Good morning, everyone, and welcome to the presentation of Telenor's results for the third quarter of 2011. Whether you are present here at Fornebu, listening in on the phone, or watching this via webcast or on a mobile phone. My name is Scott Engebretsen, and I have the pleasure of guiding you through the presentation this morning. We hope that everybody has the material that we have made available for you this morning. This can also be found on our website, Telenor.com. That's our press release, the quarterly report, and a copy of the PowerPoint presentation to be used here in a minute.
You can watch this presentation live or in recording on either the internet or on a mobile phone, and during the presentation, you may also send in your written questions, and you will find instructions on these alternatives on our website. We will have a Q&A session directly after the presentation here, and then we will start with the audience present here at Fornebu, then switch over to the ones participating on the phone. And today, we will try to keep this session within one hour. So I will kindly ask you to limit your questions to one per person, and a follow-up question if clarification is needed. There will also be opportunities to do individual interviews after the session here.
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.
Thank you, Scott, and good morning to everyone. I'm of course very happy to stand here today with these third quarter results. They come forward very strong. They are solid. They build upon what we have achieved over the last couple of quarters, I have to say. Once again, I think under quite difficult circumstances in many areas of the world, in the economic area for the time being, we are coming through with some strong results.
We can be proud that our systems, our people, and our companies basically has found their way through this quarter, where competition is tough and where there is growth in some areas of the world and where the growth is being searched for in other areas of the world, in other areas of the world. At the same time, we have to think of those countries that have their practical problems for the time being, primarily thinking of Thailand in this respect, where the water problem, the floodings, are so severe and it will, it, and it's assumed that it will take weeks before the effects of this has come to its full visibility, and that the society starts to work again.
In the midst of this, we are delivering a quarter which is characterized by a very strong operational performance across the group, really. The organic growth rate continues at 7%, which was in line with the first half of 2011. We have connected 5.5 million new subscribers in this quarter, primarily in Asia. But also in some European countries, we have come back into building new customer base. Along with this, we have been able also to improve the EBITDA margin, and as a consequence, also the operating cash flow. I'm so eager getting to the figures here that I forgot to push the button. Sorry for that.
But with the solid EBITDA margin that we have been able to build through this quarter, we can now see a NOK 5.5 billion operating cash flow in third quarter alone, and that is all-time high. And it counts NOK 15.3 billion of operating cash flow for the nine months of this year's operation. Based upon this strong performance throughout this quarter, we have also adjusted our guidance for the year, and Richard will come back to these more in detail. Let me then continue to the operating units, and I want to start with Norway. Here we have in this quarter managed to get back into the marketplace and build the market position by adding 31,000 new customers in this quarter.
That means that the negative trend that we had for the two previous quarters have turned, and we've based upon the revised service offerings that we came to the market with in second quarter, we now see a positive development in this third quarter. And as of the end of September, we had roughly 380,000 subscribers on these new price plans. And these new price plans, we believe, is important to relate between the bundles, between data and SMS and voice in this new setup.
The mobile ARPU figure in Norway is stable, when we exclude the effect of the reduced termination rates that we embarked upon beginning of this year. And really, the growth in data, both traffic and volumes are offsetting the price erosion that we can see on voice and SMS at this stage. The revenue decline of close to NOK 300 million, compared to third quarter last year, is explained by reduced revenues from fixed voice, roughly NOK 100 million, interconnect, around NOK 90 million, and non-mobile revenues related to handsets, et cetera, of also roughly NOK 90 million Norwegian kroner. So that explains the reduction from third quarter last year to third quarter this year.
I have to say, it's a good cost control that has been active also in this quarter, and the OpEx reduction of NOK 109 million year-on-year is a result of steady work on the cost side. It slightly also improves the EBITDA margin for the quarter. The mobile network swap in Norway is now completed. That was done in October. I'm very pleased to see that that project has went through this year as it has. Despite the hiccups that we had in June, which was not a direct effect of this, but the overall swap is now done on 2G and 3G, and we are well prepared to also implement the LTE technologies later on.
