. We think that opposition will, in a way, make a blurry picture, so our best guess is Q1, Q2, 2013. The population of Pakistan is huge. The more than 40% is below 15 years.
So as we will see on the next slide, the number of SIM cards strongly indicate that the penetration in the addressable market is fairly high, and the multi-SIM phenomenon is already there. But still, with this overview, the industry in Telenor Pakistan has proven to be extremely resilient and have had a very, very healthy and good growth for the last five, six, six years, and we believe that will continue. So a little view on how the status and where we think we're going. As you can see, the penetration as per today is 66% of a population of about 180 million.
We are changing our main focus from a gross add machine to being more retention-oriented, minimize churn, and increasing what we get out of each customer. We see that we are the best in class on customer retention, and we can manage with much lesser gross add, which is very expensive and a lot of SIM sales tax, et cetera, compared to competition. I would say most of it due to our business intelligence and how we work with the existing customers. Okay. Until now, it has been mainly a voice and SMS game in Telenor Pakistan.
We see that it is starting to change, and during the strategy period, we see that the composition of our revenue will change, like shown on the slide here, where financial services, mobile internet, and the value-added services will increase its contribution. The percentage of voice revenue will go down, but it doesn't mean that in absolute numbers, it's reducing. It's still a healthy growth, but not as big as before. Within these three areas, financial service, mobile internet, and the value-added services, I would say that we have taken a huge lead in the market in Pakistan on financial services. I'll say that we have one to two years advantage to competition. I'll come back to that one. Mobile internet, I'll say we're doing an okay job.
We don't feel that we are on top of it like financial services, but we have a plan, and we have already started activities to go for a number one position in within the mobile internet. I'll also come back to more explicit on market share, et cetera, ambition with around the mobile internet. OpEx and CapEx evolution has shown a healthy growth, but we think that with the newly initiated network modernization program that we have started, that we will obtain even bigger competitive advantage on the cost side.
We have also, when the swap or modernization is finished, it's prepared for 3G and LTE, so that if we get the license, with the relatively small investments, we can quickly move into operation on that one. The CapEx to sales has reduced dramatically, but for 2012 and 2013, we will see a spike in CapEx due to the network modernization. But from 2014 and onwards, we expect a single-digit CapEx to sales. Just a small footnote here, the 3G license auction has not been taken into the numbers here. So this is without a 3G license, and also the revenues that I was talking about before is also without taking 3G into account. So a healthy development on the KPIs.
Future growth is not only coming from a mobile internet, financial services advance, but I know that you have been in the morning session, been through industrialization and future operating models, so I'll not go too much into that. I'll show a couple of examples from concrete activities going on in Telenor Pakistan and in the region, which falls under the category of industrialization. And I think it's important, too, when we're talking about industrialization, that it's not only about being efficient and saving costs, it's also giving competitive advantages, hence, also contributing to the top line. So the mobile internet opportunity. We believe and have an ambition of 27% of our customers will be active on a 30-day basis by 2015. That means 8.5 million customers.
We also believe that most Pakistanis will actually have their first mobile, no, first internet experience through the mobile phone. Fixed internet is, has a very low penetration. More than 50% of Pakistanis live in rural areas, hence, mobile internet has a great future. We, through also, I would say, an industrialization kind of thinking, saw that our colleagues in Bangladesh, in Grameenphone, had a head start on us on creating awareness and preparing the market for mobile internet. They had started an activity called i-Gen, i-Gen, working with hundreds of universities, tens of thousands of people and teachers, et cetera. And we decided that these markets are comparable, and why not copy it?
So we launched it under the name of iChamp, and we are addressing, in a way, three targets. One are the mothers and fathers or parents, one are the teachers, and one are the youth. The parents to demystify internet. In Pakistan, it's often looked upon as demoralizing the youth and the root of all evil. So this is helping to show how internet can actually improve their kids' opportunity in education and schooling, et cetera. Make the teachers understand how they can use this as an integral part of education. And of course, the youth don't need much of a convincing, but they need their surroundings to agree to that. Internet is fairly immature in Pakistan, so is the ecosystem.
Of course, Pakistani youth and is as interested in Facebook as others, but there is very little available of local content and applications, et cetera, which we think is our obligation to facilitate, so that happens. Of course, the most basic thing that has to take place is that the access is there, prices are predictable, and bill shocks are avoidable. Telenor Pakistan is not taking actively part in the device business in Pakistan, neither are the others. Some are doing a little bit, but not like we see in Europe or some other Asian countries. Our goal is to try to stay away of it. We don't see any huge margins to get there, but at the same time, we want to influence how handsets are configured, set up, et cetera.
Preferably with links to Telenor as well. Of course, we also have a one-stop shopping, like WAP portal, et cetera. But again, we don't believe that's where the big money are made, but it's more to facilitate the content applications, et cetera. I need to go back. I was telling you about our goal for mobile internet in Telenor Pakistan. We believe that we should aim to have a 5% higher market share on mobile internet than GSM. We think when markets are maturing, mobile internet can be a paradigm shifter, and we think that's where it's possible to make significant changes in market share. So these things, apart from giving a business opportunity, also give opportunity to fight for a higher market share.
Benefiting from the Telenor group industrialization. Like I said, I know you've been through with Ragnar Kårhus, et cetera, future operating model and centralized sourcing. I'll not go into those two, but just to reiterate what I said before, it's not only about cost saving, but also giving opportunities to speed to market new functionality, et cetera, which is invented one place, take it to another market. Having some group people, specialists, working together with specialists in the business units, working across regions and the whole group. For Telenor Pakistan, two concrete examples. Asia Billing is the first one. Teamed up with DiGi and dtac. We all had a need for changing our billing platforms in the near future.
We did a procurement together, and of course, reaped the benefits from that. But I would say even more importantly, we put the brightest head together from both, both group and from the big business units to sit together, to maximize the harmonization of functionalities in the system. So that over time, when, for example, DiGi or dtac needs one functionality, they develop it, we immediately can it's also applicable for the other markets. We think that this is again, both helping on the top line, but also on the cost efficiency. Distribution 2.0 is similar. We have five business units across Asia, where a couple of them are have already in the process of installing it.
In a way, it specified the optimum distribution management system, the back-end system, to manage retailers, distributors, SIM cards, et cetera, et cetera, combined with business intelligence and location intelligence, to optimize our market mix and execution on that one. Some years ago, Telenor saw the opportunity in Pakistan of financial service in general, and of course, mobile financial services even more. Less than 10% at that time had a relationship to bank institutions, and the bank institutions was only focusing on high-end and mid-end customers. There was not anything for the low-end users in or low-end people in Pakistan.
The Pakistani regulation on banking is fairly liberal and was very accommodating in bringing the, I would say, mobile world and the traditional banking world and microfinance world together. Telenor saw the opportunity and negotiated with a small microfinance bank that had big ambitions, but not all the resources, and definitely not the distribution network, called Tameer Bank, and we ended up buying a major stake of 51% in the bank. Together, we made an agent agreement under the brand name easypaisa and then linked it to Telenor's agent network, offering over-the-counter services and services through the mobile account on the mobile phone. Over-the-counter products are available to all Pakistanis, regardless of whether they're customer in Telenor Pakistan or competition. They can pay bills, they can do money transfer internationally or nationally.
With a mobile account, you can do all these services from your mobile phone, from your couch at home or wherever you are, but then you need to be a Telenor customers. We believe growing the mobile account over time will be very cost attractive for us. And secondly, it will tie the customers much closer to us and hopefully reduce the churn quite dramatically. It's early days still, but the initial figures show that mobile account has a positive impact on churn. Like I said, we set up easypaisa on an agent agreement. We have developed 18,000 of our existing retailers to also be easypaisa branches. That means that Telenor Pakistan has, in a way, 18,000 bank branch outlets. That's more than all other banks in Pakistan added together.
The ambition is to, by strategy period end, 2015, to have 30,000 outlets. Until now, we have had 60 million transactions between 150,000 and 200,000 per day as we speak, with a value of PKR 140 billion. I would say financial services, as we use it or have brought it out in Telenor Pakistan, is fairly CapEx light, more OpEx heavy. But by 2013, we see that we will be both EBITDA positive and cash flow positive on financial services. So here's a slide or the ambitions stated on Capital Markets Day in 2010. Looking to 2013, we're gonna have a yearly growth of more than 10%.
We have had much more than that. Operating cash flow margin of above 25%, also a good, good, development. On the CapEx to sales, as I said, due to the network modernization, we did not continue to curve this way, but we'll have a spike in 2012, 2013, and then we'll continue on the low, low end, after that one. So what we have kept what we promised, and we are for 2015, putting up, continuing the positive story of Telenor Pakistan, and have the ambition to still increase our revenue market share. We do believe there is opportunities to have double-digit growth on the revenue.
But like I said earlier in my presentation, not primarily on voice, but on new areas like mobile internet, financial services, and traditional value, value-added services. We believe that we can have we will reach an OpEx to sales below 36% in spite of energy challenges and security, and we believe that we'll end up on a operating cash flow margin above 40%. So, to wrap it all together, we are strengthening our number two position, and we are taking a lead in the financial services and the mobile internet. The first one, we have, we already have a head start. Mobile internet, we have, some work to do to get there.
We believe that we have better abilities in Telenor Pakistan to swap the assets than competition due to our business intelligence capabilities, learning from our fellow companies in Asia and the group functions. So carpe momentum, realizing possibilities will still be our mantra in the market.
Thank you, Lars Christian. We will now open for questions to Lars Christian. The first one was in the middle. I believe it was Stefan Gauffin, and after that, James Britton from Nomura.
Just, brief on your, on your financial targets. Working backwards, starting from the EBITDA margin in 2011 and the change in OpEx, that would imply 46% EBITDA margin. And then, to come to an operating cash flow margin equal to or above 40%, that would only imply 6% CapEx to sales. Are we also talking about gross margin improvements? Could you, could you talk a little bit around CapEx to sales levels, and are we talking about 50% EBITDA margin, 2015?
Well, I'm not gonna go into that deep in the crystal ball. I would say that we are doing a healthy development, and I would say that the majority of it will come from cost improvements on both through the network swap and a program we are calling GSD. Which I would say 80% looks into how to minimize the dependency on the traditional power grid, how we optimize with battery backups, have a more energy-efficient network after the network swap, and also how to monitor monitoring pilferage, and also when to use the public grid, because you have peak and off-peak hours also on the grid.
To maximize when we do charge our batteries, when we don't use our batteries, when we use the generators that use diesel, et cetera, will make up the majority of that, in addition to the broader industrialization programs that you have heard earlier today. Just as an example, in a four-month period, from, I believe it was, April and forward, we used 15.5 million liter diesel. Some percentage change in that makes a big difference.
To come at above 40%, does that imply also gross margin improvements?
For some, yes.
Okay, thank you.
Next is James Britton, and after that is Maurice Patrick.
Thanks. James Britton from Nomura. Have the government given you any indications as to their priorities as they allocate 3G spectrum? Are they looking to maximize proceeds, you think, in your view, or have they talked about some sort of rollout obligations? Because presumably, you'd be willing to pay quite a lot of money to chase a 40% operating cash flow margin opportunity.
And then secondly, can you just update us on the competitive environment and which of the smaller players are actually doing a good job and gaining share in the market today?
Yeah. For the 3G auction first, I think the Pakistani government in such a state that they want to maximize what they can get from the license. They have some rollout obligations, et cetera. They are also discussing whether this auction should be only for 3G, 4G or LTE, or that they should split it up. But they are just about to finalizing a new consultant to make the information memorandum. It's pure speculation for me to say whether it will be this or that, but there's no doubt that the auction is an important part to close the deficiency or the lack of money. What was your second question?
