Good morning, everyone, and welcome to the presentation of Telenor's results for the second quarter of 2011. Whether you are present here at Fornebu, listening in on the phone or watching this via internet or on a mobile phone. I am Scott Engebrigtsen, and I have the pleasure of guiding you through the presentation this morning. We have made some material available this morning as well. That is our quarterly report, press release, and a copy of the presentation to be here. You can find all of this on our website, Telenor.com. There you can also find other alternatives to follow this presentation. We will have a Q&A session directly after the presentation here, as usual.
Then we will start with the audience present here at Fornebu, then go on with the ones participating on the phone. Finally, you will have the opportunity to do individual interviews with Scott Engebrigtsen. To present the figures today, we have our CEO, Sigve Brekke, and our CFO, Richard. First, I give the floor to you, Mr. Fredrik.
Yeah. Thank you, Scott, and good morning to everyone. We're here to address the second quarter of 2011 for Telenor Group. I have to say that operationally, the development in the Telenor Group in the second quarter of 2010, to a great extent, follows the trends and the development that we saw in the first quarter this year. We have a strong revenue growth. We have a strong revenue growth at the top line, and this is driven by strong subscriber growth as well throughout this quarter.
In addition to this, and even a bit stronger than in the first quarter, we have executed extensive investments into management into network modernization and preparing and building capacities for the data explosion that the networks will receive in the years to come, and that we are in the midst of. In addition, we're launching a share buyback program that Richard will give some detail to in his presentation. So let's have a look at the different geographical areas. I will start, as usual, with the Nordics. I want to give a comment initially then on broadcast. In fact, broadcast has also in this quarter done quite nice.
There is a top line, a top line, development here, 50% organic growth, and there is a margin development reaching 26% in this quarter. This is to a large extent driven by more clean activities, both here in Norway as well as also in internationally, particularly in Belgium. In the Nordic region, we are managing the voice to data transition as sort of the prerequisite for moving telecommunication activities further. Both in Norway and Denmark, we have relaunched new mobile site plans in this quarter, and these seem to be well received in the marketplace. At least to the extent that the customer development has been positive for us throughout this quarter.
This is of course a very particular feature that we can see how it grows again in the mobile subscriber growth in both Norway and Sweden in particular. 18,000 new subscribers in Norway in this quarter, and 45,000 in Sweden points to that fact. I'll get back to some deeper details in Norway a little bit later. But the 5%-6% revenue growth in Sweden is on the service revenue, is something that we see as an important feature for seeing Telenor keeping pace with the market development in Sweden.
This is in line with our competitors for the time being, and the reason for us not having the, this as visible on the organic growth figures is that we do not have that much of a handset sales, and that, the roaming side of the business is weak this quarter, as it was, compared to the same quarter last year. The competition in Denmark remains very intense. There is a continued price pressure, and as you know, that is a market where, it has only been allowed to, have a six-month contract period for, new customers. As a consequence of this competitive situation, we have revised the subsidy model completely in Denmark. We did that in, this quarter, and we've seen really good effects from that.
We stopped the subsidizing of the handsets in the contract consumer segments, but there is a rental alternative available. The network sharing deal that we announced with Telia will also secure that we will, in the future, have a very competitive network setup in the Danish marketplace. But of course, it will take some time because before we can reap the benefits of savings and more efficient investments into the network capacities in Denmark. All in all, this quarter is a strong quarter for us in the Scandinavian markets. Even in Norway, there is a stable underlying margin this quarter. We do see, however, a NOK 400 million revenue decline compared to last quarter, compared to the third quarter last year.
This had direct explanations in the 100 and the 100+ million expense tag related to the outage that we had in June. There is a NOK 100 million reduction in interconnect revenues because of the re-regulated interconnection rates in Norway, taking the interconnection rate down to EUR 30 per minute for us. There is a NOK 150 million decline in fixed line revenues, which is a combination of lower number of lines connected, as well as some lower revenues on wholesale revenues. This completes the picture from Nordics as such. But let me add some extra comments on Norway in this quarter. It has been a particularly busy quarter, and some of this activity we could definitely have been without.
The serious network outage that we had in the beginning of June is, of course, to my reference on that comment. The root cause to this has now been identified. We have taken actions on it, and we will, of course, do everything we can to prevent incidents of the kind in the future. As a consequence, also, of course, there is a lot of learning, not only for Telenor in Norway, but the Telenor group as such, as well as industry knowledge in this event. We have then taken the decision to and implemented it, to compensate directly to the marketplace from this outage. And this is one of those elements that takes the revenues down in this quarter by approximately NOK 100+ million.
Adjusting for this compensation and for, related to the network outage, and the decline in interconnect rates, this fully explains the 12% reduction in ARPU figures for this quarter. That leaves us with a fairly stable average revenue per user from a service revenue perspective in the Norwegian marketplace. And we can also state that voice volumes in the Norwegian marketplace are fairly stable, and that the growth in data usage more or less compensates for the fall in the price pressure on voice. On top of these activities, there has been a quarter with intensive CapEx and investments into the network, into new technologies in this quarter as well.
We are recording a NOK 1 billion figure for investments in this quarter, and this is particularly related to 3G, 3G capacities, where we have improved the high speed mobile internet usage for our customers considerably throughout this quarter. And hopefully, our customers benefit from this along the coast in this summer holiday. We are also preparing for LTE and the next generation here. So, with more than 70% of the base stations now swapped, we are moving into another stage, another stages in our network in Norway as we move along. We then move to next region, Central and Eastern Europe.
Also here, the trends are more or less the same as we saw them in the first quarter. Serbia is doing fabulously well. Once again, 18% revenue growth is a very strong figure. And it also serves Serbia to the good extent that it improves the EBITDA in the same way, because we have also a margin enhancement from 40%-44% in the quarter. So once again, we have to congratulate the management in Serbia for being able to position Telenor Serbia the way they are, and that we hopefully also see some improved market shares as a result of these good results.
