Morning everyone, and welcome to Tele2's report call for the 1st quarter of 2022. With me here in Kista, I have Charlotte Hansson, our Group CFO, Hendrik de Groot, our Chief Commercial Officer, and Stefan Trampus, our Head of B2B. Before we go into the results for the 1st quarter, I'd like to say a couple of words about the war in Ukraine that has had a profound impact on society as a whole and for the people here at Tele2. The war has caused major uncertainty and stress for all of us, and we are participating in efforts to help some of the people that are suffering from the atrocities by temporarily offering customers in Sweden, Baltics, and Ukraine free calls and text messages to and from Ukraine and free roaming for customers located in Ukraine.
I'd like to turn your attention to the results of the quarter. Moving to slide 2. I'm really happy to see a great start to 2022, both in terms of end user service revenue and underlying EBITDA growth. End user service revenue grew by 3% for the group, driven by both the Baltics and Sweden B2B. It is especially encouraging to see the impressive dynamics within Sweden B2B that now is able to grow with 3% in end user service revenue. The strong end user service revenue growth, together with continued growth within Sweden wholesale and execution of the business transformation program in Sweden, resulted in underlying EBITDA growth of 6% for the group.
As we previously have announced, we are happy to see the T-Mobile Netherlands transaction finalized, and with the proposed extraordinary dividend from the cash proceeds and the proposed ordinary dividend, we are able to offer our shareholders a significant dividend yield for 2022. I'm also happy to see the new strategic partnership together with Viaplay that we announced in the quarter. Through this agreement, we are able to modernize our TV proposition and prove that our aggregator model, which historically has been successful in the linear world, also works in a streaming world. Within fixed broadband, we see continued strong performance, both from an ASPU and volume perspective.
In the TV segment, Tele2 Play+ continues to provide promising results ahead of the new TV propositions. We continue to see an improvement within Sweden B2B end user service revenue driven by the mobile and solution segments.
Within the mobile segment, we see the improvement coming from both a volume and ASPU perspective, which is very promising. Even though we have not seen any material impact on supply chain issues in this quarter, we prepare for different scenarios and continue to monitor the situation. In the Baltics, we experienced yet another quarter of fantastic performance, both in terms of end user service revenue and underlying EBITDA. Here, we see more pressure from a cost perspective than in Sweden, especially in terms of electricity costs, which offsets some of the underlying EBITDA growth. We also, in the quarter, further improved our spectrum portfolio by acquiring spectrum in Latvia in the 1,500 MHz band. Let's move over to the Swedish consumer segment on slide four.
Mobile postpaid saw lackluster net intake as competitors ran intense campaigns and high commission in external retail during the quarter, while some COVID-19 restrictions still hampered market activity. Mobile ASPU saw a slight decline in the quarter, partly driven by a 10 million SEK negative one-off in the quarter. Fixed broadband continues to show good performance, both from an ASPU and a volume perspective.
We see that the price adjustment that we did last year are continuing to have a positive effect on the base. In digital TV, cable and fiber, we see continued contribution from Tele2 Play+, which helps to grow the ASPU in the quarter. However, the overall customer base continues to decline, which hampers end user service revenue growth. Moving to slide 5. Mobile postpaid end user service revenue was flat in the quarter as a slight ASPU decline was compensated by slight volume growth.
We see continued end user service revenue growth in the fixed broadband of 4%, driven by both ASPU and volume growth. Total end user service revenue for digital TV declined by 4% in the quarter, primarily driven by continued decline in the legacy DTT TV service due to a declining customer base. Let's continue with Sweden B2B on next slide. The mobile net intake continued to be strong in the quarter, driven by new contracts both within SME and large segments. The mobile ASPU trend continues to show improvements with a slight decline of just 1%. Continued mobile volume growth and strong growth in the solution business was able to fully offset the decline in the legacy fixed business, resulting in Sweden B2B growing end user service revenue by 3% in the quarter. Let's turn to an overview of Sweden.
