Good morning, ladies and gentlemen, and welcome to the presentation of the results for the Q2, the Q1 results from 2012 from Telenor. Whether you are present here at Fornebu or listening in on the phone, or watching this via webcast or mobile video. My name is Scott Engebrigtsen, and I have the pleasure of guiding you through the presentation this morning. We hope that everybody has the material that we've made available. That is the quarterly report, our press release, and a copy of the presentation to be used here in a minute. You can also find this information on our website, Telenor.com.
You can watch this presentation live or in recording on either the internet or on a mobile phone, and during this live transmission, you can also send in your written questions via the internet, and we will try to answer them from the stage. You can also find information on these alternatives from our website. As usual, we will have a Q&A session directly after the presentation here, and then we will start with the ones present here at Fornebu, then from the ones participating on the phone. We will try to end this session at 10 sharp this morning. So to allow questions from as many as possible of you, we would kindly ask you to limit yourself to one question per person, with a follow-up question if clarification is needed.
After the Q&A session here, we will have the opportunity to do one-to-one interviews with key personnel. To present the figures today, we have our CEO, Jon Fredrik Baksaas, and our CFO, Richard Aa. First, I'll leave the floor to Mr. Baksaas.
Yeah, thank you, Scott, and good morning to all of you. In the midst of an exciting period from many events around Telenor for the time being, I'm happy to stand here with a solid Q1 reporting package. Operationally, this quarter is as strong as the previous quarters and towards the second half of 2011. We see growth both on top line and in cash flows. And in particular, the growth dimension in this quarter, coming from the Asian operation, stands out as a very good story. In addition, we have restored the ownership position in VimpelCom.
But it's no doubt that it's the challenging regulatory situation in India that will be probably on top of mind of many of you, as it is in ours. But we will get back to these topics during the presentation. Let me then start with the Nordic operations. We have initiated a type of new operating model in the Nordic countries, and we're starting to see results of this. The idea is to bring in new operating concepts in such a way that we can improve the efficiency, and again, prepare for the new growth, primarily identified in the data area.
Examples of this is the joint network ventures that we have had for some years in Sweden, but which we now also have embarked upon in Denmark with the new operating model that we will put in place together with Telia. And we have also introduced a new model to be implemented on customer service. Operationally, though, the most important and most pleasing characteristics in the Scandinavian countries in this period is the trend that we now see in Norway.
We have added more customers, and the underlying trend in Norway is as strong as it if we had adjusted for the campaign effect from Q4, which there is a tail into this quarter in 2012, then we would have been basically at par with the revenue base from last year. And that's a strong feature, and it proves also that the repricing structures that we have introduced in the mobile market in Norway start to work, and I will come back to that a little bit later. But on the customer side, there is a small additional element of of customers in Norway in the Q1, 6,000, and in Sweden, 33,000. And this comes despite the pretty aggressive competition environment that has been in Sweden in that specific period.
Some of you will remember the three service offering that was on the streets for a period of time, which really was a price-efficient offer, but which was cut in a period in time. In Norway and in the Scandinavian countries now, we do see a very, very high portion of smartphones. We can roughly say that 50% of the customer base on the postpaid side do carry a smartphone. And this—probably, it's not only probably, this is the future. And this brings with it the necessities for revised pricing structures, as it also brings new complexities into the network side. And both we and other operators have experienced a little bit of that.
On the revenue side, despite this aggressive competition period that we've had, in particular in Sweden, Telenor Sweden shows a growth in mobile revenues of +9%. And the underlying service revenue in that respect was 3%. Meaning that we do see quite a healthy combination in the revenue elements in this period. The most challenging market is, by far, Denmark. Here we suffer from the impact of the Onfon wholesale contract that left last year. And the competitive intensity in Denmark is very, very harsh. And not only we, as an operator, experience that, others do as well, and it leads to the new cooperation model, a new business model, operating model that we have institutionalized in Denmark together with Telia.
In the broadcast area, we can record at this specific quarter an all-time high underlying EBITDA figure, which is very strong. And as usual, it tends to be under described that we have this kind of situation with the broadcast, and I want to mention it in particular at this time that we're very pleased to see this kind of development in this business area as we stand for Q1 2012. Then some more comments on Norway. We are, of course, pleased to see that the continued migration of consumers to the new bundled tariff seems to work. We can record 108,000 new customers on those specific packages in the Komplett family this quarter.