If we then take a look at Hungary, again, more or less, the same as first quarter, but not of the similar kind of what we can see in Serbia. The Hungarian market, despite being back in positive GDP growth, has not responded in the same way from a usage perspective on telecommunication services. And with the price pressure on interconnect, interconnect rates, there is still a top line pressure on Telenor Hungary. From a margin perspective though, operationally, the margin is comparable to previous quarters, but with the tax, the crisis tax that also been instituted towards our sector, which fully explains the margin dilution down to 36% in the quarter. Let me then raise some few comments to VimpelCom.
Not that much news to report at this quarter. The acquisition of Wind has been done. It's completed by sixteenth of April, and as a result, the ownership of the Telenor Group has been diluted by 20% to 31.67%, to be exact. Although we do in the first quarter see some slight improvements in the market share for VimpelCom in Russia, we are of the solid belief that the group needs to be operationally focused and really look for the new momentum in the Russian market, in particular, as being one of the key markets. And we are there to support the VimpelCom performance and its efforts in that space. And we hope that the new management will be able to really set this direction.
In parallel with this, the arbitration will continue, and through that one, we are we have the ambition of protecting the rights that we had under the shareholding agreement. And maintaining the position that we had before the transaction came through. Then some comments on India. There is a steady growth in India for Uninor in this quarter. We've maintained the growth factors quite steadily from first quarter. In second quarter, we added 4 million new subscribers, ending the quarter with a total subscriber base of 21.4 million subscribers. This results to an 8%-9% market position in the best performing circles, which are UP East, UP West, Assam, and West Bengal.
In these circles in particular, we have achieved to pass some of the other operators, and we can say that we are on the sixth place in that space. This confirms Uninor's ambitions of getting a industry position in the different circles in India. The growth in the economic growth in India maintains itself. It builds further, but still we see that the overall industry, as due to competitive reasons, not started to sort of follow that economic growth. Of course, it being in the midst of the turmoil on the regulatory issues, this is there is probably still a period to wait until this happens. But we are continuously working at bringing forward a also low-cost operator that's needed in the highly competitive Indian market.
That will include initiatives on distribution, network management, and utilization, and also, in particular, the energy, which is so important when the grid is of this weak quality that we have in this kind of market. Then the investigation into the 2G license award process back in 2008 continues. We have managed to confirm the Telenor entry to India as an industry initiative. And we have done everything according to guidelines set forth by authorities, and we are doing everything based on approvals from authorities in that respect. And we are happy to note that there are comments coming out that we see that authorities and other institutions understand this position.
We therefore anticipate that the outcome of these legal processes should not affect our business activity in India, in that sense. But there is still to see the final and new revised regulatory framework that we expect to see during this autumn. Finally, let me then give some comments to the growth figures that we see from our established Asian operations. These are quite phenomenal figures in this quarter, I have to say. Double-digit growth in all four operations. In Bangladesh, organic growth even by more than 20%. The unfortunate side is that there is a weakening of the local currency, so measured in Norwegian kroner, we don't see the same growth figure.
But with a margin enhancement of up to 53%, we can solidly say that this is a good quarter for both Grameenphone, as well as other operators in the Telenor group in the region. Data and are driving this, in particular in dtac and Digi. And the customer demand for data services, in particular in Thailand, demonstrates that there is a need and that the market is ready for 3G. The unfortunate fact, though, is that the 3G licenses and frequencies have not yet been awarded, and also due to the government, the election and the government, the change of government in these days, this seems a bit of a blurred picture for the time being.
But we expect, and we do trust, that Thai authorities will conduct any investigations into established Asian operations. These are quite phenomenal figures in this quarter, I have to say. Double-digit growth in all four operations. In Bangladesh, organic growth even by more than 20%. The unfortunate side is that there is a weakening of the local currency, so measured in Norwegian kroner, we don't see the same growth figure.
But with a margin enhancement of up to 53%, we can solidly say that this is a good quarter for both Grameenphone, as well as other operators in the Telenor group in the region. Data and are driving this, in particular in dtac and Digi. And the customer demand for data services, in particular in Thailand, demonstrates that there is a need and that the market is ready for 3G. The unfortunate fact, though, is that the 3G licenses and frequencies have not yet been awarded, and also due to the government, the election and the government, the change of government in these days, this seems a bit of a blurred picture for the time being.
But we expect, and we do trust, that Thai authorities will conduct any investigations into this and the secure, and the questions that have been raised on, foreign ownership, on, on the dtac. And in that sense, all our structures in, in, dtac have been approved and, and acknowledged by, Thai authorities in previous locations. In Bangladesh, there is a 2G license renewal this autumn. The final terms around that has not been clarified, but we can expect that to happen during the next quarter, because the deadline here is 11th of November. And finally, the operation in Pakistan has done excellently in this quarter results.
There is some top lines and EBITDA margin, record high, for that operation from a margin perspective, having reached a 76% EBITDA margin in the quarter. And this, of course, then also will expand cash flows going forward, despite many other type of challenges that one face in Pakistani market. We also see that we do present very efficient and needed services on the financial, mobile financial services side in Pakistan, where easypaisa is being very well received in these days. Before I hand over to Rick, then, on the financials, we are summarizing the second quarter 2011 in the following way.
I do think we can say that we can confirm that we have that we for the time being in the Telenor Group can be ranked as one of the fastest growing European telcos for the time being. We are in the midst of modernization, which will be tremendously important for us in the periods to come. So we're building capacities for the future here. We have also taken strong initiatives on customer-centric initiatives in such a way that we should improve competitiveness in the local marketplaces. In India, we are working continuously to establish Uninor as an operator in the marketplace, and we do feel that we get recognition for that.
But there is still a long way to go before we can reach the targeted breakeven milestone towards the end of 2012. And we do stick to the INR 155 billion rupee investment case that we have been described before. Operationally, the operational excellence initiatives throughout the value chain in all the operations seem to pay us results. Of course, this is continuous work, and we need to work harder this period by period. However, as a final comment through the whole presentation, the fundamental of the Telenor characteristics on this reporting is the growth factors that we see in the Asian marketplaces.
We are able to feed that growth, we can employ taking part in it, and we do maintain market shares and hopefully also building some market positions while this happens. So with these words, I hand over to Richard, who will take you through financials and details from that part of the presentation. Richard?