This embraces 6,500 base stations, and there is 9,500 sites altogether in Norway, so it's quite a significant work over a pretty short period of time. We will, of course, continue to build on the good quality network that we now have, and we will reach out for the LTE generation. And that will, of course, again, improve the capacities moving forward in parallel with 3G, as well as more fiber connections to base stations. In this sense, we are investing strongly into mobile capacities, into the networks.
And, from that base, we also need to arrange for the new pricing models in such a way that the rational pricing level can continue, and that the long-term profitability of these investments stands out in the same way as previous investments have done in our industry. If I then take a look on the rest of the Nordic operations, and I'll be brief on this one. But in all three countries, we have noted this quarter, and an increase of the customer position that we have in each and every market: 38,000 new customers in Sweden, 37 in Denmark. And, this was also really needed because we've had a couple of quarters in Denmark, in particular, where we've seen a reduction in the customer base.
So it's good to see that also Sweden and Denmark can come back into with good new activities that gets response in the marketplace. Regarding Denmark, we have to note that the service provider, Onfone, will leave the Telenor network in Denmark, in September, which means that the fourth quarter will be the first quarter into which that wholesale player will be on another operator's network. All in all, I think we can say that the third quarter is a good quarter in the Nordic region. There is an EBITDA improvement in all operations, and it's in fact an all-time EBITDA margin in all-time high in both Broadcast and Telenor Denmark.
Finally, I want to just mention that during the license auction process for 1800 Megahertz band in Sweden, the Net4Mobility cooperation with Tele2 achieved a good position at reasonable and acceptable terms for the spectrum resources lasting for 25 years. Let's then move south in Europe and in Central and Eastern Europe, the economic parameters in the countries stands a little bit differently and somewhat weaker than what they do in the No rdics. Telenor Serbia, once again, a very good quarter, follow the trends from last year. There is sort of from last quarter, there is the same development trend on basically all parameters.
There's a 5% ARPU lift, there's a larger subscriber base, and when you then also manage to keep track of your cost structures, the EBITDA margining also moves slightly upwards. Also, Telenor Serbia is in the network swap, generally considered to be 75% into that process, and as in other countries, we expect this to benefit the cost structures longer term. In Hungary, a bit more challenging macro environment, still challenging... However, the revenue trend is not as negative as it has been in previous quarters. And if we adjust for the tax, the crisis tax, and some other elements, we are on a stable EBITDA margin at 44%.
But of course, it looks rather dramatically re-registering a positive one-off in third quarter 2010, up against this tax burden that has come in for 2010 and 2011. The EU has requested Hungary to abolish this crisis tax. And, of course, we welcome the EU initiative on that. There is a hearing on the issue, and of course, we expect some results to come out of that process later on. Some few words on VimpelCom. The Q2 results of VimpelCom was slightly lower than previous quarters, and this was impacted by the integration of the incoming activities from Wind and Orascom.
Although there is over the last quarter some improvement in the market share in Russia, we believe that there is still a need to significantly strengthen the operational focus of the group. Of course, it's very well aligned with our view, the way the VimpelCom management now express the same needs going forward for that group. We also explore together some areas of cooperation between the Telenor Group and the VimpelCom Limited, where there could be benefits to both of us of an industry cooperation. There is an interim dividend declared $0.45 per share, which we assume will be paid out in fourth quarter. On the arbitration process, there is really nothing that much new to report.
We don't have any extra or any new details on this at this stage. To the jewel in the reporting package this quarter, Asia, I really have to give compliments to all the CEOs, the teams, and our colleagues in the four established operations. Not to leave India out, I will come back to some comments on India after having taken some comments to the four established operations in Asia. There is actually a 12% organic growth level in these four countries and four operations, and all of them are above 10%.
We here record 7% on Thailand, but there was a one-off settlement with CAT in third quarter last year, which built the figure a little bit artificially. So adjusted for that, also Thailand is above 10%. And this happens in a very fast growing economic environment in all four countries, but there are also, as you know, challenges on many corners in every country. Not to mention the regulatory situation, both in Thailand, which was very much challenged through the change of government, but now seems to be better on track.
And also, of course, the license renewal process that is ongoing in Bangladesh, where we had some surprises, so claims coming up, closing very close to the expiry of the license, which is tenth of November, just a couple of weeks ahead. In the midst of this, we have to think of Thailand, which have practical problems that might create sort of disturbances also to the economic development in the country, as well as disposable incomes with many people in that country. We haven't seen those effects as of yet, but we will have to be prepared for some consequences in that direction.