The second question is on the smaller competitors.
Yeah.
Which ones are doing well?
I would say that Zong launched in 2008, and for the first three years, I would say they didn't do a very good job. But there's no doubt that they have picked up, I would say, a lot through the last nine to 12 months. And they are primarily hurting Warid, who has been more or less quiet for the last two to three years, and Ufone. Ufone may be most because they have been very active. They are spending the most on the marketing activities. They are most active on the gross adds, but they have a huge churn, so they need to be very active on the gross add side to close the hole in the bottom of the bucket.
But, Zong is primarily, hurting the two small ones.
Thank you.
Okay, next is Maurice Patrick, and I think we have time for the last question, which will then be from Andy Parnis.
Hi, it's Maurice from Barclays. Question relates to return on capital employed. So you do actually, I think, later in the slide deck, talk about the group return on capital employed. You're clearly talking about much increasing returns coming out of Pakistan in the coming years. I wondered if you could share any insights into them and what that implies in terms of your returns on that capital you're making in Pakistan.
I think I'll leave that question for Richard to come back to later today.
Okay. Sure.
Hi, yes, Andy Parnis from UBS. Just a quick question. Given Telenor's ownership or stake in VimpelCom, I just wondered, do you have any discussions with the management at Mobilink at all around potential cost saving or procurement or network sharing, to sort of benefit both of you in Pakistan?
Not at all. I mean, we fight as hard as ever on ground. I don't think those kind of discussions will be taken in Pakistan. If those discussions should be taken, they should be taken in this part of the world. So we are fighting like there is no tomorrow, every day with Mobilink.
Okay. Thank you, Lars Christian. Lars Christian will also be available at the breakout sessions later today.
Thank you.
The next speaker here today is Jon Eddy Abdullah, CEO of dtac in Thailand.
Well, great. It's nice to be here, and thanks, Lars, for the introduction. The last time I was here, I was a member of the management team at Telenor Pakistan, and it's good to see that Lars hasn't let me down. He's continued to deliver and actually raised the bar, so well done, Lars. Today, we'll take you through dtac, the Telenor operating company in Thailand, focusing a lot on the industry, 'cause we're going through a change from concession to license and primarily around data. So we'll do a deep dive on data. Pakistan, starting out with two hats on. Thailand is a wonderful place to live. Great population, 64 million inhabitants, the Land of Smiles. A very resilient population.
As you know, in Q4 last year, we had quite a devastating flood where we took the GDP down, and slightly negative. But we came out of that flood situation, we have positive GDP. Inflation is still very low at around 3%. And, and really, as in near future as that flood was, we rebounded quite nicely with very little impact on, on the mobile operations. But the Land of Smiles is, is also interesting when we get into the mobile industry. I can only say it's dynamic, it's changing every day and, and never a dull day. The great part is we now have a regulator, the NBTC, which has a much stronger mandate.
This regulator has both broadcast and telecoms under his wing, and he has followed, I would say, a very regimented process towards licensing, not only in our industry, but also in broadcast, radio, and TV. So the one bright point is the regulator is much stronger with much more government backing. Remember the concessionary structure that we've operated under the last 20 years. This is the issue for the challenge in the country, moving from concession to licensing and all of the vested interests that we have with the different stakeholders, whether government, state-owned enterprises, ourselves as operators and consumers. There's a lot of things happening here as those concessions run out. The first one, TrueMove, comes out of concession next year.
AIS, the number one operator, next year on part of their spectrum, and the other part in 2015, and ourselves in 2018. So much of the challenge that you see competitively and legally in the country is around this migration from concession to license. If you look at it from a marketing standpoint, fairly stable market, three big players, very traditional. So from a competitive situation in the last year, I would say, very good, stable market, in terms of tariffs and competition. We're the second operator. We have slightly over 23.5 million subscribers. Our subscriber market share is 30%, with revenue market share slightly higher at 31%. Last year, we climbed over THB 79 billion in revenues, slightly over 10% year-on-year growth.
The growth last year driven primarily from the move into data and our investment into 3G, 850, which I'll go in, into detail later. This has delivered very healthy cash flow margins, THB 10.5 billion in the first half of 2012, even on the back of our network modernization project, which we will finish this year. I mentioned earlier that 3G isn't about now in licensing the 2.1 process. This was actually started last year when the three operators upgraded current concessionary assets into 3G. So dtac launched an 850 network, True launched an 850 network, and AIS converted some of its 900 spectrum to 3G. So the 3G branding battle and a more customer battle started a year ago. Great investment for us.
I think it was well worth the fight to get our 850 upgraded to 3G. This resulted in 90% year-on-year data revenue growth. Had we not done that, this definitely would have been under challenge. It is a mature market in terms of SIM penetration, now 126%. What we're seeing is the incremental net add, upcountry or rural subscriber, is very limited. So we're seeing a lot of rotational churn, but very little incremental net adds. We are seeing double and triple SIM into devices now. I myself have five devices running, whether that's a laptop, a phone, a tab, and also Wi-Fi in my car. So we see a lot of multi-SIM, and we're selling a lot of multi-SIM packages based on the number of devices that people have.
As you can see in the lower chart, the growth has returned, revenue top line, strictly on the back of, of data and fundamentally on the, on the investment in, in the 850 network. Interesting statistic, 35% of internet users are currently using their mobile phone. It's a little bit of a, a split story. Upcountry, just like in Pakistan, the mobile phone will be the first access device to the internet and the most common access. And I'll come back to that on the next slide. But even in the highly dense urban areas, what we're seeing is the untethering of oneself from the fixed network to the mobile network to be always on and connected, given the new devices that we have. What's driving data? And I think in, in, in dtac's case, it's specifically social networking.
Thais are a very social people, and they like to communicate with one another all day long. Bangkok is the number one connected Facebook city in the world today. Not only are they the most connected, they access Facebook 2000 times a month on average, either posting or voting or talking. So when we look at those statistics, what you have is a migration from voice to data, specifically into social networking, and where you could talk maybe once or twice a week on average, you're seeing multiple times of data access a day based on social media. 70% of all internet users have a Facebook account, and this is climbing as we get farther upcountry, our rural penetration. The smartphone, we do not subsidize. That's being taken care of by itself in the market.
Smartphone upgrades are very healthy, 67% increase just over last year. We currently have, of our 22 or 23 million customers, four million 3G devices in the network and growing at a very healthy rate. So the smartphones are not being subsidized directly, but what we're doing is giving very healthy plan options and data access. I like this chart because it really shows the opportunity going forward, and I'll start in the center of Bangkok. Mobile penetration, very high, 98%. Mobile data, 17%. So a lot of room in the most developed part of our country. Then, if you look at fixed line, voice, and internet, even in the most developed, very low numbers. And now, as you look around the country, you can see the opportunity in moving to mobile data as a function of voice.
So we've well-penetrated voice. Data is coming up strongly and so much room for growth. And we believe that this is going to take years and years. So I would say it's a substantial growth potential for years to come. We made the move from voice and SMS fundamentally last year. And I know that everyone says that, but dtac was built for the high growth curve of selling SIM cards. We were a growth-selling machine. We're focused on voice and SMS. And given the, I would say, revolutionary change to 3G that we've gone through, it wasn't an evolution like most countries go, given the turbulence that we've had. We had to quickly move to data, and we had to quickly move from emotional branding and positioning to very focused segmentation and also very content based type pricing and offers.
We did that, I think, quite successfully, as you can see in the results. So what we're doing right now is we're micro pricing, specifically on content-based items such as Facebook or WhatsApp, get our users into the internet space and then expand it, whether that's through search or education or e-government. So the first ticket in is social media. I'll come to the next slide, which is the other part of the ecosystem, which is pricing. The common customer in Thailand carries about $0.40 or $0.50 worth of balance at any one time. So they don't have much on a day-to-day basis. Very sachet purchasing. What we've done is tailored one-, two-, and three-hour packages. Our customers then buy as they need. They may buy multiple packages a day, multiple packages a week in the prepaid segment.
If you go from left to right, we have also unlimited packages, both pre and post, and this has fair usage. So we branded it as unlimited, meaning you have connectivity at full 3G speeds. Once you go through your allotted bucket of minutes, we throttle you down considerably so that you are then offered a booster package. So again, unlimited in principle and then allowing you to turbocharge yourself back. Growth is very good, 163% on the prepaid and over 740% on postpaid. This has resulted again in return to top line growth, primarily on the back of data. The one number that we measure, I would say, daily, is our revenue of data to total service revenue.
We believe that this growing above our competitors, and then eventually leading to a number one position, really sets the company in a strong trajectory for the future. So right now, we stand at about 18% VAS service revenue to total revenue. This is growing nicely. If we keep up this trend, we could pass the number one operator in Q1 of next year. What's driving this is pure internet access and social media, so 57% of the VAS revenues are coming out of data, data access. The largest component of our cost is on revenue share. In September of last year, that was raised from 25% to 30%. So 30% of gross revenues are paid to our concession partner, CAT. Underlying is the things that we can control.
In 2010, we implemented a very strong cost program that continues today. This will fundamentally change when we go through the licensing process in October. I'd like to come back to you at that point, once we have that license in hand, because it does change the structure of the company, and I think we can be much more clear on the years ahead and how we address cost overall. But we are still doing well. As you see, the things that we do control are downward trending. Now, moving from voice and SMS to a data company. That's not just the offer. We needed to do some, I would say, major upgrading in our company, the way that we perform, and the way that we offer our products and our people.
First of all, network, and I'm going to focus on the network upgrade, but it's not just the network upgrade. It's billing, it's CLM, it's business intelligence, it's even financial systems. So a major amount of work to prepare ourselves after licensing and for the data effort ahead. We're going through all of our customer touch points. The picture there you see is the new shop, moving from not only service, but also sales, and all of the customer systems to make sure that we're more customer-centric. And then our people. Again, we were built for a gross add machine, voice and SMS. In the more complex value chain around data, we definitely had to reinvent ourselves. So what are we doing on the network? In 2010, we announced the network upgrade.
This was a complete 2G radio and core upgrade. We are well on our way, and we will finish this year. The core is already done. We're upgrading about 300-400 BTSs a week right now. We will finish in 2012. We also upgraded our old analog network to 3G. We will complete this in November of this year. 5,000 3G sites operating in the country, covering 55% of the population. What this does is give us a very efficient rural coverage platform and also a deep in-building platform in our urban areas. So 850 is a good investment today and in the future. It also allows us a hedge in case there is any disruption in the 2.1 process.
We are fully capable of offering 3G services in the event that that would be disrupted. Underlying, we've also added Wi-Fi to over 125 shopping malls. Our youth and a lot of adults spend weekends in the malls. It is cooler there and a little bit more fun to walk around than the streets. And we're offloading our peak traffic onto Wi-Fi in a very efficient way to reduce CapEx spend on the network. And lastly, I want to address the network reliability that I know many of you have been following. Over the last nine months, dtac has taken five major network hits, and that is getting mixed up with general network reliability. And I want to go through those five hits so you can see that they're not correlated.
There's not a fundamental problem with the network. The first two were HLR faults. It was the migration from the old to the new, and this was the last week of December and the first week of January. The core issue is our HLR was fundamentally undersized for the large growth in traffic around smartphones and 3G. That was not built into the original plan, so we doubled the size of the HLR. That was completed in March, April. We haven't had a problem with the HLR at all, running at about 30%-40% utilization. The next two events were fiber cuts, taking double fiber cuts to the northern part of the country and the southern. So we added a third route. This has been completed. Very unusual. All of the fiber is aerial.