Good morning, and thank you, Fredrik. Indeed, it's an honor and a pleasure to present such good results. It's been a business strong quarter for the Telenor Group. And just a few numbers. We touch upon the organic revenue growth in some detail, and then we also have a consolidated EBITDA margin of 31% this quarter, and a 20% operating cash flow. And we have to remember that approximately 5 percentage points goes out to India in the build-up phase. So if it's just for India, Telenor runs now at a 25% cash flow on its established businesses. And this comes from capturing growth, operational excellence, and good CapEx discipline. Going into the figures in more detail, starting with the revenue growth. Yes, we have a 7% revenue growth.
So approximately half of the revenue growth goes away in currency. The reported revenue growth is 3.4%. And it's especially the five markets, the Malaysian, MYR, and Bangladesh Taka, has a decline in value towards the Norwegian krone. However, we also see a very strong new growth component in our consolidated figures from India, contributing by approximately 2.5 percentage points of the organic growth. With the strong growth and the size of the Indian market, you will see that, that will add more and more to the overall growth story of Telenor. On the EBITDA, we have improved both the margin and then, of course, the absolute level of the EBITDA value growth.
Compared to second quarter last year, where we have an EBITDA of approximately NOK 7 billion, we are now close to 7.5 billion EBITDA, an improvement of NOK 450 million. Norway has a decline in EBITDA of approximately NOK 227 million. Half of that comes from the outage, that we compensated the, the customers and, the rest is really related to the fixed, development decline and somewhat reduced prices on, wholesale. This is then compensated, more than compensated by the strong, revenue growth and margins in Asia.
So more than NOK 600 million improvement on the Asian operations this quarter, and also other units like Broadcast and Denmark and others, also contributing in total with more than NOK 100 million, taking the EBITDA up to close to NOK 7.5 billion in this quarter, and a margin of 31%. The CapEx. We have invested about NOK 2.7 billion in CapEx this quarter, which is NOK 200 million lower than the same quarter last year, where it was at NOK 2.9 billion. Despite the fact that Norway have an all-time high investment level of worth more than NOK 1 billion this quarter or 16% CapEx to sales in Norway. Global CapEx to sales here was at 11%.
So Norway increased the CapEx with NOK 250 million, while the Asian units, despite that they're in the midst and preparing for network organizations, invested 100 million less. Of course, investing less in India with about NOK 200 million and other units with about NOK 200 million. We'll probably increase the CapEx somewhat towards the rest of the year, but also taking down the total spending for the year. I'll come back to that. So that gives then the cash flow, and the cash flow has then increased, both due to the EBITDA increase by from NOK 450 million, and the reduced CapEx of about NOK 200 million. So the cash flow has improved to about NOK 650 million year-on-year.
And the effects are the same as I, of course, then explained on the EBITDA and the cash flow. Then we have further down in the P&L. I'll explain the revenues and EBITDA before other items. On other items, we have an effect of NOK 216 million this quarter. And the main effect is that we have reduced about 250 full-time equivalent employees in Norway this quarter, and we have accrued about NOK 176 million for that. That's the main driver behind the NOK 216 million. Depreciation is more or less on the same level. We have high depreciation in Digi, due to the network swap, but lower for the rest of the group.
Then we have to spend some time on associated companies, because we have some effects this quarter that are not recurring. Also not recurring is that we have taken in the first quarter figures from VimpelCom, our share of that. That is NOK 1.4 billion into the associated company line. Then we have an effect of NOK 1.6 billion related to the Wind acquisition. Under IFRS, the solution that Fredrik informed you about, I will dilute it 20%. That is under IFRS to be deemed as a disposal. So 20% of our shares is accounting-wise treated as a disposal. So that's a gain between the market value, also VimpelCom share at closing the transaction, and the book value of NOK 1.6 billion.
Then we have impaired our C More investments, due to lower subscriber development and revenues, and earnings than we expected. That is reducing as line with about NOK 2.5 billion. So in total, we have a contribution from a total of NOK 2.6 billion this quarter. The next snapshot is also an IFRS effect. It's just internal loans that are moved, and one part of the loan can be treated as such accounting, and the other one cannot be treated as such accounting. So that you should not pay any attention to. The underlying financials are quite normal this quarter, and the same with taxes. The big effect of taxes comes, of course, that the VimpelCom accounting gain, VimpelCom contribution and the C More impairment doesn't give any tax effect.
So taxes compared to profit before tax looks quite low, but the underlying tax rate is quite normal. Also, I want to report how we're doing on our operational excellence programs. We have set an ambitious target for OpEx to save about 35% in the year 2013. We started at 39% in 2009. We are not exactly at the last 12 months rolling at 36.7. That's down from 36.9 last quarter, so it's moving in the right direction. On the CapEx to sales, the target is 10%, and we are now at 11. So what are we doing? Well, try to summarize it here in 4 bullet points.
It's, of course, a lot of initiatives, and like Fredrik was saying, we're pretty much modernizing all our efforts. The only big operation that is not started yet is Pakistan. We are downsizing and outsourcing. So far this year, we have reduced Telenor manpower base, approximately 1,000 managers. Last year, it was 50 managers for full year. So we are speeding up also the downsizing, outsourcing programs. Customer service and distribution is a big cost for us, and we see automation possibilities there. And of course, like Fredrik said, continuous improvement is a part of our leadership expectations and a strong feature in the Telenor value stack. And relentless focus and improvement of all business processes is, of course, vital going forward. But I would say, so far, so good.
On the balance sheet, we have a very strong balance sheet in Telenor. We don't have that track, of course, but the net debt to EBITDA now stands at 0.8. I think the industry average is around 2. So we're considerably better capitalized than our peers. However, net debt increased NOK 17 billion this quarter. So if you look behind what drives the increase, we can see that we have paid dividends of NOK 7.2 billion, and we have accrued for the share buyback to the Norwegian government that will be paid now in the third quarter as a debt. So approximately NOK 10 billion is going out to shareholders, and about NOK 3.7 billion in income taxes. The contribution to shareholders and government takes away about NOK 13 billion.