In the Bangladesh license renewal process, I think we can say that we have managed to separate the claim that came forward in the beginning of October from the license award process, license renewal process. And I think that there will be a longer period of discussions with the regulator over the claim issue that has appeared. Closing in then on India, and when Mr. Brekke has heard that I gave some positive words to the four CEOs and the teams in the four other countries, I also have to give some recognition to the Indian management team this quarter.
In a competitive environment, Uninor managed to build a customer base where the one that built the most, the highest number of new customers in this quarter, or in September month, which is the latest statistics from TRAI. Gradually, we can now see that the EBITDA has been... The EBITDA losses has been declining... This is a result of the efficiency measures that we have introduced and the more focused strategy on how to go to market. We are still on the track to EBITDA break even in 2013, and we maintain the NOK 155 billion peak funding that we have had for the project all along.
There is a long-awaited new telecom policy on the way, and we definitely urge the government to come forward with this, commit to the industry, so that the industry can develop more in on a framework that is more known, transparent, and a level playing field for all operators. To summarize the whole thing, it's a solid quarter. We have confirmed our positions as a sort of one of the European fast-growing telecoms also for this quarter, driven by the growth in Asia. There is, of course, a lot of headwinds in the macroeconomic environment. But we also believe that this industry, and Telenor in particular, has a good position to face consequences that might come out of this.
The operational focus will continue to keep on the good work, so to speak. We want to manage the transition from voice to data in as smart a way as we possibly can. We will continue to develop Uninor towards a ultra-low-cost operator, a niche operator, which are very focused in its go-to-market strategy. We will drive the operational excellence initiatives in the group. With the ambition of being a bit more impactful across all our operations, given also the organizational changes that we introduced previously this autumn.
And with this, with the execution that we so far have managed to do in 2011, I think we can also aspire towards good performance on the ambitions that we have set under the revised strategy and the revised organization. With these words, I leave the floor to Rikard, which will, who will take us through the financials as well as the adjusted guidance. Rikard?
Thank you. Good morning also from me. Yeah, I will take you through the financials in more detail. I will update you on the share buyback program, and I will go through the revised guidance. Let's just then start with the financials. I'll not repeat what Fredrik has said, but I would just like to point out that we're particularly pleased with the margin this quarter. The 33.7% EBITDA margin is actually an underlying improvement of almost three percentage points to the third quarter, 2010. I'll come back to the explanation of that. And also, that we're in the midst of the network swaps maintain our CapEx to sales around 10-11% is quite good.
So that explains the strong cash flow of NOK 5.5 billion from a financial point of view. Moving then on to the revenue growth, and it's important to point out that although organic revenue growth is around 7%, the reported revenue growth is slightly above 2%. And the reason for that is the strong appreciation of the Norwegian kroner so far this year, compared to the same period last year. So reporting a revenue growth of slightly more than NOK 0.5 billion, while appreciation of the kroner constitutes about NOK 1 billion compared to the Asian currencies in the third quarter. So on same currency basis, our revenues would have been actually NOK 1 billion higher in the third quarter.
You can look at the breakdown to the right in the slide, and you see that we have one unit that contributes negatively to the revenue, and that is Norway. That's already explained by Fredrik. It's not on the mobile ARPU decline when we adjust for the mobile termination rate. It's so important to kind of stress this. This is related to the continued decline in the fixed termination rates and handset sales, and also that we sold Telehuset to Kjaer Group earlier. And then on the reported side, you see that it's India now that's contributing. The rupee has kind of been stable towards the Norwegian kroner quarter on quarter. So the big part of the organic or reported revenue growth is due to India.
Then on the margin side, 33.7%, and that's on a reported basis, it's one percentage points up from the same quarter last year. But I said that the underlying, it was close to 3%, and that is related to some of the same one-offs that Fredrik reported on. That we had a significant one-off in dtac Q3 last year, related to the interconnect. We had the crisis tax in Hungary this quarter, and also a bad debt provision in Hungary, Q3 last year, reversal, and also a one-off in GP. And all of those constitutes about one percentage point on the EBITDA margin. And then the currency movement in itself also constitute about 1% on the margin.