End user service revenue was flat in Sweden, as growth in Sweden B2B was offset by continued decline in the legacy services within Sweden consumer. Underlying EBITDA increased by 5% in a quarter compared to last year, driven by slight end user service revenue growth, Sweden wholesale, and contribution from the business transformation program. We should note that the mechanics of our negotiations with NENT led to some cost avoidance in Q1, and that costs related to this contract will apply going forward when we use more content to upsell and promote growth in the TV business. Overall, we continue to see strong cash conversion of 65% as continued underlying EBITDA growth offsets higher CapEx levels. Let's move to the Baltics.
We are happy that similar to previous quarters, we continue to see strong volume and ARPU growth in all markets as roaming is starting to come back in a meaningful way, and we are able to monetize data through our more for more strategy. In Estonia, we were able to successfully execute on our customer acquisition campaigns, which yielded a good net intake for the quarter. This ARPU and volume growth led to a strong end user service revenue growth for all markets, and we saw the Baltics grow by 13%. The end user service revenue growth in the quarter was able to offset the increased pressure from rising inflation rates, which resulted in underlying EBITDA growth of 8%.
We continue to see a high cash conversion for the Baltics due to the strong performance and relatively low CapEx levels prior to the nationwide 5G rollouts. With that, I'd like to hand over to Charlotte, who will go through the financial overview.
Thank you, Kjell, and good morning, everyone. Please turn to page 12 in presentation. Strong end user service revenue and growth of Sweden wholesale, coupled with continued execution of the business transformation program, resulted in solid underlying EBITDA. However, this was partly offset by headwinds stemming from rising inflation rates, primarily in the Baltics. In total, underlying EBITDA increased by 6% in the quarter.
Depreciation and amortization continues to be higher on a quarterly basis compared to last year, as we started amortizing the Com Hem brand in May 2021, when we consolidated the old Tele2 and Com Hem brands into the new Tele2 brand. Results from associated companies and joint ventures increased significantly in the quarter compared to last year, as we saw a 1.6 billion SEK impact from the capital gain from the T-Mobile Netherlands investment, which was completed in the quarter.
FX losses from hedges connected to the T-Mobile Netherlands transaction was the primary reason as to why we saw net interest and other financial items increasing by roughly 100 million SEK in Q1 2022 compared to Q1 2021. Let's continue with the cash flow on slide 13. CapEx paid was lower in the quarter compared to last year, as we had a spectrum payment in Sweden related to the 3.5 gigahertz spectrum auction of 333 million SEK in Q1 last year. Changes in working capital was negative in the quarter, primarily driven by timing of accounts payable. Taxes paid increased in Q1 2022 compared to last year, as did a final tax payment related to the fiscal year of 2020 in the quarter.
We continue to see strong equity-free cash flow with SEK 900 million generated in the quarter, yielding an equity-free cash flow from continuing operations of SEK 5.9 billion in the last 12 months. Please move to slide 14 for the capital structure. At the end of the quarter, we saw economic net debt decrease to SEK 14.3 billion, driven by the cash proceeds received from the T-Mobile Netherlands transaction and cash generated in the quarter, which resulted in a leverage of 1.5. We expect to pay out the cash proceeds from the T-Mobile Netherlands and the first tranche of the ordinary dividends in May, once our shareholders have voted for the two propositions. If we adjust for these two payments, leverage would have been 2.6.
Please turn to slide 15, where we will update you on the progress of the Business Transformation Program. During the quarter, we made significant progress within the Business Transformation Program. We have started migrating the first batches of customers on the Tele2 brand onto the new IT stack. So far, this has been going smoothly, and we expect it to be done later in the year, upon when we will start migrating customers from Comviq and Boxer onto the new IT stack. We also continue to make optimizations within the organization, primarily in the technology and IT organization. The annual run rate of the Business Transformation Program was SEK 600 million by end of Q1. The P&L effect of this was SEK 140 million in the quarter, with a net effect of SEK 70 million compared to Q1 2021.
With that, I will hand over to Kjell.
Thank you, Charlotte. Then please turn to slide 16 for a summary of the key priorities going forward. In Sweden, we have now finished the golden clusters and have started the wider 5G rollouts. Similarly, on the fixed side, we will try to further ramp up the speed on our Remote PHY project in order to gain the benefits from this investment as soon as possible. Both of these projects are key for us in order to increase customer satisfaction, which will support our more for more strategy for years to come. We will continue executing on the business transformation program to deliver at least SEK 1 billion of savings by the end of Q2 2023.