We were taking a lot of vandalism and accidental hits, so we added a third route. That's been covered. Most recently, human error. A technician in one of our switching centers performed basically an unauthorized addition to the network, which took down some of our routers. Very high profile, very difficult for my staff, very difficult for me, personally, but that's not correlated into a fundamental problem in the network. Our network statistics are generally better every day. The reliability generally is stronger, and our comparative drive tests against our competitors, we come out number one, so I'm very happy with the performance, generally, of the network. Going into our customer touch points, we're upgrading over 300 shops to a combination of sales and service, and this is a picture of the very first one.
So we'll have 50% sales, 50% service. We do sell devices, unsubsidized. We sell the hero devices, the top 10, and we couple that with our packages and our promotions. About 80% of all of our device sales come with a package with them, so very good combination, and it was one way that we could meet total needs of customers. They want to be served in one location. They want to make sure that their phone is set up for voice, SMS, data, email, et cetera, and they want to come back in case it doesn't work. So we have a single point of service for our customers. We coupled that with an agreement with Brightstar.
They handle all of the purchasing for us and the logistics, so we're focusing on picking the right 10 or 12 devices and selling them. They take care of the back office. We're changing the billing system, as you've heard, pre and post, and we'll have the capability to de-bundle, rate, and sell ahead of competition. This comes in in Q3. Distribution management system that you saw in the Indian slide, we have upgraded that to even more capability. This comes online in Q4 and Q1, and this gives us very specific retail information real time. The BI system is also being upgraded, comes online in Q1. This will give us the capability to micro-segment, be much more competitive BTL.
And we implemented a new online sales team, which consolidated all of our web pages, all of our social network pages, and will now start to sell devices and packaging online as we go into a more online world. So I think the customer-facing activity, very, very solid piece of work for the future. And finally, people. We just completed a complete company restructure, simplifying the value chains that we had, making sure that we have the right people doing the right things. And what this amounted to is taking a huge amount of middle management out that was just adding complexity to our process. That was completed in September.
We've also implemented what we call the dtac Academy, so our training programs are now in one spot, and we're able to train people for what we need to be good at in the future. Significant amount of effort on management and leadership. The top 45 people in our company are with me a lot on coaching and mentoring to make sure that we're preparing them in a much more integrated KPI measurement forum, much like you saw in the Indian presentation, so very close to our employees in the market. And finally, on the front line, this is an initiative where over 3,000 of our employees will have the chance to serve customers directly. I don't know if any of you have ever answered a customer call in a call center, but it's kind of scary.
I had the pleasure of doing that for a couple hours the other day. It started out, I was afraid, and it ended up being, I want to take another call. I can really help solve problems. We also have one where you go down to the service hall and you service a customer directly across the counter. That's pretty scary also, especially when they're not happy with you. But we're doing that with 3,000 employees. Call center, sales, in our shops, in our optimization teams. The whole purpose of this is to get our employees close to the customer so that they understand the need when they go back and work in the day-to-day lives, even if they're in the back office. Extremely successful, and I think it's really helped to create one dtac, one unified company. The transition from concession to license.
We're tracking very nicely right now to an October license. Last date is the 15th or 16th of the month. Things are still looking good for that. What this really amounts to is being in charge of your own destiny now. Under the concession, we have a BTO, build, transfer, operate, and we pay 30% revenue share. Now, we have a license that we own. We buy our equipment, we own our equipment, and we go from 30% revenue share down to 5.75% license fees. Now, obviously, the transition from 30% to 5.75%, it takes time. It's a function of how fast we build the network, how fast 2.1 devices get out there, how fast we can migrate customers from the old company to the new.
So there's a lot of work here, but this obviously has significant impact on the cost structure of the company. Fingers crossed, we should get through this in, in October. So where does this lead us? We'll stick to the guidance. Single high-digit revenue growth for the year. CapEx closer to the NOK 9 billion mark, leading to operational cash flow, NOK 18 billion-NOK 19 billion. So we'll stay firm on this, for the moment. Ambition, I'd love to be more specific in ambition, and I, I definitely welcome back to you in, in Q4 here. But underlying, clearly, take the number one data position, take the number one small screen position in terms of our competitors, and make sure that our service revenue on data is ahead of our competitors. That, that to us is the key issue. We have been soft in voice.
This focus on data did leave us a little bit soft in voice, and we're gonna come back and fight hard in the coming quarter to regain that. But we must do better in voice because it still does contribute a majority of our revenues. So that being said, I think we are laying the bricks for a really solid company going forward. We have converted from voice and SMS strongly into data, and it really is up to the management team and the company now just to execute what's on our plate. So if we can get through October, things look good. Thank you very much.
Thank you, Jon. I guess there are some questions to you as well. Let's start somewhere here, this time with Jakob Bluestone. After that, Andy, and we have James Britton over there.
Hi, Jakob Bluestone from Credit Suisse. Two questions, please. Firstly, you mentioned at the end that you'll be focusing more on voice. I mean, generally, given that you've seen very strong growth in data revenues, can you talk a little bit about whether you're seeing cannibalization of your voice revenues? You mentioned, obviously, very high usage of social networking. Are you seeing pressure on SMS, or are you seeing pressure on voice calls as well as a result of that strong growth in data? And then secondly, could you talk a little bit about what you will be doing to drive the sort of migration from a 30% concession to a 6% concession? Would you look at introducing subsidies or pushing subsidies more heavily?
Sure. On the first one, we don't have much revenue on SMS, so I'm not worried about any SMS issues. WhatsApp isn't, isn't much of a threat, and we're still messaging okay. WhatsApp hasn't had hardly any impact, I would say, on SMS. And again, given the low, total, revenue in that area, not a worry. I'm not seeing cannibalization either, to the degree that you would think. Remember, a majority of our population is still voice users upcountry. We're talking primarily about Bangkok and some of the more urban, dense areas where there could be some cannibalization from voice to, to data. But a lot of the upcountry, users are very voice-centric still.
When I say we were a bit soft, we lost, I would say, some competitiveness in this area, rurally and upcountry, and we needed to come back and be much more on- net centric. We lost an on-net position that we had really had for some time, and it was more of a competitive issue. I think some of our competitors also have technical capability to outdo us in BTL, so we need to be much more stronger BTL in very micro-segmented campaigns. So I guess to sum up, we went a little bit soft in voice, and I still believe in voice. It's not something that I'm worried that is just downward trend because there is such a population that still needs it. To the second question, that's a two-hour discussion.
The move from concession to license is a fundamental change, not only in the industry, but in the company. You have to physically move customers from one HLR to a new one. You have to have consent. You have to have 2.1 devices in their hands, so they actually can access the new licensed network. You have to have access of the licensed network back into the concession network because we don't want to rebuild everything. We only want to rebuild the radio part, so you have to have access agreements. There's a lot of work here, so it's not just an October license, next day, costs collapse, and away we go. So it's a very long discussion.
I think, what I'd like to do is wait till we get through the auction because we're near a freeze period, and then we can be much more clear on that.
Okay, the next one was Andy Parnis. After that, it's James Britton and Stefan Gauffin and follow newsletter. Okay.
Yeah. Hi. Hi there. It's two questions. The first one was just on the network fault issues.
Mm-hmm.
So what impact have you seen in terms of your gross ads? I understand there has been some brand damage to the brand in Thailand.
Yeah.
I wondered how that's impacted the gross adds over the past couple of months. The second question was on CAT and TOT. Given they're going to lose the vast majority of their revenue over the next couple of years, as they lose the concession agreements, how do you think they're going to react, and how do you see that sort of playing out in the competitive landscape in Thailand, in mobile?
Yeah. The first question, obviously, a lack of trust. I think we really have to work hard with our customers to regain the trust. We have to do that with time. It's something you don't just market your way out of in a quarter or two. So the first thing is make sure we don't have any more incidents. I wish that we had a common theme through this, so I could harden something, but the issues have been very. Have we seen softness in gross adds because of it? I would say yes. It has had an impact, primarily up country. Again, this voice segment. Their needs are basic. Is it on, and is it there all the time? So it has had some impact on the gross.
If you look at the churn and the number portability, we don't see it to a large degree. Number portability, we were positive as early as a month ago, so there's not a net negative on portability, and the porting numbers are small to begin with. Churn is up a little bit, but I would say it's very cyclical to what we've seen in the past, so I don't see an incremental churn to material impact. It's more of trust, and when you talk to our customers, they look at me and they say, "Jon, you guys are better than that." And it hurts when we hear that, so we've got to regain the trust. And the second question again, if you could?
Yeah, sorry, it was on the reaction of CAT and CAT.
Yeah.
Lose the concession.
Yeah, obviously, this is a major part of their revenue streams, and, and we're also worried about that. We don't see that there is a life without TOT or CAT in the industry. They, they must continue. It's a lot of employees over there. What we're doing right now is, first of all, try to get the access agreements with our our partner, CAT, so that there is revenue ongoing. Now, remember, in our in the concession, the revenue goes from CAT directly to the Minister of Finance next year anyway. So it's not even a function of, of license, it's a law that that revenue will go straight to the, the Ministry of Finance. So they had to find a way to survive in 2013 on.
Whether that's being a network provider, whether transmission or tower, or whether that's doing some other things with their assets, they've had to present their model to the government as early as last week. What can we do? We're working with them right now, every week, to find models where there is a win-win opportunity. But I would say that right now, that's quite difficult.
Okay.
Thanks. James Britton from Nomura. Can you clarify your expectations for any potential new competition coming out of the 3G auctions? Is there a provision for, for new entrants?
Sure.
Secondly, can you just clarify which networks fall back to the government post-concession? So, I mean, is there any scenario under which margins should not significantly increase.
Sure.
CapEx obviously would substantially increase as well, as you develop?
Sure. Sure. I'll answer the last one first. The concession's in for True next year. As you've seen, that they're trying to do some deals with CAT and what life is for them after concession. That was how to do 850 type access networks. Those have been challenged by the government, so we need to let that run out. AIS has some customers on the 1800 network that'll run out next year, but the vast majority of their customers are on 900, which goes back in 2015. So they have time to solve this problem. Primarily, licensing is the best way to go, and then hopefully, the 900 spectrum would be auctioned off in 2015.
Ourselves, we have until 2018, so there's two events to take place to set precedent before us. So on the negative side, we have higher revenue share, but on the positive side, we have a few years to figure this out. And if we go into the license with a positive outcome, then we can also migrate and have life after concession. So I think it's okay right now. We just need to let it sort itself out with True and CAT being the first one out of concession. On the competitive side, the first question, the reserve price for the license is THB 4.3 billion per 5 MHz block.
That's quite healthy, considering that we have three strong incumbents that need spectrum, and they need a path out of concession to licensing, so the need is there. The cost for a new entrant, high, THB 4.3 billion, 126% SIM penetration, no distribution network. It would be pretty tough business to jump in, and then given all the uncertainties and challenges in Thailand. So it's always possible, but I would say difficult for a fourth.
Hmm. Next one is Stefan Gauffin, and I'm afraid that has to be the last question of this session.
Okay.
Mm-hmm.
Thank you.
Just to follow up on, here.
Yeah.
Just follow up on, sort of the move from 2G concession to 3G. You mentioned several steps that could cause a delay. The first one was time to build a network, but you're already swapping the network, and it's a multi-band radio network, so that should not be the real delay.
You have to get the radio access out there. So our cards, our card cages are 2.1 compatible. So if we have an access agreement with our concession partner, we could slip a 2.1 card in an existing cage, and if we have access to all of the other elements in the network, it can go really fast. The first coverage requirement is 50% of the population in two years. If we have access, that goes extremely fast.
The second one relates to smartphones.
Yeah.
I guess, I mean, 2.1, it's a global standard, so I guess that all the smartphones sold are already 2.1 compatible. So how large proportion of your subscriber base have smartphones today?