So on stable currency and without one-offs, it's really an underlying improvement of 3 percentage points on the margin. And it's across the board, this quarter is not only the Asian units, but you also see that the Nordic units have lifted their margins. On the CapEx, we have increased the CapEx by NOK 376 million this quarter compared to the same quarter last year. The headline on that is network swaps. It's all related to the network modernization with the exception of GP, where we also launched a dynamic pricing concept quite successfully and spent some CapEx on that. The cash flow, or sorry, the CapEx is stable Q3 compared to Q2.
The cash flow, and the cash flow margin is just a function of the EBITDA and the, and the CapEx, so we don't have to go in detail here. But it's important to point out that, now the Asian units and also the improvement in Uninor has lifted the 12, 12 months rolling cash flow up to close to NOK 19 billion. And that's quite strong in the middle of, the India, rollout and, and the network, swaps. And excluding India, we are now at, 27% cash flow margin year to date, and 28% for this quarter. So, then we can, take a look at, P&L. We have a net income this quarter of NOK 2.6 billion, up, approximately NOK 900 million from, same quarter last, year.
Already, taking you through the revenues and the EBITDA before other items, where we see an improvement of close to NOK 400 million. Then on other items, we have very small effect, net effect on other items this quarter. So I don't go into detail there. But the EBITDA then goes up by close to NOK 600 million on a reported basis. Depreciation is NOK 200 million lower. That's due to reduced depreciation in the Nordics, largely due to the network swaps are now coming to an end. So the EBIT is almost 800, no, 750 million stronger than same quarter last year.
Then we see the VimpelCom effect, which is quite big this quarter, that the contribution from associates goes down from more than NOK 1 billion to slightly above NOK 600 million. And Fredrik has already been through the explanations for that. Net financials are stable despite our debt level has gone down, and that is due to the mix of the debt, that we have more debt now in Indian rupee than euro-related currencies. So profit before tax stands then at NOK 4.7 billion, approximately. And then we see that we have reduced tax expense this quarter.
But I have to point out that we accrued NOK 814 million in third quarter last year, related to a claim from the Norwegian tax authorities, on a swap arrangement we had earlier. So, but I should also point out that the tax rate this quarter is slightly higher, and that is due to the reduced contribution from associated entities, VimpelCom, because that is an after-tax number we take in there. And when we calculate the effective tax rate, the lower the contribution from the associates, the higher the effective tax rates. So I think that reconciles then the change in the net income or approximately NOK 900 million.
Then on the balance sheet, we have reduced the debt level of NOK 3.6 billion this quarter, and the net debt to EBITDA now stands at 0.6, down from 0.7 in the previous quarter. And as you recall, on the Capital Markets Day, we introduced a cap on net debt to EBITDA of 2.0. That is based on a research we did, what should be an appropriate cap for a company like Telenor, and is more in line with the rest of the telecom sector.
And like we did on the Capital Markets Day, I would also like to stress now we have no concrete plans to kind of utilize the headroom between where we are now on the balance sheet and the cap we introduced at the Capital Markets Day. When it comes to the specific changes in the net debt, these are quite straightforward this quarter, but I would just like to point out that we now have significant dividend payments to minorities in Asia, in Thailand, Bangladesh, and Malaysia, and we also have significant tax payment to the governments in the same countries. I think you can see some of the issues we are facing now on the regulatory side. It comes from the fact that these units are financially quite strong.
But anyhow, the Telenor Group balance sheet stands very strong and is now among one of the strongest in the telecom industry. Then I take you through on the share buyback program, because I think there has been some questions and confusions on this. There are really two programs that are kicking in with financial effect this year. It's the program we launched July last year, and the program we launched July this year. And the reason for the small confusion is, of course, this system where we also buy back the pro rata amount from the Norwegian state. So, last year, we bought 23 million shares in the market.