47% of our postpaid consumer base is now on these tariffs. We believe that this is the way to go. We can only take a look at how we use our phones ourselves. It's not only voice and SMS anymore, it's internet, internet, and internet. In between, maybe fewer conversations, what would I know, and fewer SMSs. So it's the data world is basically there, which means that we need to take the pricing structure into that direction. If we adjust for the Q4 campaign, in which we have made an estimate that accounts for roughly 7.5 NOK per ARPU per month, the mobile ARPU seems to be stable in this quarter. That should indicate good prospects moving forward.
There is a bit of a more stable, competitive environment in Norway this quarter. That may be caused by the fact that we are in the last year of this asymmetric mobile termination tariff setup that we have had in Norway. As you know, this will be leveled off between the operators towards the end of the year. The fixed revenue, though, is sort of showing a steady line as well, however, and unfortunately, downwards. The fixed telephony traffic is reduced to roughly NOK 100 million, quarter-over-quarter. Number of lines that are disconnected ranges between 20 and 25 thousand lines per quarter.
And again, this kind of trend seems to be impossible to turn around, which means that from a voice purpose, the fixed line network will have a challenge longer in the longer term. And of course, we are preparing for that, those kind of transitions that will come in the future. This kind of decline of the revenues in the fixed line, of course, put efficiency measures and efficiency requirements on us and the organization. And Berit and her team need to address this with the aim of reducing the cost and implement new ways of completing the work processes. Have we been through big transitions before? Yes, but this is also a transition that needs to be addressed.
On the mobile side, I mean, now the network swap has been completed in Norway last quarter. We continue to streamline the network and to work on the quality dimension. And here we are also preparing for building the 4G capacity, and we will launch the 4G later this year, and we will have to come back to the date in question. In Central and Eastern Europe, we have... Let me see. Have I missed a page here now? There we are. Sorry. In Central and Eastern Europe, we are experiencing the most challenging economic environment. However, there are signs here in this reporting package, which are worth mentioning.
Despite the fact that the macro seems challenging, and the fact that governments are looking for the telco sector as a source for taxation, we can say that Serbia has developed its path on revenue growth. It's a 7% year-on-year growth factor in Serbia in this quarter. But it's also for the first time since 2007, a small plus in Hungary. Which in a way gives a little bit of understanding that this industry plays a role in people's life, and that revenues may be start to build from here onwards. And this happens despite the fact that there still are interconnect reductions in Hungary.
These kind of challenges that we see in the industry, in this region, unfortunately, will probably last for a period of time, until Europe manage to get back into growth modus. That question is a bigger question that I intend to address. In VimpelCom, we have restored the ownership position that we had before the Vimpel transaction of the company. And it's quite well known that we were opposing the incoming dilution factor that that transaction meant to us. And we have through two transactions moved back into the same position as we had before the Vimpel merger happened. And from our perspective, these are within the FAS approvals that we were granted in 2010.
We still see that there are some viewpoints on this from the Russian side, and we will, of course, work with that issue and get our viewpoints across to the other side. We have always been long-term with VimpelCom, and we want to continue to carry out the same kind of development path in those companies as we do in the Telenor Group. And the industrial dimension that we bring to the table, we believe is valuable, also when it comes into the next generation of mobile systems, that also will be invested for in Russia. Then, for the very good growth story in the Asian established operations. In all four markets, we do see significant growth activities going on.
Accumulated, it is a, for all four of them, it is a 14% organic growth factor. And as you can see, all countries are double digit. This goes along with still strong operational performance, and we will argue that our companies are basically both keeping and maintaining their market position. The margin expansion factor is also visible in this reporting for this Q1, except for dtac, which had to add a higher revenue share factor, which has been increased in this quarter compared to Q1 last year by 5 percentage points from 25-30. Handset sales are also contributing to a certain extent to this growth, because also in these countries, handsets, the handset generations are being changed.
And this also, since primarily these markets are no subsidy, or no subsidy character, there is a top-line factor of handset sales as well. But they, of course, brings with them a very low margin. Grameenphone is here with another quarter, with a healthy revenue growth and margin improvement. But as we've seen before, the competitive intensity from quarter to quarter may vary. I want to highlight, though, the very good performance of our team in Pakistan. A 23% organic growth revenue factor is a very strong figure, and it's an all-time high EBITDA factor as well, above 40%.