So the underlying operation before tax contributes with about NOK 6 billion positive of cash flow. And this increase in debt was, of course, both expected from our side, due to the dividends and the buyback. Then we are, of course, pleased to announce a buyback program also this year. When we set out to buyback last year, we said that it should be a part of a long-term shareholder remuneration program. So you should not be surprised that this comes out now. And we're building a shareholder remuneration policy so far from increased dividends this year from NOK 4.1 billion-NOK 6.2 billion, compared to last year. And the share buyback program is used around 65 to look after share price.
That will cost another 4.1 billion in this year, and that total payout to shareholders of Telenor will be more than 10 billion. We have said that we want a shareholder remuneration that is competitive. This will take the yield to around 7.5%, and that's slightly below sector average. But with our underlying growth profile, I think that should be okay. Then to guiding. Starting with India, we still guide separately for India. We maintain the EBITDA of NOK 4 billion. The trends are the same as the previous quarters. We are generating the revenues according to plan, and the cost in total are more or less according to plan.
But we are revising down our CapEx again in India to around NOK 1 billion, from before NOK 1-NOK 1.5 billion. The main driver behind this is really operational excellence. We see that the Telenor organization, due to some lack of spectrum, and also the tight cash flow constraints to meet the NOK 155 billion frame, that are able to put more throughput through the base stations than we have seen in any Telenor operations. So, so I would say that's a good news. Some is also timing, that there are some license issues for getting CapEx and base station equipment in, but, but I would say the main part is improved efficiency on the base stations.
Then for the group, we maintain the organic revenue growth of about 5%, or 6.8, year to date, and we're also maintaining EBITDA margin around 31%, year to date we're at 30.6%. We are revising down then the total CapEx to sales from 12-13 to 11-12. I'd say half of that comes from the reduction of India, and the rest of half comes from that we see that will not receive as much CapEx that we expected earlier for the rest of the group. So I'm happy to say that this then will translate into an expected cash flow improvement of 1 percentage point or close to NOK 1 billion in improved guiding. After my presentation, some advertisement for the Capital Markets Day on the 22nd September. We will do a deep dive into operational excellence.
... So, go then, of course, a little more in detail to India, which I think will be a great story also on operation excellence. Of course, the way to make the transition in Scandinavia and particular focus probably at Norway. I wish you all a hearty welcome to the Capital Markets Day on the twenty-second September, and that ends my presentation. Thank you.
Thank you, Richard. We are now ready to take your questions, so I invite you to back on the podium. We will start, as I indicated, with the ones present here at Sollefteå. Please also wait for a microphone to be handed over to you in the second of the ones following us on the phone and on the internet. Any questions from the audience present? Do you have one here from the [inaudible]? Okay. Actually, I think you'll have to stand there, just talk to the ones, so that because there's a light issue here.
Okay.
In then to.
I myself cornered. Sorry.
Okay. Thank you.
Hi, just a clarification on the outlook. You've down adjusted down your CapEx, but your guidance excludes license renewals, et cetera. Can you comment on what your expectations are for the next effect when you include the renewal in Bangladesh, in Q4?
That's the final outcome of the final figure, so to speak, and when it's going to be paid, et cetera, is yet to be seen. So it's quite quite hard to sort of give any view to that question right now.
Yeah. I have another question. On Norway, if you look at what happened during the quarter, you have an adjusted EBITDA margin of 39% underlying , added 18,000 customers. Do you think you've seen the full effect of the network situation or the fault in the network in Q2, or do you think one should expect, if you will, increased marketing or other marketing-related issues to try and reduce the effects of that event? I.e., is Q3 sustainable, as you said?
The direct effects of the fault situation that we had in June is captured in this quarter. The one can call indirect effects that you more or less pointing to. I think that is some that has something to do with the general competitive situation in the Norwegian marketplace. And seeing the effect before the outage of very wide price plans, et cetera. I feel that we have a quite solid momentum getting back and getting out of the somewhat weaker position that we had over the end of last year from a competitive perspective in the Norwegian marketplace and into, and that lasted into first quarter. So from that side, I don't expect sort of extraordinaries.
But of course, we have to give some effort to regain the reputation of the Telenor Group, the Telenor service package to the Norwegian marketplace. And in that respect, we are of course on top of the network operation operations in Norway in a different way, one could say, after the event that we had in June, in June. And we are, as we explained here on Tuesday, in the midst of preparing the final activities. And there is one of the nodes in the core system, the media gateway, that there still is some extra work to be done with also significant price tags attached to it.
Okay, we have a question here from [inaudible].
Hi, how are you? I have a couple of questions. First, for Uninor, you say you are commencing the arbitration that you have talked about before. But I wanted to know that your partner has announced that they want to discontinue the shareholders' agreement after coming below the threshold of ownership. Are you challenging that group's statements or the decision by them to void the shareholders' agreement? And how would you look upon investing further into Uninor? Should it happen that the shareholders' agreement is not there anymore, when the time comes for the arbitration decision? And the other question, with Pakistan, I seem to recall that you put out long-term margin target of 35% at some point.
Seeing that you now successfully have passed that target, can you give some comment on how far you think you can go in terms of developing profitability further?
So for the first one on VimpelCom, the arbitration process is independent from the action from Altimo when it comes to having passed the 10% threshold. The arbitration process, it goes back to the process that happened when the transaction with Wind was defined to be a related party transaction. And in such a case, depriving the pre-emption right that Telenor had. And that's what the arbitration is about. Then, those shareholders, however, were in their full rights to pass under the 25% threshold. So there is no resistance or comments from us in that respect. That was the right of the shareholder that did it. And it was sort of pure mechanics.
And then there is sort of mechanics in the transition period, for 6 months, until the shareholding agreement is on shelf for good. And in that period, we can anticipate that the hearings and process on the arbitration will go on. So these are sort of parallel things. Then it remains to see how the outcome of the arbitration will end. And to your question, we have to sort of ask that question once again, and we know the outcome of that arbitration process, which can be estimated sometime next year. Then on Pakistan, yes, margin of 35% have been reached. Where do we go? Well, we have now been in operations in Pakistan for 6 years. We're on another sixth year.