Then, the Norwegian state also sells us, but after the shareholder meeting, the year after, their pro rata number of shares to their ownership rate. So that took care of 50 million shares that was canceled August this year. But from a cash flow perspective, we paid NOK 2.1 billion in the market last autumn, and the NOK 2.5 billion we paid this summer, and a total NOK 4.6 billion spent on this program, but only NOK 2.1 billion hitting the cash flow in 2010. Then we launched a similar program July this year, and now we have all the 22 million shares we should buy in the market.
We are a little bit more than 50% through, a little bit more than 11 million shares. That we aim to have completed by year-end, and then we'll go through the same procedure. We'll go through the shareholders meeting in the spring, and then after that, the state—we will buy back the shares from the Norwegian state and then cancel the shares. So the cash flow effect this year will be the Norwegian government, the shares bought from the Norwegian government state that arise from the 2010 program, and the shares we buy in the market this autumn, and then the 26 million shares to be canceled and purchased from the state will come into the cash flow in 2012.
So I hope that explain the mechanics here, and if not, our excellent IR team can help you further on that. Then towards the end, the outlook for 2011, we're approaching now, the end of the year. And based on the better Q3, I think we adjust our guiding on three parameters. It's India. We have a lower cost in India, so we take down the EBITDA loss in India from NOK 3.5 billion-NOK 4 billion to... Sorry, from previous around NOK 4 billion, to an EBITDA loss of NOK 3.5 billion-NOK 4 billion.
Not a big adjustment, but it's important in India to all the way find ways to reduce the cost and improve the operations, so we're proud that we can take it down also a small notch, this quarter. Secondly, based on the third quarter, we can increase the EBITDA margin, slightly. Previously, it was about 31%. Now we say that it should come in about 31% for the year. And the third, which is not really a strengthening in my view, but it's more that we can be more precise, that we have been guiding revenues above 5% all year, and we have been running close to 7%, between 6% and 7%.
We say now that based that there are only a couple of months left of the year, we can state that organic revenue growth will be around 6%-7%. So, based on what we have reported and our outlook and our financial position, I could just also end like Fredrik that we are quite well prepared for the times ahead. Thank you.
Thank you, Rikard, and we are now ready to take your questions, so please raise your boxes. We enter the podium. We'll start, as I said, with the ones present here. Please wait for a microphone, and also please introduce yourself before asking your questions. Anyone? Here, please, Espen Torgersen.
Hi, it's Espen Torgersen in Carnegie. Just a question regarding the clarification regarding the regulation in India. Could you highlight which parts of the regulation you're most focused on? And could changes to legislation impact your future strategy in India?
The most important part from our point of view is that, the terms of the license, that were awarded in 2008 stands firm, when it comes to, the frequency allocation from, 4.4 to 6.2. Our business case needs that capacity, in order to handle the traffic, both growth that we are able to, create, as well as, volumes needed to, build the revenue side of, of the business. Number two, and that, that happens, at, at the terms that was envisaged back then in 2008. And number two is also to clarify, the, spectrum consequences if players in the industry consolidate.
That was expected to come through three years after the license award in 2008, namely in March 2011. And as you know, the ongoing process have not given any clarity on these kind of questions, despite the fact that the regulator have given some-
... loose statements and, some loose recommendations at this stage. But it remains to see, how the telecom industry ultimately decides those parameters. And of course, the result coming out of these processes, we will have to relate to and ask ourselves questions on how we're going to handle them. Yeah, I think that answers the question.
Question here, please?
Yeah. Hi, Christer Roth from DNB Markets. Just a quick question on the quite aggressive campaigns you're running in Norway with respect to mobile at the moment. What kind of ARPU impact do you expect these to have for Q4?
Well, the idea with the price revision is, of course, that there is a transition from voice and SMS to data. If the pricing structures do not follow that transitions, you might lose out on getting the new volumes in the data area priced sufficiently up against the investments done in order to realize that data growth to happen. I think we have taken a firm direction on the pricing structures in that sense, where bundles have become more visible. Norway is a competitive marketplace, and we've seen that before, and also that when you revise pricing structure like this, we also entertain a little bit of usage growth going forward.
Any further questions from the audience here? Doesn't look like we have any further questions here, so I turn our focus to the-
A quiet Tuesday morning, eh?
Phone conference hosts, please introduce the first questions from the-
Ori, it's John, Citigroup. Go ahead, please.