Yeah. Right now, let me. I'll give you some statistics. Of the 23.5 million subscribers, four million have a 2.1 or 850 device. And of the four million, two million are 850. So there's two million 2.1 devices only, that if we had the network could come online as soon as they're in a 2.1 area. And then what you see, obviously, is the high growth right now in the migration from feature phone towards smartphone. It's happening in the market without much stimulation. Will we stimulate that? I would say not on the handset side, but more on the access side in cheap bundles with the device, but not towards the device directly.
Okay. Thank you.
Thank you.
Thank you, Jon.
Thanks.
There will now be a short break, and we will be back here in 15 minutes. We'll then take you into the last part of today's program, which is digital services and the financial priorities of the group.
Welcome back to the last part of the program here today. We will start with giving you some insight into what we are doing on digital services. That will be first presented by an introduction by Jon Fredrik Baksaas, followed by a presentation by Sven Thaulow and Jon Eddy. After the last presentation, there will be a short Q&A session before we move on to the last presentation today on financial priorities. I would then like to invite our Group CEO, Mr. Jon Fredrik Baksaas, to the floor.
Thank you, Marianne, and glad to be back, this time with the mobile phone. It's okay to feel fully dressed, so that's part of the game in this industry. The digital services, what is that? Well, that's a huge subject in itself. But think of it, and in particular, those at least on average age in this room and upwards. And now you can count for yourself, and you can decide which bracket you're, which segment you're in. But think of it, when you got the first mobile phone, it was about, as I said previously today, it was about coverage.
Then came sort of the smaller handsets and the handsets with more functionality, and then came the iPhone, which, in a way, put up a full revolution to how the mobile phone serves us as customers. In a way, what was verticals before got a sense of OTT, over the top, a new layer, where huge amounts of innovative ideas started to formulate. In that sense, customers also followed the same trend. Rather than be looking at what was done in the last decade of the last century, to put it sort of in big terms and in big words, coverage was no longer sort of the number one feature that customers were looking for when they were buying their mobile phone.
Does that mean that coverage is unimportant? On the contrary, the capacities in the network, both from a coverage perspective and not the least from a capacity perspective, is actually more key to see that new world of applications and services being delivered into the pockets of every customers as before. So, when Eric Schmidt basically thanked the operators for a good platform for entertaining new customers with new services, then he is pointing to the ecosystem which is in play. The interrelationship with high-quality networks, good capacities, good coverage, up against service platforms that deliver services that people want.
I got the question also here today, is it so that operators will be left out of being profiled at customer level because connectivity will be available from left, right, center? Well, I don't think that is the case. I think we have to look at that in a different setup. The ecosystem has got new points of engagement between players, and we can develop new efficiencies together. If we are going to see a strong service development going forward as well, then CapEx and investments into networks are as important as before. Investments needs to also have its revenue stream, and if that revenue stream is not seen, those investments will not happen.
There is an example of that already, where I will argue that the United States basically has surpassed Europe in thinking in mobile terms over the last couple of years. Where regulators in Brussels have been more concerned about the next euro cent reductions in the connection rates, whereas one in the United States have taken decisions which have led to both technology deployment, higher percentage of penetration on smartphones, and new services to be consumed. And I think it should be thought over again, what kind of role the telecom sector could be playing in that sense, to bring some optimism into the sector again, here in Europe. But so much for that. We believe that the telecom operators basically are having at their disposal a whole set of assets.
These assets are, of course, linked to the network quality and what we do, but also to the customer management systems, and what we treat on behalf of our customers. That brings us into a potential new innovation layer. We should be thinking of digital services as our initiative to strengthen those elements that we can bring on top of what we already deliver in the existing markets. Or we should also think about what kind of new services can we use our assets in the different marketplaces to push in the markets, and you will get some examples on this now. In this group, we also have a part of an entertainment dimension through the broadcasting business unit.
We haven't talked that much about this, this today, but, in the shadow of, this big business model around mobile communications, Telenor Broadcast has also developed its presence and delivered good, margins and progress for themselves. And in this field, when we're talking digital services, there are some dimensions of, what, we are doing in Telenor Broadcast, basically, that has a bit of convergence into this field. This area isn't that easy to penetrate, and to, really describe this in one fashion that, basically everyone subscribed to, hasn't proved, that easy. If you go back to Barcelona, to GSMA convention in Barcelona in, in February, this topic is all, all over, the place.
We try to follow that kind of discussion, but we also take our own choices. We have made some choices in Telenor, which I tend to describe as being a little bit more aggressive into this new world than what I perceive that continental European operators are doing. I think to sit and watch and to rely upon Brussels to sort of fix this from a regulatory perspective is a too weak position to take. We should also participate with our innovation kind of capabilities, and see whether there are some moves that we can take to strengthen our customer relationship, as well as building new revenue streams.
So, and we have taken the choice that we will do this together with others in partnerships, and we have already signed some partnership agreements, where we take communication services into and make it part of OTT offerings as such. So both Google and Facebook is on that horizon for us. Opera is also there, being a phenomenally effective browser for, in particular, feature phones. But the need for the same kind of efficiency on the smartphones is of course also there. And some companies in our group, as well as with VimpelCom, are having pretty strong relationship to Opera in order to bring forward efficient deployment of internet services to our customers. Concepts in here will be cloud-based services, service as a service, so to speak.
Is it so that the world really moves in that direction, that people and, in that sense, customers and SMEs, in the first place, will they be willing to buy their ICT needs as a service in the net? And are we capable of capitalizing on our position on communication services towards that kind of customer segment, and extend the service offering into value-added applications, highly standardized and then also delivered to the customers in a secure environment, because security will play a more and more vital role here. People want to make sure that their data is properly protected, and that only those with access are getting at them. Number two, global backend. We have decided in Telenor that we in digital services have developed a global backend. We have done that, and it sounds wonderful.
The question is, what do we use it for, and how do we deploy it? And, if we can offer one point of contact, both, contractual as well as, physical between the networks in the Telenor group, then we have probably an advantage to an OTT player with a good service, to reach out to our 11 marketplaces. And in such a global backend, we don't necessarily need to think of only the 11 companies in Telenor. We could also think upon other, operators out there in a cooperative kind of, setting. The challenge here then is to build in relevant services of high, value to the local marketplaces. And when we signed, our agreement earlier this year with Google in that respect, we, we probably saw sort of the golden opportunity of rolling, Telenor applications locally into local marketplaces.
However, two type of delays apply, and that is Google is not ready on their side to sort of plug this into one value chain, and we are probably not ready company by company, because there are integration issues that needs to be done in each and every OpCo in order to make use of what we're good at, namely, the billing service and the customer relationship, and not the least, the distribution part in each and every market. Today, we will—these are examples. Up left, a kind of Spotify, a WiMP kind of service in Asia that brings local music to our customers. We have already launched Wikipedia as a free introduction services to customers that are not so used to browse at the internet through the mobile phone.
We signed that also in connection with the GSMA happening in February, and we've done with Facebook in dtac. Here in Norway, we've done a security initiative with the banks, which integrates a proper authorization mechanism into the mobile phone. It connects and authorize me as a unique user to my bank account. And this kind of security mechanism, the identification of and certification of proper the right user to the right application will be more and more sought for, we believe. And these initiatives, they will probably have an industry standard, but they might also get national standards as we move along.
I hope there are people in this room that enjoys the benefits of having the BankID embedded on their, on their SIM card. And just for the sake of curiosity, how many of you have that? Well, not bad to be in Norway. If we exclude sort of non-Norwegians with, I think we have a good percentage here, which means that you are at least curious on the new things that we bring about. Thank you for that. So to conclude then, and to get over to some more practical stuff, we want to move in what we believe creates a stronger position with our existing customer relationship. There are 150 million customers out there. And we believe that since the world goes digital, we have a role to play in that development.
We have an extensive distribution network in all our countries, with accumulated more than one million points of sales. And of course, as Lars Christian was telling us about financial services in Pakistan, a lot of these points of sales are enabled also to handle financial transaction in a country which is so strongly unbanked, where only 20% of the population is considered to have a bank account. And then, of course, we immediately understand that this is a vitally important platform to create more micro-based economic activity, one by one, person by person, village by village, in Pakistan. Then, the API sets that we can make available in order to have others to be innovative, based upon elements from customer usage, which are relevant for them.
And here we have the billing relationship already, both through the prepaid concept as well as through the postpaid. And of course, the SMS part of it plays again an important role here. So the accumulated experience in this group should be, and I would, in a way, not only say should, I would almost require that our OpCos think in these terms in order to be aggressive on maintaining a long-term, sustainable customer relationship, rather than sink into the risk of a kind of wholesale competition, which is a kind of bust description on how this industry also could trend.
So to get over to the hard stuff here, now we're going to have a couple of presentations, first from Sven Thaulow, who is working with consumer OTT, how we integrate also communication services, but also new dimensions into this by thinking also in moving pictures. And we will have a look through Jon Eddy, again, taking the trip from Thailand to give a description on how we think on financial services. So why don't we move into that? Sven, your turn. Thank you.
Thank you very much. Then I'll, I'll bring you shortly through a couple of slides showing what we're doing within the consumer area in digital services, also called consumer OTT, over-the-top services. And then I'll show you some demos because I think it's quite important to see what we're doing, not only seeing slides. We're working on three main areas within the consumer space in digital services, and you can see this as more or less as three different startups with different fairly small teams of engineers and people from marketing side working together. All these areas are core areas for Telenor. The first one is what we're doing on film and TV, and as Fredrik said, we are a large TV distributor, among the largest ones in the Nordics today.
We have extensive history on, on dealing with these kind of services on different kind of access technologies. So IPTV, it can be cable TV or satellite TV. But here we are doing the same thing we're doing in all different kinds of services and digital services. We make them available on any kind of device, on any kind of network. The second area is communication services. It's exactly the same thing that we do with film and TV. We take the assets that we have in our business units, we make them available for the customer on any kind of device, on any kind of network. And this is a very important need from the consumer. I'd say that it's an absurdity that the only messaging service that is possible to receive and send on one device in the world is SMS.
The consumer use messaging services on all kind of different devices and all kind of networks, and that's what they demand. Therefore, we have to do something about it. We do the same with voice. The third area is we need to sell these services where the consumers are actually buying them today. Extensively, the digital channels for actually buying services is becoming important. The smartphones are driving this. The consumers are buying the applications or the services on the application stores. Therefore, like Fredrik said, it's so important for us to get these agreements with the players like Microsoft or Google, so that we will be able to sell our services to our consumers using our payment systems and actually get shelf space in their application stores. I'll get back to that.
So I'll go briefly through the two, the three different areas. I have to mention that the basis for doing all of this is that we have the global backend. So everything we do in the consumer side is built based on the global backend that we also built the last one and a half years. On the film and TV side, there is an extensive pressure in especially the Western Hemisphere, from the players that would like to be the new distributors of film and TV, moving from cable, satellite, IPTV, over to the pure internet. The best example of that is Netflix, that is taking a very strong position within the segment of library film.
But there are other players as well that have an extensive route in the traditional TV industry that is moving over to the pure Internet-based distribution and starting to take positions there. What we're doing here is really to leverage the fact that we have consistent positions within actually content acquisition. We have big, good network in, especially in the Nordics, but now also building up in SEA and Asia. And we have the competency to actually deal with the business models on film and TV going forward. And this is the area that we've come the furthest, as this was something we had the flying start with when we started one and a half years ago, where we have now launched a very traditional transaction, video-on-demand service in, in Sweden, Norway, and Denmark.