We are the number 2 player, and 15. We are very satisfied that we have managed to bring forward this kind of performance, this kind of performance. With due consideration to the situation in Pakistan, the environment in general. Where do we go from here? Of course, we're not targeting to take it down again. And other markets in Asia are sort of moving at in the 40% bracket. Do I indicate that we will reach for 40? No, we will at least push for further improvements. So that may lead Pakistan to sort of that kind of expansion.
Okay. Let's take another here from sir.
Well, first, securities there. There are some particular negative revenue drivers in Norway, and this quarter, which will probably not repeat itself. But still, it's obvious that there is a significant pressure on revenues in Norway. On the other hand, you have positive drivers, and the most important one probably being mobile data. My question is, in the longer term, are the positive revenue drivers so forceful that we can expect positive long-term revenue growth in major telecom markets? Or do we have to live with slightly declining revenues over the longer term?
Well, that is the key question to the whole industry. I think that has been asked to all CEOs in Europe for the time being. There's price pressure, sort of on existing services. We have to register it will move on. Regulation will also make sure that there will be a price pressure on the roaming side, the roaming aspect of the industry. And the initiative that Brussels took last week is among the structural solutions to come, probably in 2012. But on the other hand, the volume growth on data services here will be significant, and the industry needs incentive to entertain that growth.
And this is sort of inherent in your question: How will we see revised pricing structures coming forward, when there is a data-driven activities in the network, more so than a voice-driven? So, to be sort of 100% exact on, say, your question, I think we have to to bear with the uncertainty for a period of time on how those incentives will end, in the industry as such. So, what we see here in Norway for the time being, we do compensate in rough terms for the price pressure on data growth. So data growth is compensating for price pressure. Then we have still sort of, because we have this big voice fixed voice part of the equation in Norway, still a declining curve, which might be primarily from that one.
But from what you can see is that in the Scandinavian market, data growth compensates the price pressure on voice.
Okay, we have one more question here at the back. Please.
Thank you. So further than the markets. Just two questions. One with respect to Denmark. Is that a preview with respect to reduced subsidies in other markets as well, or is it just a function of the poor lockup, availability of subscribers there? And second question, you mentioned the India, efficient efficiency on a per line basis. Is this something which is exportable to other markets as well? And if so, what could be the effect of that?
... In Denmark, the driver for the reduced activities on subsidies is primarily coming from the competitive legislation that only allows for 6 months contracted period, whereas the same tax in Norway is 12 months, and it's even 24. So that's sort of a prime differentiator from the 3 markets. But since connectivity only and usage only has become more paramount to important characteristics when people buy their communication needs, then the split between the handset and the connectivity part is coming through also in other segments, in both, well, in Norway in particular, because one operator in Norway is only pushing connectivity and voice only and leave to the customer to take sort of part of their terminal, their handsets criteria.
So yes, you can say that there is a development in other markets in the same direction. Will that embrace all segments? Probably not, because there will be segmental preferences here, which will play out on what kind of balance you will find. As to CapEx, I think, Richard, yes, there is a lot of learning from India in that respect into other markets, and maybe you can elaborate that a bit.
Yeah, I don't, I don't think the learnings from India is not only related to a 2G voice network. We see that those learnings can be exported to 3G and also 4G environments. And TeliaSonera has never done network sharing activities if it hadn't been for what we have learned in India. So that's a very learning element.
Okay. Any more questions from Oslo? If not, I think we will turn our attention to the ones following us via the phone. And we have a lot of interest from those, so I will have to ask you to be brief if you can limit yourself to one question each, and eventually a follow-up question if something is unclear. So then I pass on the call to the first question, please.
Andrew Lee, Goldman Sachs. Go ahead, please.
Hi, thanks for taking my question. One question, maybe with a follow-up that's slightly different. On Norwegian Mobile, you touched a bit on the competitive environment there. Tele2 highlighted yesterday that MVNO pricing pressure was easing in Norway. I wonder if you could comment on how you see competition into the second half of the year. And whether you believe your recent tariff refreshes that reduced churn in the second quarter will be enough to keep churn down through the year? And then a second question, if I may, just on Indian mobile. I wonder if you could just give an update on your perceived likelihood that you get the extra 6.2 MHz of spectrum that you had hoped to receive. Thank you.
In Norway, the competitive situation in Norway is definitely driven by the asymmetrical termination rate structure that we have in Norway for the time being. This is what fuels the competitive strength of the attackers for the time being. There is no doubt about that. The asymmetrical principle has been adopted by the government with the intention of getting more investments into the infrastructures of the mobile systems, and establish the groundwork for the third operator. What really happens is that you get a stronger price competitive marketplace, rather than more and more significant investments, in particular in the outskirts of Norway. That won't happen.
The guarantor for sort of the very good both coverage and capacity level that we have in the mobile systems in Norway is still Telenor and will be so for many years. The profile on the asymmetrical termination rate structure is so that they will be gone by June 2013. So we are now in 2011 in the period with the highest differentiator because Telenor is running on 30%-30 EUR per minute on termination. And the strongest, the widest differentiator, if I'm not mistaken, is 90 EUR to some to two of our competitors. And this profile will be gradually reduced from now on through in January.
The change is on two occasions in 2012, and be taken away in 2013. So we can expect this kind of competitive pressure to maintain through the autumn and into at least the first half year of 2012. But having said that, the revision of our own pricing structures and the repackaging on service packages in the Norwegian market, we see positively at this stage, during this quarter, as we have reported, and we do feel that we have a competitive price point under the present circumstances in the Norwegian marketplace, right now.
Something other than that, then for India, on 6.2, I don't think we can expect a release from 4.4 to 6.2, before the regulatory framework that will is presumed to last and to be in play in India for the coming years will be declared. Earlier this year, this was expected to take place in March 2011. If you go back to 2008, when the new licenses were awarded, there was a three-year timeline until the regulatory framework should be revised in March 2011. But because of the turmoil, this has been delayed, and it was anticipated to be seeing something in August, but I won't be surprised if it will move longer than that.
We feel, as a last comment, we feel definitely that we have fulfilled all requirements, and as such, be eligible to receive the incremental frequencies to 6.2 in the circles that we have applied for.