And this, you know, it proves that we've done a little bit of the right things for a number of years, and that Telenor Pakistan now is on its best, best part of its S-curve. And we all remember that all companies basically have been through that part of the growth curve, and now it's the turn of Pakistan. So I congratulate the team in Pakistan having reached this level, and that we continue to compete for the market position. I also have to mention that Pakistan is the country that we have comes the deepest and the furthest when it comes to financial services.
three percentage points of the growth factor in Pakistan this quarter comes from financial services alone, which means that and there is still a lot of both services and customers to tap into in order to to bring financial services to those that don't have access to that from before. The network swap with ZTE will start later this year. Then, probably one of the most important questions that we will have to discuss today, that is the regulatory situation in India. On the operational side, though, the growth side on both customers and revenues continues. And also on the EBITDA side, there is a an improvement, despite the fact that from a reporting point of view, there are some accruals that was brought back into the picture in Q4.
But there is a good trend line on the operations. If it hadn't been for the mess up on the regulatory side, this business model would have delivered EBITDA breakeven according to plan in the Q2, 2013. However, to come there, frequencies are necessary to have. We can't do this without access to frequencies and licenses. And the recent recommendation that came out from TRAI didn't only hit a newcomer like Telenor, it also hit the whole industry in a very dramatic way. And the industry collectively joined in a joint message to the authorities, not only the regulator, but also the authorities that are to decide on this during the month of May. We have met every rollout obligation that is in our package.
However, now they have added another rollout recommendation from TRAI, and we have to say that this package will make it almost impossible for a newcomer like Telenor to stay on in India. And that has been our clear message all the way through since it came a couple of weeks ago. So in this situation, both we and others urge the government of India to take proper decision in such a way that both newcomers and also the migration to 900 can happen in a more industrial and investment-friendly climate. Because this will put a very wet blanket on investments in the very important telecom industry in India for many years to come.
If there are decisions coming out of this that, we feel they will be possible to, to work for, then we will maintain our peak funding, commitment to the project of INR 155 billion as the peak funding, figure, before we reach, breakeven. Then, what are then our priorities for 2012? So a few final remarks on that: we are strong on growth for the time being. There is growth to capture, in particular in the Asian market and around the transition to data communications in Europe. And we see those trends in the, our figures, that we now, report.
The fact that the mobile system stands more importantly when it comes to internet access in Asia is an extra dimension when these countries are to move to the internet and data phase. The most important element now is, of course, to clarify around India, and I guess there will be numerous of questions to that today. Lots of them have been addressed by us already, but we will continue to work for an regulatory environment in India that makes it feasible for us to stay in a, I have to say, restricted way, in the sense that what we do from here onwards needs to have a solid business, business case.
Then, finally, the overall challenge of continued efforts on operational excellence will stand here, both now and for many quarters to come. These transitions that the industry go through are as big and important as we've seen before, and we need to take them. The ecosystems are in big changes. We will be looking for new opportunities attached to the services, the service layer in that space, based upon both assets and customer bases and billing systems, et cetera, that we are already having in all our markets. Then we need to utilize our scale as the number one base for bringing new efficiency into the group. So with that, with those words, I'll leave the floor for the financials to Richard. Richard?
Thank you, Fredrik. I'll move straight on to the financial highlights of the quarter. It's been a special quarter, with a lot of focus on India. And therefore, it's very good also to report that the underlying financials are very strong this quarter. We have 8% growth and a 21% operating cash flow margin. We decided to write off the remaining book values in India, of NOK 3.9 billion on a 100% basis and NOK 2.6 billion as our share. If we exclude for that, we have an underlying net income to Telenor of NOK 3.2 billion this quarter, which is about 2 NOK per share. So a quite strong quarter. Moving on to Norway. A lot of you had questions about our financial performance in Norway towards the second half last year.
We launched the Gøy campaign, which Fredrik has already mentioned, which really turned things around again in the mobile business in Norway. As you see from the left part of this slide, the ARPU excluding the Gøy campaign is stable. We're able to compensate price pressure with increased data usage. And we expect to see those trends going forward. On the EBITDA, we have a quite stable EBITDA underlying, but we have two special effects. It's NOK 70 million on the Q4 campaign of Gøy that comes into the quarter, and we had the storms especially related to Dagmar, but also some spillover from Berit, which accounts 64 million.
You can say we always have storms in the Q1 in Norway, but we think this is a little bit more than normal. So we have the fixed business, which is declining NOK 150 million, and as already mentioned, we need to take measures, further measure on the fixed line to turn this trend at least slightly more positive than this. But very positive is the development in the mobile business with the increased subscription and increased data usage, takes up the EBITDA over 100 underlying EBITDA with close to NOK 120 million in Norway. Moving on to the revenue side, going in a little bit more detail. 8% organic revenue growth, about 2.3% of that comes from India.