And in Norway now, we're we have had both TV, and sports. Now we're working with a subscription-based video-on-demand service. On the communication services, which is really, really the core of what we're doing in Telenor, the I'm going back to the, what is the customer's need? And extensively, in certain segments, I think it will extend from many different ages. I think it's really about behavior, not age. People expect to get their services on communication, meaning voice and SMS or messaging, for that sake, on any kind of device, on any kind of network. The strategy we're using here is really that we are leveraging the assets that we have in our telcos, meaning that we're not going the pure over-the-top way. We're not fighting Skype directly here.
What we're doing is to actually make the core services that we have within communications better. It takes longer time than building an Internet-based service, but it's more powerful when you go out to the marketplace. That's our hypothesis. We've launched the most important customer problem as of today with a Norwegian OpC o, and it's the very banal problem that the customers have, likely: How do I transfer my contacts from one phone to the other? 80% of our customers do not know how to do it, and they have very big problems of doing it. The snag in that is if you get all the contacts of the customer, you extend the service to the next service, which is SMS. And then you can start to actually build communication around the contact or address book of the customer.
So here we have had fairly rapid growth, though in a small market like Norway. We're now hitting around 200,000 customers these days on that service. And then we have the SMS Plus. I'll show you that just down the road. And we have a voice application that I do not dare to show you right now. I'll show you that some other time. The third one is really the Google Play, and Fredrik mentioned that we had some challenges working both internally in Telenor, but also with Google. It's taking time. But there are two things that we're getting here, which I will repeat as it's so important. The subscribers are able to pay with their mobile phone or on their mobile bill for an application.
That's extremely important, and also taking into consideration the fact that in large amounts of Telenor's footprint, the customer do not have a credit card. So we can actually tap into a very, very important revenue stream on the end consumer. The other part, which is the distribution part, is that we actually get a shelf. It's not very visible on the right side here, but on the left side there, you see kind of a Telenor store within the Google Play. And there we can start to retail our own applications or partners applications. And for those of you that know people that have been working in the application industry, one of the major problems they have is that they drown in the application store within one week.
They might be on the top 10 list for a week, and then they just disappear in a big black hole of 300,000 different applications. That's a big problem. But then we can say to them, "Well, we can actually put you in our store, and we can lift you up amongst, like, 25 or 50 different preferred partners." That's important for them. And then we can get something back. Maybe we can get some benefit for our customers and so on and so on. So it's very important for us to build this distribution in the digital space of the end consumer. This is being launched in Norway, Sweden, and Denmark. When Google says, "Okay, we are ready," so it's really about them pushing the button and saying they're okay, and then we're going further on to the CEE markets.
Then we have discussions with the other, other, other ecosystem players, and they are very much the same. It's Microsoft, Facebook, and I won't mention the other one right now. Then I'll show you some demonstrations. I think that's important to show. And I agreed with somebody that you should send me an SMS right now. So this is my PC. So I hope no very private SMS is coming up. So is anybody gonna send me an SMS or not? No? Oh, Abraham, hey. He's sitting over there. So quite banal. It's just you receive the SMS, and you send the SMS. Okay, now I think I'm gonna block this. So I'll turn it off, show the text first, and turn off this one.
So for you that are a little bit technically interested here, we integrate it into the SMS gateway of the operators, and then we make it possible to actually send and receive SMS on any kind of device. So if you have it on your PC, you can sit on the airplane and send this if you have a Wi-Fi connection. And this hasn't really been done that extensively before. It's been, of course, possible to send SMS from web, but to receive it has not been there. So then we're actually, I would say, pumping life into the SMS, which is a really important core service for us. You can also do like this. Yeah, Abraham was there, so I could have just pushed it.
This is the same messages, everything connected into on, stored in the cloud, all the SMSs that I've sent to all different people. So here, you— What we can do here is also that we could send a message to the customer and say, "Well, if you'd like to have this service working perfectly across all your different devices, you should turn apply message." So it's kind of a counterattack, you can say it in that way. So we're not sitting still waiting for these guys to take our business. We're fighting back. Okay, so then we're doing this for voice as well. Please don't read more about my SMS. Okay, I'll go into moving pictures. This is the communication guys that are working, about 15 guys working on this currently, ramping up.
Now we will. I'll show you the film side. And this is a fairly traditional transaction VOD store that is currently now only available on Mac and PC, but rapidly going out on other tablets and mobile. I just hired a film, and I'll show you something that might be interesting for you because we're also working with the network guys in Telenor. So right here now, it's not very good resolution because that's adaptive streaming. So all the all our networks and your PCs or Macs or devices do have different processor capacity. You have different networks and so on, and different sizes of the screen.
So to at all point of time maximize the quality for the consumer, but at the same time, we network, went network efficient, we do use adaptive streaming together with the people that are working with the content delivery systems. Now this film went up from 99 kbps and up to 5.9 Mbps in fairly short time. When somebody else logs on this network, it might be, y ou know, you have to share. I'd say this is fairly good, fairly good quality. If you, if you think of it, this, this is film streaming. It's really, it's really quality that you can, you can shoot up on a, on a big screen, but it has to go up when you start to track back and forth. This is not very revolutionary. It's been in the market for a long time.
Telenor has used this, worked on this since for like, I would say, seven or eight years in the Nordics. So it's nothing really new. What is really new is what we do on the business model side. And if you look, if you push the Comoyo TV here. You see TV on the internet. Well, that's nothing new, but the new thing is that you actually have your whole TV channel package on the internet. And we have to remember that large parts of the younger population do not buy a normal TV setup box when they move in an apartment for the first time. What do they buy? They want a good fiber connection, hopefully.
If they don't get that, they want the coax, and if they don't get that, they really pray for a DSL, and if they don't get that, they go for mobile broadband. But they don't want anything else but the internet line, and then they choose their services. This is the way for us to actually become relevant for that, that customer segment. When customers are extensively using different client of, different kind of, tablets and mobiles, and so on, to watch the devices, and then we're just actually using the force that we're having through our broadcast operation and getting the rights to these channels. You will not get the rights to these channels if you're just a startup on the corner. You can't get access to Disney unless you actually have a position in the TV market, and that's what we do.
Then also, we have also with some of the TV broadcasters really see that distributing TV on the internet and being a distributor, there is actually a reason why there are distributors. Because you have to do customer care, you have to do billing, you have to handle all the service platforms, and there's not really just to— If you were a broadcaster, you just start being a distributor. So SBS in Norway, they chose to shut down their own web TV service and move everything to us. That's quite revolutionary in the Nordic market because they're all the TV broadcasters actually would like to be distributors themselves and bypass the distributors.
So this is why I would say that's a sign of a, of a sanity, but at least amongst quite a few of the TV broadcasters that actually need, also need distributors on the internet. So what's the deal with these kind of services and our business units? Well, the deal is that we started with music streaming in the Nordics. We started with Spotify in Sweden, then we worked with WiMP, now we're working with Deezer in CEE and in Asia. The next wave is what's going to happen on moving pictures. When we started this, like, two years ago, and we started, we thought about, well, you know, moving pictures is a pure Nordic game. And then we start talking to CEE, and we start to talk to Asia, and they say, "Well, we would like to have that as well.
We're building LTE and 3G, and this is coming along the way." Now the big players are launching all over, also CEE and soon in Asia. So this is becoming more a scale game than we actually thought initially, but now we really have to prove that it works in Nordics first. So that was more or less what I was going to say about what we're doing in the consumer, on the consumer side, and you got to see at least some of the things that we do. I'd like to hand the word to you, Jon.
Well, that's hard to follow, demonstrations and video. Wow! Now I feel like I'm under, underarmed. Why am I here? I have a passion for financial services. We started this journey in 2008 in Pakistan. Lars and I were there together at the time, and we had the opportunity, given the liberal, regulations, to take a majority stake in a microfinance bank. At the time, I think Lars and I felt we were getting into kind of a value-added service as something that was kinda cool, and it grew into something that, I think really touched the hearts of, of Pakistani people. We felt like we were, changing the way, that people get access to financial services and the impact on society. So it turned into a real, a social issue for us.
We saw as we grew and expanded that and got our reach out, that we were actually changing people's lives, specifically the unbanked. When I left Pakistan, I asked a group if I could stay on, so I still sit on the board of the Tameer Bank that we purchased, and I go in every quarter. It helps me keep attuned to what Lars is doing and also what we're doing on the banking side, not for my own self to keep educated, but the ability to take those learnings into Asia, into some of our other operating companies. So I'm representing the group today. Mobile financial services. You're gonna see data in the coming slides that say, this isn't just a value-added services, and it's not something that we kinda wanna get into.
The entire industry is chasing and going into this area. We spent the last 18 or 20 years in GSM and 3G trying to put a SIM card in a device in people's hands. We sit here today with smartphones and tablets. What do we use with this device? As you've seen with Sven, it's the ability to do video and the ability to mix voice and SMS and data, but it's also the ability to start to go into other industries. When you cross into another industry, obviously, that opens up a whole new section of the wallet, and we must be relevant. Do we believe that we can be relative? Do we believe that we can be competitive in those areas?
As we've seen in communications, as we've seen with internet access, people are untethering, and they're going to mobile. So as we look at anything, is that something that is applicable to the mobile phone? If you ask my daughter, you ask my son, "Are you gonna go to an ATM, or are you gonna go to a bank?" They look at me, and they say, "Well, if I can't go down to the corner and give someone money and then get it on my phone, what's the point?" So the youth look at it in a different way, and the unbanked need it for, for other reasons. So we sit on, on the cusp of something that's happening, and we believe that we have the assets to be, to be relative in this, in this industry. There's multiple different models.
If you look at what's happened in Africa, it's far to the left. Light regulation, more MNO type lead. Same with Philippines. If you look at what Lars is doing in Pakistan, he's more in MNO slash collaborative, acquiring a bank, working with a bank, working with two different industries and two different owners coming together. If you look at the past, that was more bank-led, and I would argue that those were more value-added service type applications. They didn't work so well. We were simply a conduit with some agreements, and they're low down in organizations. And that's something that I don't think has really the ability to survive or change anything.
Obviously, the more that you go to the left, that's where we create value, and the farther that you go to the left, the more value creation that we can build in this area. I also find that working with the banks, that we have ambitions, and we have understanding at the micro level in the mass market that they don't have. So it's even the mindset of how to address this market and what to bring to the market that I find moving to the left is a better model. So what's happening worldwide? Now, we see over 150 launches of some sort of mobile financial services in over 83 countries.
The definition of them goes all the way from, again, a VASP service, where you're a connectivity for a bank, backend, all the way to major investments in banks, like, like we have done in Pakistan. We also see over 90 planned deployments. So this is something that's not just a trend. I would say it's a tidal wave. Number of transactions, very, very early on the S curve. If you look at the number of banking transactions, whether Visa and Mastercard, these are very small numbers, but very, very early on the S curve. So what is the market potential, and what are we trying to do? If you look at the emerging market need, it's largely addressing the unbanked or the underbanked.
In the Pakistani case, there was no bricks and mortar to reach the masses, so they just had no access, and to get access would have taken a day or two of travel. So it's really based on a cash economy and giving access, giving inclusion. Moving to the mature markets, I would say more e-related, more youth-related, want to buy online and have it very simple, not going through multiple pages before you finally get to a payment screen that, for some reason, you don't qualify for. So this wide range in markets is something that we see in different, in each one of our countries. What's interesting, I could argue here that although they're vastly different, it's still the same issue. It's you want to have access, and in the Pakistan case, it's to not travel eight hours.
In the Norwegian issue, it's I don't want to get off the couch to go to the bank or to the ATM. It's still access. It's real-time access and convenience. On the opportunities down below, we're working on the youth side in dtac and in Thailand, how do we combine our banking offer with Facebook? How do you put the ability to transfer money on web pages that already exist, where people are all the time? How do we make it as simple as just point and click? In the Pakistani case, it's how do we get inclusion? How do we have over-the-counter transactions that are real time, and then how do we move over-the-counter to the mobile phone so that we give the same ease and simplicity to all customers?