Hi. Good morning. Thank you. One question on the strong margins in the Nordic region. I was wondering, has there been a significant or a positive impact from the lack of an iPhone launch this quarter in lower marketing expenses, and therefore, it should be expected slightly seasonally weaker Q4 as you had the iPhone launches in that quarter rather than in Q3? Thank you.
You were hacking, unfortunately, a little bit in the initial phase of your question. Could you repeat the first part of it, please?
Sure, sure. Fine. I was wondering if there's been a positive impact from the lack of an iPhone launch this quarter on margin in the Nordic region.
Ah, then I see. No, we can't see any impact of that, as of yet. This is... The period for that is far too short. But of course, the new functionality of the new handsets coming forward, that integrates SMS into messaging platforms, and then becomes part of the data connectivity, rather than sort of the traditional voice and SMS connectivity part, has also to do with our initiatives on how to revise prices and meet- and to meet that kind of development. So, where we stand now, we do not see sort of volume changes.
We have probably been at the peak of SMSs, as such, but we do not see any deterioration on the minutes for voice at this stage in the Scandinavian countries.
Thank you.
Next, Andrew Lee, Goldman Sachs. Go ahead, please.
Thank you. I've got two questions on Norwegian Mobile, and then one on fixed, if that's okay. On mobile, your Norwegian Mobile revenue declines appear to be abating a little. So I wondered if you could talk about whether the level of competition you're seeing from Tele2 and Network Norway has changed at all, given the acquisition of Network Norway. And how do you expect competitive intensity to shift next year if the regulator upholds the MTR symmetry? Do you think it's too early to talk about a return to growth in Norwegian Mobile at some point in 2012? And then just lastly, on Norwegian Fixed, what do you think is driving the small improvement in revenue trends that we saw in the third quarter? And is that improvement sustainable? Thank you.
The competition intensity driven by the asymmetrical system that presently the smaller players enjoy, there is no doubt that an asymmetrical system, I said it before and I say it now, leads to price competition more than network deployment in rural Norway. The asymmetry is expected to last for another nine months. And when that happens, one could, of course, hope that everything moves back to normal. But on the other hand, I think there are so many factors that plays into what is creating this competitive landscape that we have in Norway, that might be difficult to say.
But generally speaking, one should anticipate that the telco part of the Norwegian society basically should be able to build rather than to reduce the overall value creation in the Norwegian marketplace because of the mega trend of things moving into the digital area like that. Then on fixed, well, the improvement that you see is that the reduction factor is not as strong as it was on previous quarters, reduced from being minus 3 to 5, now being minus 3. So whether that is a long-term feature or not, I'm not really sure of that. But one could probably argue that the number of lines might settle in on a certain level here.
But I wouldn't interpret that much of a, of sort of a long-term signal into that 3%. But I—we are, we are, of course, happy seeing that the factor as small as we possibly can.
Thank you. Just to clarify on this kind of shift or changing intensity of competition in Norwegian mobile, have you seen prices come down even further in Q3 and into Q4? Or have we seen some elements of price stabilization from your competitors, specifically in Network Norway and Tele2?
I think we will see a competitive area where bundles with different contents and different combinations trying to target specific segments, user groups in the marketplace, will characterize the competitive area going forward.
Thank you.
Next, Barry Zeitoune, Berenberg. Go ahead, please.
Hi, good morning. It's Barry Zeitoune from Berenberg. I'm gonna try and push my luck with two questions as well. On Norway, the underlying RP trends were stable. At the capital markets day, you mentioned two different impacts of the high-end customers, potentially trading down, having a negative impact, partially offset with the bulk of other subscribers, actually trading up so that they could get more data. I was just wondering, given that 12% of your base now have the new subscriptions, how far along in that process is each of those user groups? For example, is the user group that is high-end trading down further along in that process than the bulk of other customers, so that you could expect a positive RP trend going forward, underlying RP trend going forward?
The second question is on taxes. You're now guiding to a 31% tax rate for this year, versus 30% previously. I was just wondering whether, going forward, 31% is a rate that we should be thinking of, or are you expecting a rebound in associate income to drive a lower tax rate going forward? Thank you.