So India now is a significant contributor, but still accounts for only one third of the growth. We're now at a pace of more than NOK 100 billion in revenues the last two quarters. If we decompose how the revenue growth is coming in, we see that Denmark has a very weak development in this quarter, with almost NOK 250,000 drop in revenues. Half of that comes from the loss of the wholesale contract with the Onfon and currency. And about half of that, again, comes from reduced interconnect rates. So if you take the revenue drop, it's about 25% of it that comes from the retail competition end. I'll come back to the EBITDA effects on that. Hungary is a decline of NOK 113.
The underlying performance in Hungary is reasonable. This 113 is all currency depreciation between the forint and the NOK. Then the big growth comes from Asia. Strong performance in all Asian operations, close to NOK 1 billion revenue growth in the four established operations. And that also hides NOK 300 million negative currency development, especially related to appreciation towards the taka in Bangladesh. Then India contributing with close to NOK 500 million. So the Asian operation, excluding currency, contributes with more than NOK 1.5 billion in revenue growth, taking the revenue in the quarter to about NOK 25 billion. Then on the margin side, we have an improvement in the EBITDA of NOK 380 million year-on-year.
The margin, though, is about the same, 31%. You can say that the improvement in the margin in Uninor is offset with increased revenue shares in dtac. The revenue share in dtac has increased from 25%-30%, and being the second biggest operation in the group, that has a visible effect. So those two effects nets out each other on the margin side, else we would have a much higher margin improvement from the improvements in Uninor. Then we have some dilution on the margin from high handset sales, but the service revenue margin is underlying, is increasing, which is very positive. So all these effects results in a stable margin of around 31%.
If you look to the right to see where the EBITDA improvement comes from, we see the decline in Norway, which is then largely due to the one-time effects of the gay campaign and the storms. Denmark, I've already explained the big revenue drop, and you can say that some of this NOK 133 million effect on the EBITDA, some is currency, and some is the Onfon, Onfon contract, about NOK 50 million on Onfon, and about half of it is really the competitive pressure and the price decline in the Danish market.
You see the very strong performance from both Uninor, Pakistan, and Digi coming in this quarter with improvements of more than NOK 700 million, taking up the EBITDA to NOK 7.7 billion in the quarter. On the CapEx side, this is in line with 2011, approximately 10% CapEx to sales and about NOK 2.5 billion in CapEx. Worth to note is that Norway now accounts for 40% of our CapEx. So we're investing heavily in capacity and coverage in Norway. Excluding Norway, CapEx to sales for the rest of the group is now down to 8%. So we're really starting to see the effects of the swap coming in on the CapEx to sales.
And also bear in mind that we are in the midst of swapping in both Malaysia and Thailand, and we'll also start in Pakistan now. So the CapEx to sales outside Norway now is really on a good performance. Then revenues, EBITDA, and cash flow that results in operating cash flow margin. We have also been able to increase the cash flow with about NOK 300 million from about NOK 4.9 billion Q1 last year to NOK 5.2 billion this quarter. And on a Q4 rolling basis the operating cash flow is up NOK 1.3 billion, and we have a pace now Q4 rolling of NOK 19.4 billion operating cash flow. And the cash flow margin stands at 21%.
Excluding Uninor, we have a cash flow margin of 25%, which is benchmarks very well in the telco industry. Moving on to the very special item this quarter is the impairment write-down of NOK 3.9 billion in India. As many of you recall, we had an impairment in India also in the Q4. Based on the Supreme Court judgment of the second of February, we decided to write down the remaining goodwill and licenses of NOK 4.1 billion. Then we had expected that the regulator would come out with reasonable recommendations for the auction, which then we could have defended the remaining book values with.
That did not happen, and the regulator came out with suggestions for the new auction that will make it almost impossible for Telenor to participate in an auction if they stand as they are. So as a precautionary measure, we decided to write off the remaining book values in India of a total of NOK 3.9 billion on a 100% basis. As we own about two-thirds of the Uninor operation, what will be attributable to the shareholders of Telenor is NOK 2.6 billion. We, of course, hope to succeed with changing this recommendation when the politicians in India will make their final decisions on the auction rules, and that these losses will not become a reality.