So each market is different, but at the same time, to me, the base product is the same. It's building a real-time conduit for transaction or a cashless transaction. We have a wide range of markets. Starting in the bottom left, Pakistan and Grameenphone, which is mid-tier in terms of mobile penetration, very low rates of banking penetration. Moving up where Malaysia and Thailand are over 100% SIM penetration, but still relatively low on banking, and then the extremely mature Nordic locations, where high banking and high mobility. So there is no one-size-fits-all, and we address each one of the markets and countries specifically on the market opportunity, what does the customer need, and what is the regulatory environment in each area? As I mentioned earlier, why, why would we go into it, and why do we think we can succeed?
If you look at the top two blocks, customer relationships and trusted brands. We have more customers in most of the countries that we operate than banks have customers. We do transactions to the rate of five to eight transactions a month with our customers, meaning they either reload or pay bills or come to our shops. Our brands have recognition higher than most of the banks in the countries that we operate, and they're trusted. The game changer is distribution. Bricks and mortar in the banking model technically can't go any farther. There's no way to make a positive business. Our distribution network right now reaches all corners of every country that we operate in, and it performs at a cost base that's substantially lower than a bank. In dtac, our average transaction is $0.40-$0.50, and we can make money on that.
So whether we put it in a reload account or we put it in a savings account, or we transfer it to the other side of the country, it's really irrelevant. We already are making positive business at micro transactions that a bank never could. Technology. We have brand new networks, brand new IT stacks, we're probably as technically competent as any bank. Obviously, we have to comply with the regulations. Obviously, we may have to have more redundancy, but that's something that we can do and have done in Pakistan. We're in a regulated industry, highly regulated, and I would say it's as challenging as banking, so we're very used to working with regulators.
The challenge is now taking a banking regulator and a telecoms regulator together to address a problem which neither one was able to address before, and then convincing them that changing the regulations to meet that problem is good for the country. In principle, they all agree, but the drafting of those regulations, we found, is really quite difficult, and you have to be actively involved. The experiences that we've had. We've launched many, many banking products, whether those are cash cards, debit cards, in the Pakistan case, money transfer, bill payment, insurance. We have a lot of experience in many of the companies or the countries that we operate in. So we believe we have a suite of assets which to lever. Not to rehit easy again, but what have we, what have we learned?
Over the last three years, product development, pricing, how to do slab pricing, how to go to market, how to brand that in conjunction with mobility, what works, what doesn't, how to lever the distribution network, how to do training, cash management, risk management. All of these things over three years, I would argue that the people in Pakistan, our staff, is probably the most knowledgeable on the planet in terms of mobile financial services, and that's something that we can export to our other operations, when and if we need. It goes without saying, the brand awareness is high at over 80%. This is higher than some of our mobile brands. 18,000 agents, that was larger than every ATM and bank branch in the country the day that we launched.
In dtac's case, the day that we launched, we would have more access point than all of the bank branches put together. It's resulted in 160,000 transactions per day. That means the word of mouth and this becoming a norm in the country, is really so. So I believe that people are starting to trust that easypaisa is a banking brand, and they trust that their money will be taken care of. And then the rub-off or indirect benefits to churn management, innovation, and increased brand awareness, it all comes through. So what have we done specifically? In the Nordics, primarily M Wallet joint ventures, and as you just saw, some ID-type services. If we move into Hungary, more bill payment type activity. Serbia, bill payment.
Serbia also has a liberal regulator, so there is a potential to do something with the bank there. Montenegro, bill payment. In India, I think we have enough challenge there, so we'll probably put that one on hold for a little bit. Pakistan, you've already seen the story. Money transfer, bill payment, microloans, insurance, and savings. Bangladesh, primarily bill payment, moving to money transfer. In Malaysia, we have cash card. We're working on joint venture with a potential partner to address migrants and the youth to become the largest digital bank in Malaysia. And in Thailand, we have had very in-depth discussions with potential joint venture companies on how to go to market together. We acquired a small company called Paysbuy in 2008.
We have the licenses that we need to go to market with payment and, and money transfer-type products. As we advance, these discussions, we want to get more, advanced products. We may implement the joint venture, but right now, we can go to market next year, very much like easypaisa, same type of product. If you start from the left side of the slide, moving out of our core business of mobile comms and going to the right, I think it's fairly safe to say that, transfers, debit cards, remittance, e-wallet payment, that's pretty safe. But when you go to this next tier and the following tier, the more advanced products, balance sheet products, loans, this takes a relationship with a bank, whether in a joint venture or an acquisition. We don't see this as a quick process.
We see it as a very evolutionary process. We can manage the risk as we make sure that customers are used to banking services, and they pay at micro levels, and then we can stretch loan amounts in the future. But again, this is a very evolutionary process where we can take incremental steps. Obviously, I wouldn't go to the Group CFO and say, "I'm gonna put the whole balance sheet at risk by opening up for loans tomorrow." I don't think we would go to that extent, but it's very interesting to move from left to right. I want to focus how we are going to industrialize this quickly, specifically on people, platforms, and the operation model. Today, there's people from Telenor Pakistan in Malaysia and in Thailand, helping those teams with product development, pricing strategies, and go-to-market plans.
So we're already exporting what we have learned in Pakistan. On the technology front, we're currently negotiating a platform deal with a potential vendor to buy one solution and put that into three or four different companies. Again, one drop, save on cost, but more importantly, we understand the capability of the tool, and it looks the same in all of our operations. On the distribution model and the go-to-market plan, there's no point in redoing this. Again, what we're learning from our colleagues in Pakistan is document the model, bring it into a country, cut that timeline of six months to a year of learning into a couple of weeks, and then tailor it to the specific market need. So primarily, people, technology, and the operational model is what we're stressing the most. A little bit on credit scoring.
We have procured a company to do some scoring with the combination of our telecom BI system and a banking BI system. What we're finding is that there's very interesting things and behavioral patterns where we believe we can reduce the risk in microloans and stretch those out over time. So we've invested in this. Credit scoring is something that I think would be very innovative in the future. Now, I've been extremely bullish. We can solve the world's problems, we can meet the youth's needs, and we'll become the biggest bank in the world. However, it's the hardest thing I think I've ever done. The returns on this business are five to seven years at best.
There's a capital investment, which isn't so heavy on the front end, but then there's customer training, brand awareness, trust in money to be transferred, educating a market that this is the new way to do business. Even though the world is going this way, when you get down to the use cases in each specific market, there is a lot of education to be done. We find very few people understand it, so we're having to really train and teach from the ground up. The regulators don't understand it. When we talk to them and we pitch it in a 30- or 40-minute session, they go, "This is great. You can help me with a problem I haven't been able to fix." But then we say, "Well, we have to lighten up on KYC.
We have to make sure that the agent and how he registers customers must be much lighter, more like prepaid." "Oh, that's difficult." So we're finding that we have to rewrite many of the regulations. So the dream is there, the vision is there. We've proven that it works, but there is an extreme amount of hurdles in the way. The point is, I think it's worth it, because if you get this right, it's a clear, sustainable advantage. Because what we find most other companies do, it's the quick and dirty VAS solution. It's a hobby. It sits there, but it's not top level. We think we can take a mobile innovation position by being there first. People will remember the brand. There's no room for number three, four, or five. This is one or two, and if you get there first, you have a competitive advantage.
If you're in it to save the world, huge social benefits. I mean, Lars and I have traveled in rural areas of Pakistan, and we've seen people cry when they're able to receive money in a minute's notice instead of getting in a buggy to go someplace to wait for someone to transfer money. So it does change lives. In Thailand, the average street rate for money is 200% interest per year. 200%. If we find a way to get this down to 30%, 40%, 50%, it breaks people out of this clutches of either loan sharks or gray and black market and allows them to work themselves out of a hole. So we think there's huge social benefit to succeeding here. I want to hit the core product here.
Again, what are we actually developing? To me, it's a device in your pocket that's a real-time conduit, a real-time transaction tool, a cashless tool. That's what we're creating. Whether you put B to B, B to C, C to B, whatever, it's that ability to transfer 24/7, 365, any place geographically. That's what we're creating. And what we're finding again in Pakistan, it's that conduit that people can ride on top of. We have high ambition. We believe by in the next five years, that we can grow revenues to PKR 1 billion. 80% of this would be organic growth, transaction fees, primarily. Transaction fees are very based on variable costs, so there's not much risk here.
The margins from balance sheet products are fairly good, but the margin, the, the balance sheet products in this, model are very low. We have an indirect uplift and, or an indirect impact from ARPU uplift and churn management. We're starting to get numbers in Pakistan, but it kind of goes without saying that if you have a banking relationship with a mobile company, you're less likely to churn. So what does this mean? Significant opportunity. It's worth the investment of time and effort, to get this done. We sit on assets in Asia, which solves an emerging market problem and a youth problem. We sit on assets here where people do want quicker access, real-time access to their accounts. And in some countries, we even have access to get into, the banking environment with mergers and acquisitions.
We believe we have the assets, the suite of assets, and the experience to be not only competitive, but make a stand here. This is something that I think that we have to help develop regulations, we have to help develop standards. Everyone's going into this, and it's worse than beta, and VHS here. Everyone has a different view, and we're not sure how it's gonna play in, so we have to work, on the standards also. At the end of the day, huge upside, over a billion, right now. I think Lars probably has the biggest chunk of that, so hopefully you, you will succeed and the rest of us follow. So I think it's really, really an exciting time.
I think in summary, it's kind of, I don't know if you know the word in benevolent intent, but when I talk to my staff, when we go into mobile financial services, this is not about making money. It's too difficult. You'd give up. But if you think about what we're trying to do, how we're able to get someone that's unbanked and get them banked, how we're able to allow someone to build a business, how we're able to get youth access to things that they just can't do, this is really game-changing stuff. And what I find when I give that story, and we talk like that, that drives people to really put in the extra effort. So it's definitely something that we're excited about doing. Thank you very much.
Thank you, Jon. I would now like to invite Sven to join for a very short Q&A. We don't have much time, but some questions from the audience. I think we had a first question there from Eric. Yep.
Thank you. It's [Eric Pershteh, Storm Markets]. Two questions on mobile financial services, please. The first one is on regulation and interconnect. I know there's a discussion going on between the players whether to introduce interconnect in terms of money transfer between the networks. What is the sort of status on that discussion at the moment? Do you think it's gonna happen? And in the long term, do you think regulators are gonna want, like, mobile wallets also to be transferable between operators, et cetera, to increase competition? The second one is just on the revenue progress in Pakistan around financial services. I remember vaguely there was a statement on the capital market, say, two or three years ago, about the revenue for financial services in Pakistan. Have you met that?
I think I calculated at the time it would be like a double-digit percentage of your revenues in 2013. I don't think you've commented on it, and if you're behind that, what is sort of deviated from plan? Thank you.
I'll take the first and third. The second one, you're gonna have to ask again. On the first one, primarily trying to get our own access set up and working. In Pakistan right now, the regulator is trying to work on what I would say is a global node, where everyone connects into it, and then we can do transfers between companies. I totally support that, 'cause what we wanna do is we wanna create a much bigger pie. If it's only Pakistan that's educating and marketing, it's very difficult, but if we all share this, you're gonna create a much bigger pie. Where that is right now, I haven't asked Lars, but that was the intent to try and get that node up and running.
Maybe we can take that offline, where that is in the break. On the second one, can I have you just repeat that?