Let me add to that, Fredrik, that the improvement we now see in India from the base station also makes the 6.2 in the short term less critical. In the original plan in India, we should have really needed 6.2 now to build, and to avoid building more base stations. But we're pushing so hard now on the base stations that we have, so we can postpone when 6.2 is needed to build more. So, sometimes it's good to not have something.
Okay. Next question, please, and remember, one at a time, please.
Next, Rory, it's John, Citigroup. Go ahead, please.
Thank you, and good morning. One other question on Norway Mobile, Rene. The new tariff plans seem to have had a good impact on net add. I'm just wondering, are you expecting much of a negative impact on service revenues going forward, obviously, to get, to regain a competitive position, as you had to take a slight, slight knock on the service revenues? Thank you.
No, certainly not. That's not the intention with the new tariff plans. Of course, the whole point is there to have the tiered pricing, and as the data consumption grow, as the consumers will move up in the staircase to higher budgets. That is the philosophy behind this, but of course, the competitive pressure and especially this asymmetrical termination rate, which is really penalizing our competitors, make that more challenging as long as we have that scenario. Hadn't it been for that scenario, I think we would have seen a significantly different service revenue development already.
Thank you. One quick follow-up, Rene. You now refresh your tariff plans in Norway and Denmark, and just very good tiering on data, and Sweden maybe remains sort of an exception, with the tiering not really the initial bucket being one gigabyte of data. Are you gonna look at revisiting the Swedish data tiering, in the short term?
I didn't actually check that, no, but-
Sorry. You've now got good data tiering in Norway and Denmark, following your recent tariff refreshes. And from what I can see, Sweden remains the next one in line, in the sense that doesn't the data tiering there, isn't that effective?
The competitive structure in Sweden is a bit different, because we don't have the MVNO structures in place in the same way as you have in Denmark and Sweden. Maybe that is sort of a differentiator that loosens, like, your question.
Great. Thank you.
Next, Andy Barnes, UBS. Go ahead, please.
Yeah, hi. It's Andy Barnes at UBS. I'll just ask the one question, and just on your revenue growth guidance, you talk about it being above 5% now for the full year. Just given the first half of the year, you were running at around 10%. Do you expect to slow down in the second half of the year, or is the above 5% guidance, perhaps sort of now being more of a sort of above 6, above 7% guidance? Thanks.
I think we have stated in our guidance above 6%. I don't think it's... we'll go here into detail and trying to nail that down to an exact figure. So thank you.
Next question, please.
Next, David Wright, Deutsche Bank, London. Go ahead, please.
Yes, it seems Andy might just have asked my question, but I maybe feel inclined to just push a little more. I mean, you actually exited Q2 with an even stronger revenue growth rate. I think Q1, you did 6.6, and you're saying H1, 6.8. So that's implying Q2 exits at probably around 7%. In which particular lines of business are you expecting more revenue pressure in the second half, that leads you to that more cautious guidance? Thank you.
Well, let me then try to elaborate on that one. Well, above 5% is above 5%, so let's agree to that, Dave.
... But remember also that we are comparing second half of 2011 with the second half of 2010. And the growth momentum started really in the summer of 2010. So in a way, we are comparing up against higher, higher baseline, so to say. Maybe that gives some light to your question.
Yeah, that's great. Thank you.
Next question, Peter, go ahead, please.
Thank you. Yeah, question for Fredrik. You've been to Norway and Sweden, but it's a question on Denmark, where your margin has reached a close or with a long-term high. Is that the evolution of the handset subsidies, or is it sort of underlying cost options that has boosted the margin there? At the same time, how do you view - have you seen an improvement in the competitive environment in Denmark, as indicated by some of your competitors? Thank you.
Well, with your dialect, you're, you're in a way, you know these things, quite well, I should anticipate. No, the Danish marketplace is as competitive as it was before, Peter. That's for sure. We don't, we cannot say that we see any ease in warfare. But the results that are being delivered from the Danish organization is coming from the change of philosophy on subsidies, as well as cost, general cost efficiency initiatives in the value chain as such. And this has to continue. That's, it's as easy like that. And what we have done to prepare ourselves for that in the future, is to join forces with TeliaSonera.
In such a way that the number 2 and the number 3 player should be in the position to from a network perspective compete both up against TDC with that kind of combination.
Okay, thank you.
Next, Ulrich Rathe, Jefferies. Go ahead, please.
Hey, thanks a lot. On India, I was wondering what you think in general about consolidation centers there, not specifically to Uninor. So the way I would phrase the question is, even the minister was talking about sort of having fewer numbers per circle. The question is: would you rather think this is a question of larger operators hoovering up smaller operators? Do you think the more likely way to fewer operators per circle would go along the lines of smaller operators joining forces and sort of building out the small operator in greenfielders, joining forces and sort of getting scale through that? Thank you.
It's my impression that, as many others are expecting, that the consolidation in India, in India will be some way to go. And that is easy to say. And what's needed before that can happen is that there need to be a clarification on the regulatory framework, and it's very good that ministers and others are indicating that this is the way to go. But still we need to see that framework. And the most important factor in that sense is the potential governmental or regulatory implications that might come when you consolidate spectrum. So, in other markets, this is generally controlled through the competitive legislation, competition legislation. Whereas in India, this has been controlled consciously by allowing small slices of spectrum to a high number of operators.
It's this philosophy that needs to be changed before we can say that there is a climate whereby consolidation can happen. From a Telenor perspective, we would be completely open to all kinds of talks and potential structures, and see what kind of window of opportunity that might arise when these things are being brought to more clarity.
Thank you.
Next, Jakob Bluestone, Credit Suisse. Go ahead, please.
Hi there. Just one question. You were obviously in the ring for Polkomtel and, obviously were not successful in it. Are you looking at any other parts to cut there? And if not, can you maybe elaborate on why you perhaps didn't do a larger buyback, given where your balancing position is?
Yeah, I think we don't comment specifically on M&A. But we have also stated that we will look at opportunities within our core regions. And of course, in doing that, like I said before, I think it would be a mistake not to look, but we're doing it through a very disciplined approach. And we have not seen Telenor making any new significant moves on the acquisition front since India. And I think you should take that as a credit, that we're working very disciplined on M&A. When it comes to the level of the buyback, I think it's very important for us-
... to build stone by stone on the shareholder remuneration. And I don't think you will see us aiming at any special dividends or any single large buybacks, but we will build a competitive shareholder remuneration over time, stone by stone, without any big surprises in the negative or in extremely positive direction. That will be in line with our long-term policy for everything we do.