It's important to note that we have now written off all assets as of March 31, 2012. As Uninor still is some quarters away from break even, there will be operating losses also after March 31. We are then, of course, trying to limit OpEx and CapEx as much as possible while we're waiting for clarification on the new rules. Then, how does this then all reconcile back to the P&L? I think we have already explained the growth in the revenues and the improvement in the EBITDA. Other items, it's workforce reductions in the Nordics, severance pay, it's the biggest item there. On the depreciation, it's in line with last year, nothing special there.
And then you have the impairment loss of India coming in with NOK 3.9 billion on the impairment line, but then it reverses back approximately NOK 1.3 billion down at minorities as you see further down. Worth to mention is associated companies. Low contribution from VimpelCom this quarter due to currency and various accounting effects in the VimpelCom Q4 results, but also that we have a gain from the sale of TV 2 in the associated company A-pressen. That contributes about NOK 417 million this quarter to the associated lines. On the financials, as you see, we have positive net financial this quarter with NOK 330 million. That is an improvement with more than NOK 700 million from Q1 last year.
The big reason there is the change in fair value of financial instruments of NOK 789 million. And behind that, again, is the VimpelCom TRS underlying development in the VimpelCom share price, which contributes positively. So, on the tax line, nothing special to note, maybe other than the tax rate in Thailand has reduced, so our underlying effective tax rate is slightly reduced. And we end, by that, on a net income to Telenor of NOK 583 million this quarter, which would then have been more than NOK 3.2 billion if it hadn't been for the impairment loss. And EPS of 0.37, and again, without the impairment loss, more than NOK 2 per share.
On the debt side, the net debt to EBITDA is stable this quarter, debt at 0.6. Net debt stands at around NOK 19 billion. I'll not go into the detail of all the reconciliation of the net debt from year-end until now, but there are two line items worth mentioning: we have paid out significant dividends from dtac and Digi as a part of our capital repatriation programs. And that is then also impacting the payout to the minorities in Digi and dtac. So about NOK 2.8 billion has been paid out in dividends to our co-shareholders in Digi and dtac. Then on the next, and the line under, you see NOK 2.2 billion purchase of shares in VimpelCom Limited. That is the shares we bought from Weather....
To restore our voting position in VimpelCom. More importantly to mention is that we will have significant payouts in the Q2. We will pay out the yearly dividend of NOK 8 billion. We will pay out NOK 2.4 million to the government of Norway as their part of the share purchase program from last year. Or we have already paid NOK 4.1 billion to J.P. Morgan for the purchase of more common shares in VimpelCom in the Q2. In total, that's a payout of NOK 14.5 billion coming in the Q2, and measured on the ratio we have here, net debt to EBITDA, that will take that one up, everything else being equal, to approximately 1.0.
But still well below the cap of 2.0 that we imposed on the Capital Markets Day last year. Then on the guiding. We have decided to guide excluding Uninor. Based on the high uncertainty about if and how we can continue in India. We think that's the most prudent to do now. We have improved our revenue guiding slightly excluding Uninor. Our previous guiding was about 3%, now we're guiding about 4%, based on what we have seen in the Q1. The EBITDA margin, we guide at 35%-36%, which is more or less in line with the earlier guiding. And the CapEx to sales, we're taking down further to 10%-12%, based on what we have seen in the Q1, and also excluding Uninor.
So I think, we're saying here, outlook for 2012 maintained. I think it could be said, maintained with a positive, twist. So that takes me to the end of my presentation. The financial priorities in 2012. India is, of course, in focus, and, if we get an acceptable framework, we will be disciplined and have a clear ambition to stay within, within the INR 155 billion peak funding, ceiling, which we have imposed. Then, most importantly, is to continue to excel operationally. Telenor is a very strong operator, and it's the stronger operators, we believe, in the telco industry, that has the biggest also improvement potential from embarking on new operating models and leveraging its scales.
So we are continuing to working towards our targets of 35% OpEx to sales in 2013, and 10% CapEx to sales. But we're also now introducing new operating models, as we've done in Denmark this quarter, leveraging a global partnership market in the various domains Telenor operates. And also utilizing our group scale, especially in procurement. And on the priority side, also, based on the strong performance of Telenor, we target to give a healthy shareholder remuneration. Already mentioned, NOK 8 billion will be paid out in dividends in the Q2. The board of directors have proposed to the general meeting a share buyback program up to 5%. Remember, each percentage points we buy back at the share price we have today, is about NOK 1.6 billion-NOK 1.7 billion.
So if we execute a program similar to the last two years, that will be an additional NOK 5 billion. So if we do that, the total shareholder payout in 2012 will reach NOK 13 billion, which is fairly strong. Thank you.