I was just also on the regulatory perspective. If people get locked into your network because they have money on their accounts, will the regulators eventually, you know, force you to be able to, I mean, subscribers to be able to transfer money to other networks and transfer their whole wallet, so to speak? It's a less important question, but.
I'm sorry. We can take it offl ine. That's okay. Oh, actually, I'm really struggling to hear the question, so if we could take that at the break, that'd be great.
Okay. The next one on the list was Citi. There was Laurie from Citi.
Laurie Fitzjohn f rom Citi. One on LTE, OTT, and one on financial services. With the move to LTE and hence an all IP mobile network, do you see that maybe increasing the risk from OTT services as in some ways levels the playing field? And then secondly, on financial services in Pakistan, is the success so far predominantly domestic remittances, or have you also started to have some more success in payments for goods and services? Because in other countries, the.
Yeah.
The early success is often the domestic remittance market.
Okay.
With harder to break into the points of sale.
First of all, I'll go back. On the revenue side, I think we're fairly much on plan right now. To the original business case, we're a little bit behind, given that we delayed the launch. So back to your question, I would say fairly online on revenue growth. Most of the money transfer right now is domestic. Specifically in Pakistan, the way that we do international remittance, there was some benefits and some regulations to not charge as much, and there was a credit back. And what the government wanted is you to get it in the system, don't charge as much so that we could get that international remittance into the system, so that they could document it. The government also wanted to keep those international remittances in certain areas.
So Telenor Pakistan was restricted on which countries it could actually do business with. So international remittance was much more difficult than we anticipated in the original business plan.
Okay, so when it comes to the LTE service, the opening of the LTE networks, it's obvious that, LTE networks is, is really opening up for a lot more higher bandwidth, and also the latency goes down. So the availability for OTT services is going to really, really increase. So I'd say that the use of OTT services on mobile devices is going to be accelerated by the deployment of LTE services on LTE networks.
Okay. I think that was it, and we thank you, Jon.
Thanks.
And, Sven. We are now moving on to the last presentation today, which is on financial priorities by our Group CFO, Richard Aa.
Okay, thank you, Marianne. I will try to wrap up this great day. And I will talk about three topics, which all underbuilds how the day translates into financial value creation. First, value creations from our operations, then a little bit more insight into how we look at value creation from VimpelCom and India. And then finally, how our capital allocation supports the value creation. But let's just quickly look at the scorecard. Fredrik also took the scorecard the last year on his presentation.
Here also, you see the scorecard for the last two years, the last three years, and the last five years, where we have the total shareholder return, change in the share price, plus any dividends for the Telenor stock in the blue bar, compared with the Oslo Stock Exchange in the green bar, and the European Telecom Index in the gray bar. And as an example, you can see on the three-year horizon, we have given a 25% annualized return, while Oslo Stock Exchange around 12%, and the Telecom Index around 8%. So we have basically outperformed the last three years, but if you go back, pre the financial crisis and pre our announcement into India, the returns are lower, but better than the competing indexes.
So, we have regained a lot of momentum since India, and also due to strong dividend payouts, and share buybacks, the last couple of years. We are also now in positive territories if we go five year back. So, the day-to-day has been about how can we continue this trend? And what are the main kind of KPIs that are supporting this trend? And that is, first and foremost, our revenue growth, that we're able to have a revenue growth higher than our peers. And many of you may sit with questions, after Sven's presentations and Jon's presentations today, what kind of revenues will we derive from digital services, for example?
I think those kind of services will definitely give us an advantage to the competition, so we can continue to say that we have a revenue growth higher than peers. So both the service aspect, the quality of our networks, and the geography of our assets, should be able to give us a higher revenue growth than peers. And as you see from this chart, we have been able to grow revenues organically the last three years, around 6%-7%, including India, and 4%-5%, including India. So that is a key metrics, and basically, the whole Telenor system is measured on ability to grow revenues and maintain and increase revenue market shares. Then, it's about translating that revenue growth into improved cash flow. And here you see two cash flow metrics, both with and without India.
Without India, we had a big step up in cash flow from 2009 to 2010, as we really put efficiency measures in on the back of the financial crisis, and we're able to grow the underlying cash flow up to NOK 23 billion. That has been flat the last two years because of the heavy investments in the network modernization, that now dtac, DiGi and Pakistan are the three last one to go. Also, more heavy investments into Norway explains a little bit of the flattening of the curve. As these now are coming to an end, we set a new now target for the operating cash flow. We see here it's about NOK 23 billion, so what we have set out today is an operating cash flow of NOK 28 billion-NOK 30 billion in 2015.
So that means that we have to raise the cash flow with about NOK 5 billion-NOK 7 billion from where we are the last 12 months, a little bit more than three years from now. So that translates into an improvement of more than NOK 1 billion in cash flow per year. And I think the network swap has been a prerequisite for doing that, making our networks all IP and ready for monetizing on data. That's been a theme throughout the day. You also see the cash flow, including India, building up from around NOK 15 billion now, close to NOK 20 billion per year. The cash flow target this morning is calculated excluding India, so it's NOK 28 billion-30 billion.
But obviously, if we continue to India, that should give a positive cash flow contribution in 2015, make the targets easier to reach. However, we have not, due to the big uncertainty in the upcoming auction, whether or not we participate and how we will do in the auction if we participate, we have not made any projections for India into these targets. But then again, behind the revenue and the cash flow, there is productivity gains, and that's been the theme throughout the day, the operational excellence, which is a corner block in our strategy. Two years ago, we set out this ambitious target for OpEx to sales and CapEx to sales, and we are on our way on both targets. I will comment a little bit more specifically. OpEx to sales, we're targeting 35%.
We are on the way. We have setbacks due to the more or less collapse in the Danish market and tougher competition in Grameenphone. But we have, by all means, not given up on these targets, and execution now, the next 15 months, is absolutely paramount to reach that level. When it comes to the CapEx to sales, we see we set a target around 10%, and we see that it's very achievable for the mobile operations. Coming out of the swaps, we see great effects and being more effective on that. We may, on the reporting-wise, deviate from the 10% target due to the step up in the fixed investments in Norway.
But remember, and that's very important to be precise about, the reason why we're stepping up those investments is that we now see that the market we're able to monetize on fiber. If we're not able to monetize on fiber, if that's not the case, then we will scale back again. And the other side of that is that when we do that transition, like Berit, Berit was saying, we'll take out OpEx on the copper side, so the actual cash flow in Norway will improve. We will see a higher—we will see a OpEx reduction traded for a CapEx increase, but the overall cash flow from the Norwegian operation is bound to increase. So those two things go hand in hand. Don't make any mistake about that.
Then, on the longer term, a picture which was brilliantly presented this morning by Ragnar, how we transform the business of Telenor with the new operating models and leverage on the experience from India, Sweden, and other parts of the Telenor Group. We have set out a new efficiency target towards 2015 of NOK 5 billion. The main takeaway you should have today is the NOK 28 billion-NOK 30 billion, because these NOK 5 billion, those are solidified in programs in each business unit and at group level. But there will be other initiatives in this period. There will be inflation, there will be increased revenue share in dtac, there will be salary adjustments, so this is the gross. What the net will turn out to be is more difficult to say.
The main thing is that these NOK 5 billion, which are in concrete programs, is a solid building block of reaching the target of NOK 28-NOK 30 billion. Then, moving on to our two more special cases, India. And to kind of preempt that the final Q&A is not all about India and Uninor, I'll try to explain a little bit more about our thinking in India. But please remember, we're in the midst of evaluating this, so we'll have to come back with a more thorough walk-through on India later on if we decide to continue. But just to give you a little bit explanation how we're thinking about value creation.
And since 2nd of February, which was a fairly black day in Telenor, when our licenses were quashed in India, we had to relook at how we take our operations forward in India. Because when we saw the reserve prices for a new auction, we had to sit down and go through circle by circle, whether or not, even if we got the spectrum at the reserve price level, could we make a positive business case in each circle? And remember, India is not one market, it's 22 telecom circles, which can be compared to separate countries. So we sat down and developed a business plan, circle by circle. We use a higher cost of capital due to the increased legal and regulatory risk we have experienced the last months.
Then we compare that to what we expect to pay in an auction when we look at supply, demand, and reserve price, and the auction rules. Based on that, we took a decision this summer that is clearly four out of the 13 circles that would not make the cut, even if we had got spectrum at a reserve price level. So based on that, we decided to restructure India into nine circles and utilize the base stations and the people from those circles and strengthen the circles with a potential future. And by doing that, we also take down the risk because there will be lower than CapEx in the nine circles, lower OpEx, because we can reemploy people, and also a lower spectrum bill as you go in with the fewer circles.
So then you may ask, I mean, when you guys entered India, you entered India, pan India, 22 circles. Now you're down to nine circles, and in an auction, you may end up with fewer than nine circles because it's not sure that you will succeed in an auction in all nine circles. But then you have to remember the structure of the market and the size of the population. The nine circles we're left in now is 53% of GDP in India and 58% of the population. That's 700 million people. In our two most successful two among our most successful circles, UP East and UP West, the population is the same as Pakistan. In the three largest circles we are, the population is the same as Pakistan and Bangladesh together.
If you take the northeast part of this chart, which is the Hindi belt, the population is the same as the rest of our Asian operations together, 440 million people. So in the long term situation, even if we're scaling down and looking this now on a true circle-by-circle basis and build a value model by circle, it's by all means not hopeless to create value in India. And like Yogesh Malik told you this morning. Scale is about local scale in distribution and network. Really excel locally around the cluster in a zone each in each cluster to have a cost per minute that beats the incumbent, and we have demonstrated that. And then, so what's the potential price tag to buy your license once more?
I mean, it's very hard to lose your license, but what, what are we talking about in numbers for the Telenor system to get an entry ticket into this that I want to take with you when you sit and judge for yourself, if, if it was your decision, should you go or should, should you leave? And, if we then look at the reserve prices that have been posted, and bear in mind that the final information memorandum is due now, any day, but the reserve prices as it stands today, for nine circles at 5 MHz, we're talking at a total price of INR 72.8 billion, or around NOK 7.3 billion.
Very importantly for Telenor, and also, a few, a few of the other players, is how much do you have to pay up front to control the risk? And what's in there now is a 33% upfront payment, so that will take the upfront investments down to INR 24 billion or NOK 2.5 billion. Then there is an issue with Mumbai, with extreme high reserve price. I think very few players can justify that reserve price, so I think everybody are looking at other options in Mumbai. I also think it's a big risk that there will be unsold spectrum in Mumbai. So without Mumbai, you're looking at the upfront payment of around NOK 1.5 billion-1.6 billion. We have invested about NOK 18 billion into India.
With the value creation potential you see in the circles, we have the potential of getting in an auction. We're talking, you never know what the final auction price will be, but you're talking at the reserve price level of around NOK 1.5 billion-NOK 2.5 billion. So that is the magnitude we're talking about. These are decisions now the management will work on the next weeks, and then, obviously, there will be a discussion with the board of the management that made a recommendation, how we should approach this or, or if we should, we should leave. And in the approach we'll take, we have said that we will like to control the risk in India by staying within NOK 155 billion peak funding.
That should cover the operating losses until break even, plus any new spectrum fees, net of any reimbursement or cost on other places we can, we can get them. We see a potential to to make good on that one, as things pan out now, given that we are, as we will be, disciplined in in the auction. So that was India. Again, also to preempt a little bit of the questions later. Then on VimpelCom. There's a lot of noise on VimpelCom on the ownership side. I think we take a long-term perspective on this, and fortunately the noise on the ownership side doesn't translate into the operation, to the boardroom, and so on in the company.