I just have to follow up. In terms of balance sheet, and you obviously mentioned earlier in your presentation, have one of the less focused balance sheets in the sector. Is that because you're waiting to find out what happens with the arbitration case for regarding VimpelCom? Or do you see yourself kind of gradually building up over time, or how do you see that leverage evolving over the next few years?
Well, we have said that we need to maintain a strong balance sheet, and we have defined that as the EBITDA below 1.6. Right now, we are at 0.8. We also said, when this conflict arose on the preemptive rights of VimpelCom, that we will have no problems both maintaining a competitive shareholder remuneration and also execute on the preemptive rights very successfully in the arbitration. And, we'd like to use those rights at that point in time. So I don't see any conflict on that scenario from my point of view.
Thank you.
Next, Will Miller, Vector Research. Go ahead, please.
Thanks. Just one question. Just, I'm just trying to present a sort of bearish outcome on Russia and then get your response to that. So if VimpelCom continues to lose revenue share, as it currently is, and if you then lose your arbitration case, you just talked about, and over the, you know, next six months, 12 months, you see your call insights diminish, as Wind gains seats, would you then consider selling down your stake in VimpelCom over time? Thanks.
That was a lot of ifs. Let's take them one by one, one by one, if they happen-
Yep.
Rather than sort of giving an explanation to each one of them right now. Thank you.
Next, Angelo Pan, Nordea Markets. Go ahead, please.
Yeah. So, a couple of questions on India. First of all, you report stable ARPU and very high minutes of use in the quarter. I have picked up that there are talks about better pricing environment in India, with some tariff increases from some of the competitors. Is that something you are seeing at the moment? And maybe that didn't happen already in the quarter. Can you say something about the pricing environment? Secondly,
Sorry, I will have to stop you there. We'll have to, please, just one question and a follow-up.
Okay.
So let's have the first question. Yes, there are some initiatives seen on off-net tariffs in India. So these are very minor. These have very minor effects on the revenue structures of the operators. But on the other hand, yes, we have seen some initiatives of price increases, which sort of opens up the pricing environment slightly better than what was the case before. We have seen it, and we will respond to this from our side, from what we see relevant from Uninor position in the different circles. And this is not-- This is done circle by circle also, by the way, so it's not necessarily some national feature.
Okay. A question on, you explained the EBITDA improvement with, improvement in growth margin. And still you maintain your EBITDA outlook for the year in India. Is that explained by expectations of new launches, and when should we expect that?
No, we don't plan any new launches right now. Of course, we are interested in launching in the circles we are not launched. But in some circles, like Delhi, we don't get spectrum, and in some we get awful spectrum. But I think we need to see the regulatory environment come more in place. And in the meantime, we'll build operational excellence in the circles we're already in. So regarding this year, there is no, there's no significant CapEx in the circles we're not in. And with proper impact in the different circles, we are anticipating and expecting that we become a better potential partner to discuss with on structural changes in the future.
Okay. Thank you.
Next, is Yannick Desmulliez, BNP Paribas. Go ahead, please.
Thank you very much. One question on Norway and the network outage that you've seen in the course of the quarter. I'm just wondering if you can elaborate a little bit on what happened. What kind of backup plans you've put in place is necessary to make sure that you don't get the same issues arising in some of your other markets as well? Currently, we're placing networks pretty much everywhere, but Pakistan, as you said.... So I was just wondering if there is an element of risk that we can see that's happening in other markets, and if this is the case, what kind of backup plan you have?
As well, I'm just wondering if that is going to have any impact on the outlook you've provided for 10% CapEx to sales in 2013 in Nordic operations, excluding India. Thank you very much.
This is a question which really have over half an hour press conference in itself. So I have to limit myself to to sort of say that what happened was that in the core in the CS core, the voice part of the mobile system, we had components from suppliers that did not deliver at specified level under a very specific event that occurred when the outage happened. And we had a separate press conference on that a few days ago, but the material can be taken from there. I think I have to say that. What we have done on that in our case is that we have together with our supplier in the field extended some capacities.
We have introduced some patches to circumvent this kind of incidents. We are very sure that this particular incident will not happen again. As to the rest of the operations in the Telenor Group, all the networks in the Telenor Group or in the industry, for that matter, none of them have exactly exact same configuration. And remember, the network has been built gradually, year by year, and as it happens, because of also the competitive pressure and the type of frequencies that are available to these operators. So there are no such thing as an exact import and similar configuration from one operation to another.
But rest assured, there is a lot of learning on what happened in the Norwegian network, both for Telenor and the industry as such. And a number of operators have taken interest in how this could happen and how it has been mitigated, of course. As to the second part of your question, there is not any impact into our guiding figures from this outage event. It's just for what we are reporting for in this quarter.
Thank you very much.
Next, is Per Lindberg from Nordnet.
Thank you. Just a couple of pieces on Scandinavia. First, on Denmark, in order to help us understand the development going forward, can you specify how much revenues and EBITDA you had from your contract with Onfone in the quarter, please? And, secondly, if I may, just to comment on C More and the impairment, you bought that, I think about a year ago. What went wrong there, and how do you depreciate the quick basics?
Well, when it comes to Denmark, you can really find our wholesale revenues in our P&L. So you see that being disclosed. I don't think we should disclose specific customer revenue, but what I'm saying is that, of course, Onfone is a significant part of the report on the wholesale there, and that will be, of course, transited out our networks as we go forward. When it comes to C More, I think the development is largely due to lack of premium content in C More, and that the effect of that has been a higher subscriber loss and weaker results than at least both the company and we had expected.
This has to do with the premium content?
Yes, it's really related to sports content, I would say. That the lack of some premium soccer in particular has led probably to higher subscriber losses than at least we expected.
Thank you.
Next, Mark Chapman, Credit Suisse. Go ahead, please.