Thank you, Rikard. We're now ready to take your questions. I invite Mr. Baksaas back on the podium, and we will start with the ones first here. Please wait for a microphone and state your name before asking questions. Anyone? We have a question here from Espen Torgersen.
Hi, it's Espen Torgersen, Carnegie. It's just a simple question relating to India. With the new rollout regulations, excluding reserve prices, auction prices, et cetera, just the rollout requirements, can you still stay within the INR 155 billion Peak Funding with those rollouts?
I would say that's a highly hypothetical type of questions, because I don't think you can exclude the other elements that you referred to. So we are addressing the combination of that and to reach out to all areas where the accumulation of people goes to 2,000 villages of 2,000. Knowing that both the grid facilities and other things is not in place, the package is not feasible. And you're only to go to do that with 1,800 in addition, then you won't get the coverage. The number of base stations needed to do that and the complexities of doing it with the combination that TRAI has set is basically an impossible package.
And I don't think you can exclude it from the two other elements that you referred to.
If you add those two other elements, it's, it's impossible?
Yeah, I think so. And this is not only a statement from a Telenor company that has roughly 35%-40% population coverage as it stands now.
... knowing that incumbents are basically between 70% and 80%, which means that they, too, have to move in that direction. And normally, it would be incumbents that would do that on the lower frequency bands, as we have had that role in Norway up through the basically 15 years of mobile history in this country.
Any further questions from the audience here? We have one up there, please.
Marit Helland, Budstikka. I'm wondering how do you feel-
Could you do this in English, please?
Okay. I'm from the local paper, and I'm just wondering how do you feel that the things that are happening with the Harald Norvik and this forsamlingen how that affects you as the top leader and the organization here?
I think that's a kind of question that we sort of can take on other other points in time. I think we do concentrate on the performance and keep focus on the operating side at this session. Thank you.
We have a question up there, please.
Yeah. Tore Tønseth from SpareBank 1 Markets. You have another relatively weak quarter in Denmark. When you're up and running on 4G in the joint venture with Telia, what kind of margins do you expect to see? Will we see any improvements in, on the OpEx side, or will this only be way to lower your capital expenditures in Denmark?
Yes, I can.
Mm-hmm. I think we see significant effects from the network sharing both on giving the customers a better coverage and a quality, but also on OpEx efficiency and the CapEx efficiency. So you'll see effects on all the lines in the P&L, and it will be a significant contributor to restoring profitability in Denmark.
Okay, if there are no further questions here, I think we will call upon the call conference host to introduce the first question from the ones participating on the phone.
Question from?
Barry Zeitoune, Berenberg.
Go ahead, please.
Hi, good morning, gentlemen. I've got three questions, if that's okay. The first is on India. Based on the current TRAI recommendations, the cost of you reaching a similar spectrum holding the 13 circles you have today could run into multiple billions of dollars. In addition to the onerous rollout requirement, and you've made it clear that under the current structure, you're unlikely to participate in the auction. But can you tell us whether it is the base price, the rollout requirement, or both that need to change for you to decide to participate in the auction? My second question is on-
I'm sorry. We will have to limit ourselves to one question per person. I'm sorry. So we will take this question first then.
Okay.
And yeah, if you have further questions, you could please line up in the queue again. Thank you.
Okay, cool. Thanks.
The rollout as it stands by itself is basically one roadblock to a business case as we see it. If that goes away, then we're back to the fact that the Supreme Court order basically took back roughly 20 megahertz on average in the different circles in India. And they only return five of it, plus potentially 2.5 in this recommendation. And we can see - we cannot see why the government is doing should be doing that and tries to basically address the long-term combination on how they want to do the frequencies also in the transition to 3G and 4G.
In that sense, basically, we've asked the Supreme Court to clarify whether that was the intention. Hopefully, there will be an answer to that this week. It's both the fact that there is a rollout requirement that is very, very expensive, extensive, and the fact that there has been created an artificial bottleneck of spectrum, because there are spectrum blocks available on the shelf. We haven't seen that kind of hold back of frequencies of this magnitude anywhere else. It all flows back into the high reserve price, if you sort of take that dimension as well. There are potential roadblocks on every element.
If government wants to proceed and create a new investment climate in the industry, knowing that the industry investments in India throughout 2011 is basically half of what they were in 2010. And this clearly explain that this regulatory uncertainty basically will reduce investments and consequently or also then hurt the economic growth in the country longer term. Knowing also that roughly 100 million people will lose connectivity when incumbents are to switch from, say, 900 to 1800 in their package. So there are sort of consequences on many thresholds here, which we believe that needs to be highlighted, and that's also why the industry was vocal together in the way we were last week.