So the company, over the years, have performed solidly, and as you've seen from these numbers, we have invested about NOK 14 billion into VimpelCom. We have received dividends of around NOK 11 billion. There is a declared unpaid dividend now that will basically, when that is, paid out, take us into positive carry on VimpelCom. And the market value at today's stock price is around NOK 40 billion. So fairly solid investment, despite all the noise. And the bar chart here you see is the key driver for value creation in VimpelCom, is the performance in Russia. And you see that was on decline, until the fourth quarter, 2011, where you were down to 37% EBITDA margin. Now we're up again to 43% and 8% organic growth. So trending in the right direction.
Then coming into the third part of the presentation, and wrapping this up, is the capital allocation. To support the value creation, we have the priorities as they have been before, that has been unchanged now for four years. One, maintain the solid balance sheet. Two, have a competitive shareholder remuneration and be disciplined on the M&A side. I'll then go into each of them. Starting with the solid balance sheet, we have the net debt to EBITDA now, have been trending around 0.7x, 0.8x, 0.9x over the quarters, depending on when we pay out dividends and minor transaction, plus or minus.
We're comfortably below the 2.0 cap, and I think that's will be more important going forward as we see now the initiatives from EU and the Fed and so on, that we really don't know the long-term effects of. To be flexible and have financial strength, I think will be tremendously important the next years. It doesn't help with the solidity if you don't have liquidity. I think we now have a very liquid position. We issued two Euro bonds this summer at record level low coupons, and we also increased our RCFs, revolving credit facilities, fully committed from a solid banking group that now stands at EUR 2.8 billion. And we had the liquidity risk of the Uninor debt of EUR 98 billion, close to NOK 10 billion.
That was accelerated by the banks this summer and has now been refinanced at group level, so that liquidity risk is basically off our shoulders now. So all in all, I think we can tick off a solid balance sheet. Then on the shareholder remuneration, how have we done there? Yes, I think we have done well. We can tick that one off as well. I basically doubled the dividends from 2009 to 2011. Stands at NOK 5 per share, up from NOK 2.50. And the dividend policy that was revised at the last Capital Markets Day to 50%-80% on normalized net income, and we aim for a nominal growth in the dividend.
And that should come, that growth will come on the backdrop of improved cash flow, both that the losses in India will come to an end, and if we are able to achieve the ambitious growth in cash flow as we laid it out. The total payout to the shareholders have been even higher because we have topped up the dividend with buyback to get a competitive shareholder remuneration. And in 2010, the total payout was NOK 11 billion, and in 2011, it surpassed to NOK 12 billion, to NOK 12.3 billion, and the direct yield of the stock was then 8% last year. We have been criticized the last couple of years. We've been lower than our peers on total yield. We see now, that's firing back on our peers.
We see Telefónica, KPN, Telecom Austria, and so on, cutting back buybacks and dividends, and we see now Telenor moving up to be one of the stronger ones when it come on the yield side. We also launched a new 3% buyback program July this year that we hope to complete this year. That's more a year-to-year decision that the board and the shareholders take, whether or not we we do. Then a new slide that you have not seen before, return on capital employed. I'm a very strong fan of measuring a business on return on capital employed, but then you have to look at the long, long horizon. If Telenor had looked at return on capital employed on a short horizon, I think we basically had been a fixed-line operator in Norway.
The mobile network in Norway, you would never have been able to grow a return on capital employed doing that investment in the short to medium term. So what I tried to do here is to show the underlying return on capital employed, as we now make a heavy investment into India that hampers our return on capital employed. And somebody asked Lars Christian what the returns on Pakistan were. Obviously, if you had measured Pakistan two years ago, the return on capital would be terrible, absolutely terrible. If you measure the return on capital employed on Pakistan now, we start to move into decent territory. And if he meets his goal, the return on capital employed on Pakistan will be fantastic, but it takes 10 years.
So this is an industry about long investments, so you cannot really utilize a tool like return on capital employed to drive your business on a daily basis. But I'll show you that this is not something we forget or don't focus on or anything, just to show you the blue bar, how the underlying business is performing. And this is what we will also, of course, look at when we look at M&A and other opportunities. How will this look at the long term? But then you have to take a 10- to 20-year horizon. And this is the result of Telenor taking a 10- to 20-year horizon on building a mobile network in Norway, taking investments into Pakistan, acquiring brownfield operation in Malaysia and Thailand, that we know are around 15% return on capital employed, excluding India, and this is after tax.
It's pretty strong figures when you look at what you can get in the risk-free government bond and alternative investment, given the risk profile of our business. So that's been growing from around 12%. Obviously, this is severely hampered by India, and especially then in 2011 and 2012, as we had to take impairment due to the license cancellation. So and what's driving this again? Well, of course, it's what we have talked about today, operational improvement combined with capital discipline, which is paramount going forward. So to sum it up before, Fredrik and I take the Q&A at the end here. The ambition, revenue growth above peers. Implement the efficiency program, both short and long term, NOK 5 billion.
The main target, get the cash flow to NOK 28 billion-NOK 30 billion in 2015, and that should result in a good dividend growth, with a dividend policy of 50%-80%, with a nominal growth year on year. Thank you.
Thank you, Richard. I will now invite the group CEO to join us for the last Q&A session. Please, Fredrik. Lots of hands are waving. Hi, Peter Kurt was the first one.
Thank you. Just a question on VimpelCom, Fredrik. I think you've again reiterated your long-term commitment to VimpelCom. As you mentioned in your introductory remarks, there's a court case coming up with the Russian authorities in October. I'd like to ask you, where's your board on this issue? I mean, have there been times, and can you conceive a time when the board says, "Is it really worth this? Is it worth the hassle?" Simply, or, "Let's get out." Thank you.
I don't think I'm the right person to sort of dive into the dimensions on how the board is having their discussions. I think I refrain from that. However, the long-term commitment is coming out of history as well. You know, that when we started this 20 years ago and later switched to VimpelCom as a vehicle in Russia, the idea was to create a national operator. Basically, we succeeded together with other people doing that and of course, also a well-performing management at that point in time. Then we have had disagreements on expansionary moves.
I think that history basically has, in a way, shown that some of our viewpoints were highly okay. However, where VimpelCom stands today, I share with management the potential that there is an upside here for the future, and we've seen a little bit of that coming through in their so far operating parameters. And we believe that some of that could be taken further. That's why we have a strong support for this also in this phase.
If it comes out that the discussions with Russian authorities and even through court systems, then we have to take a sincere evaluation on what kind of different means we should think of if that comes through. But where we stand now, yes, we want to bring the company further. It's a big component of the overall evaluation of Telenor, and we believe there is a potential to grow it.
Yep. The next one was on third row, and after that, James Britton from Nomura.
Hi, this is Alex Wisch from S&P Capital IQ. Just one question. The balance sheet seems to be quite strong compared to other telecom operators. You know, you may get the money from the dividend from VimpelCom, and you may even exit India by January. With a very strong balance sheet and more cash, what would be the use of cash if one, two, or these three things occur within the next 12 months? Is it more extraordinary dividends, acquisitions, buybacks? Can you give some color on that? Thank you.
I can maybe.
What a luxury problem.
Yeah. I think our capital allocation priorities stay firm, and the 2.0 leverage is you have to see as a cap. And you, you shouldn't really expect Telenor to make any big moves in the shareholder remuneration space. We, we do that, we build it stone by stone and a competitive shareholder remuneration. And on the M&A side, now we have our plates full handling India and M&A, so we have said that currently we have no major M&A on the agenda. So we have to sort out India and also be more clear on, on this Russian court situations around VimpelCom.
And remember, we at towards the end of 2008, where the Norwegian kroner was standing very weak, and we were in the midst of seeing also the liquidity in the capital markets were shrinking day by day. We felt that the strength of the balance sheet would be okay to have with us. And as we see it, you might you might see some things on the horizon, depending on Europe in particular, also in the future. So we like that strength also up against the potential of events like the Euro situation, for example.
Thanks. James Britton from Nomura. I've got two questions, please. First of all, I believe there's been another management change in Denmark from yourselves. So can you just outline the reasons for that change? And, you know, what is the strategy now in Denmark under new leadership? And then secondly, what sort of financial exposure might you have to extracting yourself from the joint venture with Unitech in the Indian market? And how long will that take, do you think?
Joint venture with?
With Unitech, so the Uninor vehicle.
The management change in Denmark doesn't necessarily come from the fact that the Danish market has had a very difficult time. I think Jon Erik, he was instrumental in doing a very successful price structure building, both in Norway and Sweden. He will come in as a new Director of HR in Telenor, effective from 1st of November, when Oddvar is going to do other things. The new CEO in Denmark has a very operating background from Serbia. We believe that he brings with him a new dimension to the Danish operation. But he also have a tough job to do because of the structure in Denmark, which is more challenging than in many other countries. It's a small country.
The deployment of network infrastructures is are significant. Three is there as a more or less a different kind of operator. So it's a challenging environment. We are building one network with the TeliaSonera, and that should give longer-term benefits to see a different kind of route of this two to three years down the line. As for the conflict with Unitech, we're closing into important deadlines here. If that conflict needs to have a kind of resolution, and will not be a situation for Telenor to dive into a next phase in India without having visibility to that relationship. And we have communicated that pretty clearly to the other party.
Of course, deadlines are coming upon us, and one could say that in such a situation, one could think that there is a common view that might bridge the conflict where it stands right now.
I could just maybe add to that question on financial exposure, that you should rather look at what kind of financial exposure Unitech has. If this doesn't happen, then we will go after them, by all means, in the indemnity claim. That is pretty clear.
Mm-hmm. Then it's Thomas, Thomas Heath, and after that, Jakob Bluestone.
Thank you. Question on VimpelCom. Very pleasing share price rise there in VimpelCom, but it also raises the price tag a bit for your rather large amount of preferred shares. Given how difficult it's been to control capital allocation in VimpelCom historically, so how willing are you to contribute more cash into VimpelCom? Or is it necessary to find another solution in settling ownership shares? Thanks.
Well, I think, the pref shares, they cannot be converted before October next year, and then they have a duration of 2.5 years. So we have basically 3.5 years to deal with that issue, and a lot of things can happen in 3.5 years. So, I don't think we need to comment specifically on how we view it now.
Hi, Jakob Bluestone from Credit Suisse. Your slides on looking at the return on capital employed of the business were interesting and, as you said, new. Is this something you would consider adopting as a target? Historically, you've obviously focused more on revenue growth and operating free cash flow. But is this something you can start looking more at?
Definitely not a target. I think, to drive, Telenor on the return on capital from quarter to quarter and year to year, that doesn't make any sense. I think it's should be more, used as a, as a guiding tool over time to see that we are tracking. But at least my experience, and I've worked in different industries, what really drives this organization is really to set a bold target on revenue growth and cash flow, and then it's up to the central management, really, to make sure that we don't spend too much in spectrum auctions and acquisitions, and so on, so that we have a good return over time. But you don't get these 35,000 people to tick on return on capital employed.
There's a lot of companies that have tried that in a very academic way, and I haven't seen one that have made that a success yet. Yeah.
Thanks.
Okay. That concludes the Q&A session, and also the program here in the auditorium today. For those of you who want to dive deeper into the operations, we have the breakout sessions with the management from Telenor Norway, Telenor Sweden, Pakistan, and dtac. We would like to thank you for attending the Capital Markets Day.
A couple of words from me as well. Thank you for coming to Oslo. We have prepared quite extensively for this day, as you can see from the different presentations here. We work on these issues very, very hard with a huge number of people in many operations, and I want to thank them basically for both performance and contribution. Not the least, also Marianne and her team that has sort of driven us into being both structurals and structured and targeted in our messaging here. So do take the benefit of taking some more detailed questions to the breakouts if you're if you so want.
I think there might be some stuff there, that can come as a deeper clarification on what we have been trying to do here today. So thank you.