Hello, it's Mark Chapman from Credit Suisse. I just to return to the question of the shareholder agreement. Following Altimo verification, I was just wondering what your thoughts are on potential conflicts of interest between your own operations in South Asia and Telenor or Alfa.
Yeah, in Pakistan, this has been clarified by national authorities as being not a problem in the Pakistani marketplace. These are parallel operations today. They are run as parallel operation, and that will continue. They compete in the marketplace, and that will also continue. Bangladesh do not have the same legislation in place, so that section is okay for the time being. And the sharing agreement and the principles under which was done will show that the first comer in any market has the right to stay there. And the second comer will have to resolve any type of challenges that might arise coming from such a combination.
So just to follow up on that, so this has a built-in, so first in first out principle is always expected to apply once the terms are coming to expires?
Yes, this is quite clear. This will continue like that.
Okay, thank you.
Next, Maurice Patrick, Barclays Capital. Go ahead.
Oh, hi there. Yes, Maurice from Barclays. Obviously you've got a lot of moving parts inside Mobile Norway, but you have refreshed your smartphone tariffs. But presumably, a reasonable amount of the base is on the old tariffs. So I wonder if you could help us understand the size of the snap up, in terms of those customers? How many customers currently are on the much higher tariff, or do you have actually been actively bringing them down? Thank you.
Now, this is both yes and no, really. Because we are also actively migrating customers from old tariffs, as we call them, into relevant tariffs of sort of the price and competitive field. So this is work that continues is ongoing.
Okay, thank you.
Next, James Britton, Nomura. Go ahead, sir.
Good morning. Network effects, attached to the modernization plan, was one reason for the negative margin impact in previous quarters. Can you just clarify what that impact was in Q2, in Norway, for example? And does this spend completely drop away after 2011, when the network modernization is complete?
If I caught you right, you were pointing to negative margin development in Norway, were you?
As a function of the network modernization plan. To what was, what was the impact?
Yeah. Network normalization do not necessarily have a great impact on the OpEx side of the Norwegian operation. Of course, there are higher activities, but the bulk of that work is capitalized as investments. So, but when it's done, and look to Montenegro, where we've done this, where we did this last year, then we see sort of at the back of a completion of such a network swap, there is a higher degree of efficiency in the network, that one can capitalize into competitive ability or improve margins as we move forward. And competition will decide how that, how there, so to speak, will be utilized.
There are still several waiting in line, the questions, but I'm afraid the time is running out on us, so we will have to-
Another five minutes, yeah?
Five minutes. Okay, five minutes. Then the next question, please.
Next, Kevin Yates, Royal Bank of Scotland. Go ahead, please.
Hello there. Yes, I have a question on the Swedish mobile market. Consumer sentiment has been falling for a while now in Sweden. Interest rates have been on the rise, and I was wondering if you'd see any behavioral changes among your customers, more to do with economic reasons than any other reasons?
No. We have not seen that as of yet, and on the contrary, spending in Sweden have been on the rise. After, it's like a quarter period in 2009, after the financial crisis, that we've seen that the Swedish economy have really produced economic growth factors of significance. And are back in line, so to speak. So then one can ask, how long, for how long will it will it last? Well, let's take that on the general competitiveness of the Swedish economy, which seems to stand strong.
Okay, that's all good. Thank you.
Next, Soomit Datta, New Street Research. Go ahead, please.
Yeah, a question on India, please. I was hoping you could just provide a quick update on the future funding prospects there. You're still taking these short-term international loans, I believe, which are fairly punitive rates. I just wondered if there have been any further discussions with Unitech, any talks of equity raising? And also, just perhaps, help me understand, if you're fully guaranteeing the loans, the short-term loans, why, why is exactly you're paying such high interest rates on them? Thanks very much.
Yeah. I think when it comes to the relationship with Unitech, we are, we are, of course, pushing for a right issue, as we feel that it's a better funding than short-term loans guaranteed by Telenor. And yes, at this point in time, all the loans over Uninor is guaranteed. When it comes to the interest rates on the loans, I would say they're quite normal in India. You must bear in mind that the Indian interest rate regime is at a high level, also due to special regulations. But I don't think we pay any-
... higher interest than what you would see normal to compare with in India, due to the strong presence of Telenor.
Okay, thank you.
Next question, please.
Next, Barry Zeitoune, Berenberg. Go ahead, please.
Hi, just another question on India, please. Given that you're pushing harder on your network, and that you now feel that you've postponed your need for increased spectrum, your aim is at 30 million subs at the end of this year, 50 million by the end of next year. When do you think that need for spectrum will materialize? And what is your plan B, should you not be allocated the spectrum in the course that you would expect to be?
There are some factors that really need to be in place in order to run a mobile operation. Number one is spectrum and license, and given that we have not been able to get to 62, we have been able to find sort of new ways of running higher capacities within the existing framework that we have. And these we are both on tests for the time being, as well as on commercial initial basis. Number two is numbers. You need access to number capacities, share telephone numbers. And we are scarce on telephone numbers for the time being. And the newcomers only was awarded per circle, numbering capacity according to a sequence on when they entered.
And we have numbering shortages now in some circles, which is sort of bottleneck number two. And again, since the regulatory framework is in the term that it is, it's difficult to get released with the spectrum of numbers. And the ultimate consequence of that is that you have to run with your existing customer base, and the existing capacities that you have in your network and tune down the sales activities.
Just let me add one thing. That some of the best performing circles, like Fredrik alluded to, like in the Hindi belt, UP East and UP West, they have needed the extra spectrum long time ago when they pushed the network, but they're starting to need it now. It's been postponed significantly. So we are applying for the spectrum and pushing hard for it, because we see that it's vital for the long term business case, even if we're able to push more products to the base stations.
On a monthly basis, we've seen your subscriber additions slow marginally over the course of the last few months. Is that deliberate then? Because you're pushing already as hard as you can on your CapEx and you don't have enough spectrum.
It's deliberate in the sense that we are churning out customers earlier than we under other circumstances would have done.
Okay. Thank you.
Okay. Thank you. I think that's what we have time for today. Other select questions should be addressed to our investor relations department. I'd like to thank you all for paying attention this morning, and thank you.
Thank you.