Sorry, can I just ask? Can I interpret that as you saying then that if the rollout requirement that is there today wasn't there, and if there was enough spectrum available, you'd be comfortable with the current reserve prices, or is that not the case?
In a way, I thought my answer would cover that. It's not only the rollout obligation alone, it's the package.
Yeah.
And all three elements basically represents isolated roadblocks for continuation. But if you combine them, it becomes even worse, right?
Okay, very clear. Thank you very much.
Next?
Andy Parnis, UBS.
Go ahead, please.
Yeah. Hi, guys. I've got a question on India as well. I just wanted to, just to clarify, on the peak funding commitment of INR 155 billion, what assumptions do you have in there for getting any money back from the original license investment? I think it was about $340-$350 million in 2008. Does that peak funding cap include that rebate, or does that exclude that? Thanks.
I think it's not prudent to go into details about exactly how we have set the INR 155 cap and what is excluded or not, given the high uncertainty about the regulatory environment in India. We just think we are reconfirming that that is our clear ambition, to stay within the INR 155 billion peak funding.
Okay. Thank you.
Next?
Sorry, it's John, Citigroup.
Go ahead, please.
Thank you. Yeah, one question involving VimpelCom. In respect to the lawsuit run from the Russian anti-monopoly service, could you give some color as to how restrictive are the injunctions put in place in terms of VimpelCom Russia? And therefore, if this lawsuit does drag on for a year or more, you know, how much of a problem are those injunctions for you? Thank you.
The injunction as it stands. Well, first of all, I think that question will be more correct to be raised towards VimpelCom management. However, our comment to that is that from an operating perspective, the injunction doesn't, at this stage, play any role in how to operate on a daily basis. So, yeah, I think that's my answer.
Thank you.
Next?
Maurice Patrick, Barclays.
Go ahead.
Oh, hi, guys. Yeah, Maurice here from Barclays. Question on just a bit more color on Norway, really. Just to, if you could sort of flesh out a bit more about what happened to your churn trends when the offer rolled off, elasticity effects, as we sort of now got beyond the end of the offer. Be great. Thank you.
Yeah, that was a stretchy kind of question. But if I got the flavor of it right, I think we can say that, since customer behavior basically changes as dramatically as it does when as many people get the smartphone into their hands, basically usage pattern changes. And that means that since our business model from history comes from voice and SMS, by numbers of voice minutes and numbers of SMS, then and since usage basically now is about access to data communication and what you can do with that, and all the services and all the applications that comes with that. That means that the pricing structures needs to mirror in the long term underlying cost structures, that's for once.
But number two, also, that the market needs to, we need to bring the, pricing structures, more in alignment with, usage behavior. And that's what we're doing. And I think this is an industry phenomenon, which is about to set itself, among industry players. Of course, there will always be competitive moves on, on volumes and qualities and, and other criteria, but pricing structures needs to move in that direction. And I think we see reasonably good traction in that direction in, the figures that we report in this, quarter.
And I'm also happy to note that what we said about this last autumn in both Q3 and Q4 reporting, where we had these kind of ambitions, now we're seeing that the reported figures moves in that direction. And that's what we consider that as very interesting to see, that the response is positive.
I can just add to that, Maurice, that we don't see any significant increase in churn after the campaign end. And as you may have seen or not, new network coverage is probably more important than ever with the new smartphones than the data coverage that Fredrik alluded to, where we have a very strong position. So we believe we have a very solid offering now in the Norwegian market.
...And also that, the different versions of the handset manufacturers seems to get better traction. Samsung has very good machinery for the time being. There are expectations around Nokia to come later this year. So and basically, they need to get something on the road, which competes in these layers, if they are going to be there as a significant world player. So these kind of effects, basically, we feel is for the good of the industry, that we get also a competitive situation between the handset manufacturers and the operating systems for that matter.
Thanks, guys. Next?
Stefan Gauffin, Nordea.
Go ahead, please.
Yes, well, I have a follow-up question on India. Could you just state the timeline of events in India now, as you see it, regarding Supreme Court ruling, decision from the Department of Telecom? What—how long can you keep the license, expected auction timeline, et cetera?
Yeah, let me begin at the end of your row of questions there. The auction is, Supreme Court has said that the government needs to complete the auction within 200 days after the decision of the Supreme Court in February. So that goes third of September, right?