To the first part of, to your first question, we have, roughly, slightly below 400,000 customers on new price plans, which is, roughly one third of, the postpaid base that we, all in all have. So whether we can say that we are, at a balancing point where, sort of the high consumers and the low consumers starts to, balance each other off, I think that's a little bit early to sort of state solidly that we have reached a crossing point on that. But it was, of course, our ambition to reach such a crossing point where we can build revenue again.
Maybe I should answer the tax part. Yes, you're right, it's the associates and VimpelCom that drives up the effective tax rate. What has been communicated from VimpelCom in connection with the Wind merger is that it would take approximately two years to get an accretive effect on the, I think they said, the cash flow of EPS in VimpelCom. If you translate that back to the EPS, so there is a couple of years transition period there, where there could be an impact on the tax rate of Telenor due to lower contribution from VimpelCom. But of course, that is a statement VimpelCom made, that we just refer to.
On our other operations, there are not really any significant changes in the taxes. There are some adjustments in the tax level in Thailand that will come in later, and that will have some effects.
Excellent. Thanks very much.
For the next questions, please limit yourself to one question each. Thank you. Next question, please.
Jakob Bluestone, Credit Suisse. Go ahead, please.
Hi, there. I was just trying to understand the development in your Pakistani business a little bit better. It looks like you've got a slowdown in subscriber growth, but revenue growth is sort of picking up, and RP growth looks like it's accelerating as well. I was just wondering, could you maybe give us a little bit of insight into what's going on in that business, and perhaps in that context, how sustainable is the strong mid-thirties margin that you're delivering in Pakistan?
I think we can say that, the Telenor Pakistan operation has done, very well in order to, position the Telenor service offering. Also, Pakistan being, characterized by a pretty strong competition, because, one could anticipate that in particular, the China Mobile-owned Zong, would have, strong ambitions and have been building customer base at, at a pretty, high pace. But, earning also customers with, lower RPs than, the two market, than the market leader and, Telenor being number two. We have also to, recognize that, the subscriber growth in Pakistan has been quite strong for quite a long period, and penetration has come, come high.
In that sense, one could expect that there are sort of thresholds here before you unleash demand in new segments. So that's happened in markets before, and it may be that Pakistan is at such a level in this time. Then you also have to correct for the fact that third quarter is a lower low activity type of quarter because of Ramadan, et cetera. So I think there is a number of area factors playing in here. But Telenor Pakistan has moved very well over the last year. The economic development in Pakistan is quite different from what you see from the security side of it. So from an operating perspective, we are rather positive on the Telenor Pakistan's position. I think I'll leave it at that.
Can I just ask a quick follow-up? Is any of that growth coming from non-voice revenues, or is it all voice?
No, also in Pakistan, there is, there are value-added services, and, also the Easypaisa, the financial services section, will, will be part of that, non-voice revenue stream. Not that it builds, significant revenues at this stage, but it creates, it's a churn prevention thing. It adds new functionality to the Telenor Pakistan customers, and it, brings financial services to people that are, generally speaking, not part of the financial community in, in an efficient way. So when you can reach a digital solution on these things, phenomenal things happening at the local micro, economic activity level.
That's very helpful. Thank you.
Yeah. Just a comment that, if you look at the Pakistani figures, it's really three things. It's the subscriber growth, it's the ARPU growth, and the rest is the financial services. So financial services are starting to have an impact on the top line as well in Pakistan.
Next, Stefan Gauffin, Nordea. Go ahead, please.
Yes, good morning. I would like to ask a question regarding Denmark. This quarter, you lost at least part of the Onfone, high margin, wholesale revenues, and also, you reported a significantly stronger subscriber intake. And despite this, you reported a 28% EBITDA margin. Can you give some information regarding the EBITDA margin development, given your change in market strategy in Denmark, stopping subsidizing handsets, etc., etc.?
Yeah, I think the effect on the wholesale customer leaving our network was not very big in the third quarter. That will have effect from the fourth quarter. And indeed, Denmark is a competitive market. I think going forward, we have to reduce costs even further, and we are looking into some quite ambitious initiatives in Denmark to be able to maintain our – and hopefully also over time, to improve our margin in Denmark. The Onfone in itself added two percentage point to the improved margin in the third quarter.