Seventh.
Seventh. Okay. Then at the same time, it said that old licenses will not be quashed until auction is completed. So there is an alignment in time from that perspective. Then the timeline that we now have in May, we expect that Government of India will, and they have said that they will, make a decision on this during the month of May. There is now a dialogue between TRAI and the government, but we have, of course, seen before that the timeline is sliding. However, what the Supreme Court has said that a completion of the auction needs to be done within early September. That we understand stands reasonably firm.
So, to be exact on dates, I don't need to be exact on dates, but the timeframe for decisions from the government of India is end of May.
Okay, thank you. Very clear.
We will continue for five more minutes.
Yes.
Next?
Andrew Lee, Goldman Sachs.
Go ahead, please.
Good morning, everyone. Just another kind of, as you described, stretchy question on Norway. I wonder if you could just describe the competitive environment you're seeing in a bit more detail there, i.e., the, the prices, the price environment you're facing from Tele2 and Network Norway, have those stabilized or risen? Do you expect the competitive environment to stay relatively benign through the year? And what risk do you see of the MTR asymmetry being extended by the regulator into 2013? Thank you.
Yeah. I think that the asymmetrical system was drawn up in a very fixed manner a little bit more than two years ago, and it was given a three-year timeline until the end of 2012. I think at that point of time, that was written in stone. But we've also seen initiatives from competitors in Norway opting for trying to get sort of a revised timeline on an asymmetrical system. Where the government, this is not for the regulator to decide. It's a governmental decision. It's a Ministry of Transportation that takes that decision. Whether that will—whether there will be any traction on that idea, I can, of course, not guarantee you.
But on the other hand, I think that the ambitions from a telecommunication policy point of view in Norway has reached its goals by establishing three networks, that of TeliaSonera through NetCom, and that of Network Norway, Tele2, and that of Telenor, of course. So I think the likelihood of seeing that revised, I will at least from my perspective, say is low. On the competitive side, there will, of course, be different initiatives in different periods. So to say it's the competition is over in Norway, that's a definite overstatement.
Competition will be there, and as we were charged of being overly aggressive when we revised our pricing structures in the autumn of 2011, there will be other elements of pricing competition going forward. So I think it's difficult to say that competition is over. On the other hand, it's not as having the same kind of structure as we see in Denmark, for example.
... Thank you very much. Next one?
Peter Kurt Nielsen from Cheuvreux.
Go ahead, please.
Thank you. If I may return to your comments about new operating models and new business models for the Nordic region, highlighting the Danish market, of course, where you announced network sharing agreement. So far, we've heard very little about this. Are you not now talking about a new business model, which I assume involves a lot more than, than simple network sharing? Are you also talking about shared customer service? Could you elaborate a little bit on what's involved here, and also if this is something you see being transported to Sweden as well? Thank you.
I have to correct myself a little bit there, because I used the word business model. What I meant was the operating model, on how we use the different ingredients when in the stack, when we put all these elements together. And the result is services, or services in the market. So, the word business model was a bit incorrect in my presentation. Sorry for that, Peter.
But even so, could you elaborate a bit on the new operating model? What does it involve in terms of shared customer service, please?
Okay, that I can do. The changes in the operating model is basically that, in Denmark, we move from being the sole operator of one network. Two operators will use the same network, which to me, obviously, should give a little bit of the effects that Rickard was alluding to. Then on the customer side, we have written an agreement with a professional customer service-based company, that basically will become our partner for how we source the customer service function in Denmark in the years to come.
Knowing that customer service is both necessary, but still, your own online customer interface will probably mean take a bigger portion of how we engage with our customers in the future. Which means that customer service in Denmark will be based on a professional partnership as a vendor of the function.
I think it's just to add on to your question, I think what we have learned from Uninor the last 2, 3 years on running with partnerships is extremely valuable learning from the group. We have been able, in Uninor, to take down the cost per minute on a comparable basis with the biggest operators in India in just 2 years. And a big part of that is the new operating models, how we have used partnerships for networks, we have used partnerships for the IT, and we use partnerships for customer service in India in a very professional way. And we see now great opportunities in the group to leverage partnerships in a much bigger way.
Denmark is probably now the most aggressive company in the Nordic stack on the new operating models. We'll come back to this in great detail on the capital markets day.
Super. Thank you.
Thank you. I'm afraid that's what we have time for now. Any unanswered questions can be directed to our investor relations department. I think that's all said here. Thank you for-