Okay, thank you.
Next, William Milner, Arete Research. Go ahead, please.
Thanks. I just want to pick up on an earlier question on Asia, but just looking at the revenue growth rates, particularly in Thailand, Malaysia, and Bangladesh, seems that it's really being driven by very high, still high subscriber growth rates rather than ARPU. And I just wonder if you can talk, you know, in those three markets about the remaining growth potential coming, you know, in terms of an extension of subscriber growth, how long that will continue? And whether this is coming from new users to mobile, multiple SIMs, just how you see that penetration growth potential remaining.
Well, I think the picture is a bit more varied than what you said, because both Thailand and Malaysia, and Malaysia in particular, really is moving very rapidly into data services. And DiGi, as you might remember, got access to 3G one year later than the two other players. But despite that, has managed to really come up with data offerings that has been attractive, obviously, to the marketplace, and have been able to sort of establish a fair share and growing data service offering in Malaysia. And data is also sort of on the minds of the Thai people.
When we launched the 800 3G service just this summer, we have seen a phenomenal response on how, of course, segments of our user groups moves rapidly to data and embrace the data connect connectivity that mobile systems offers. So we are quite optimistic on how that can can move forward. But of course, it's also linked to the general economic climate, thinking of some potential negative effects on the economy in Thailand, in particular, because of the floods.
Can maybe just add that, the real underlying penetration in Bangladesh and Pakistan stands at probably around 30 and 50%, and that some of the RPU effects you see in Malaysia and Bangladesh in particular is that we target new segments in the rural area, which naturally has a lower RPU. So if you segment the RPU development, the picture is somewhat different.
Thank you. Next, Maurice Patrick, Barclays Capital. Maurice?
Oh, yeah, hi. It's Maurice from Barclays. On India, you've seen an improvement in the EBITDA trajectory. You talk about increased volume, scale efficiencies, cost optimization. Can you just help us understand a bit more about some of the slack and the churn dynamics in the course of that? Certainly was an area at the Capital Markets Day where you highlighted it was an area that needs to improve, so some more clarity on that would be great. Thank you.
Well, I'm afraid I can't sort of give you facts and figures on that. But generally speaking, I think all operators would love to get rid of their churn. However, since there is a competitive field out there, churn is unavoidable. But of course, to reduce that by adding services to the mobile handsets in such a way that the loyalty and the trust factor can play positively between the service provider and the customer base, is, of course, what we all want. So, and in particular, the most important country and operation to get our hands around that one is for India. But the churn will definitely not go away in India.
But on the other hand, we when we have been in the marketplace for a longer period and sort of establish the Uninor name, one should also anticipate that we manage to retain our customers at a higher rate than what we do today. But remember also that these markets are all multiple SIM areas, where users have phones that can automatically maintain more than one SIM. Which means that customers will be in constant search for what kind of efficiency they get, spreading their calls according to the offerings from the operators. So this is sort of a dynamic field where we always need to be on the search for higher efficiencies.
But to sort of be very clear on whether we are sort of unilaterally successful on that, I think that's a too strong statement. I think this has to be worked out with a an ambition and a direction.
Great. Thank you.
We have time for one more question, and other questions may also be directed to our Industry Relations Department. Last question, please.
Last question, James Britton, Nomura. Go ahead, please.
Thanks, thanks very much. My first question is actually on the financial services opportunity, but I think that's basically been addressed. So, can I just ask about the margin guidance? Given where you stand after nine months, the margin guidance of above 31% doesn't really allow for much increase in seasonal customer investment in Q4. So is... I mean, is there any reason why there should obviously be a flat margin in Q4, other than, you know, perhaps a less aggressive in marketing investment strategy for that seasonal push on customer growth?
Yes, I think we have improved our margin guidance, like you say, James, but I think there are really three effects you need to be aware of going into the fourth quarter. It's the season effect, like you said, but also the loss of Onfone in in Denmark, and also that the revenue share in Thailand will increase.
Mm. Has increased.
Has increased.
Okay, I think that leaves us through the hour as stipulated.
That concludes the session here, yes?
Yeah.
Thank you all for participating.
Thank you.
Thank you.