In Swedish Consumer, we will continue to balance value and volume in order to build sustainable growth while gearing up our capabilities to address the 1.3 million non-FMC households. We will also continue to build our premium brand in order to increase customer satisfaction that we can monetize through reduced churn or price adjustments on the back of product improvements. During 2021, a lot of focus went into stabilizing the B2B business in Sweden. Now that we have achieved that, we will turn our focus towards the TV business, which has historically been the second drag on Swedish end user service revenue growth. The agreement with Viaplay is a key part in this strategy, and now we have a more competitive offer out in the market.
We will start migrating linear customers onto our new TV propositions during Q2, and we will launch our streaming propositions later in the year. In Sweden B2B, we will continue the turnaround that we started during the second half of 2021 by executing on our new granular approach with clearly defined segments. Going forward, our ambition is to grow in the business for the full year. As in any business, it usually does not develop in a straight line, and fluctuation should always be expected. We are witnessing a very important and sustainable shift within B2B. In the Baltics, we will continue to build on the performance that we've seen and execute on our mobile-centric convergence strategy through more for more offers in order to make sure that we can sustain the growth.
With the 5G auctions now concluded in Latvia, we'll start to ramp up the 5G rollout while preparing for the auctions in Lithuania and Estonia, which we expect to occur this year. At the same time, we will continue to develop, explore, FMC capabilities. During the quarter, we signed a wholesale agreement with Baltcom in Latvia, which means that we now have FMC capabilities in all countries. We've had a very good start to the year, with low single-digit end user service revenue and mid-single-digit growth in underlying EBITDA in the quarter. When we presented the recent Q4 results, I said that Tele2 is a growth company at heart, and that we are witnessing the positive results from our strategic initiatives. With yet another quarter completed, I'm even more certain that we can reach the goals that we've set for ourselves.
With that, I'd like to turn it over for some questions, please.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero followed by the one on your telephone keypad. Our first question comes from Andrew Lee from Goldman Sachs. Please go ahead. Your line is now open.
Yeah, good morning, everyone. I just had a question on your Swedish consumer growth acceleration outlook. You seem pretty confident on that. I wonder if you could talk us through the key drivers on what will accelerate your Swedish consumer revenues from the flat delivery that you delivered in Q1. Then, particularly within that, I was wondering if you could talk about the 2 components of price rises whether that will be your price rises can be more this year than last year to provide a boost to growth, and then same on upselling. Do you think your scope to upsell customers to higher speeds at a higher price is greater than it was a year ago? Thank you.
I can start, and I'll hand over to Hendrik. It's of course more granular. We see an overall okay performance in the fixed area, and we've talked a lot about how we have strengthened the basics now for our TV position. We can actually move TV from having had relatively big negative numbers on linear to now stabilizing that business. That, all other things equal, will be helpful. Then I would say this quarter was a bit disturbed by one of the players using massive commissions and quite strong offers out in your limited space. We think that's a temporary move from that player, and we have basically focused on value rather than volume here. We think that's gonna stabilize, and that's gonna help us to promote growth. Hendrik?
Yeah. Thanks, Kjell. Andrew, just to add a couple of more color points to it. I think if I look at the outlook, a couple of considerations here to take along. First of all, macro environment, we do feel that we're getting more solidly out of the pandemic, which, you know, we did have and we found ourselves still in in Sweden in general in, you know, January and February. We see that March, you know, is much more buoyant. I think that will certainly help us throughout the rest of the year if that sort of remains the trajectory.
Secondly, we do feel that also, if you look typically at our quarterly profiles, that, you know, as we move into Q2, Q3, and Q4, in that sense, we have seasonality picking up again. That will certainly on the mobile side, you know, have its effect on, for example, the variable revenues. To Kjell's point, you know, in terms of the competitive nature of things, we do play for value in this market. Of course, we're also looking at the careful balance with volume, but we consciously decided to stay the course this quarter.
You do see, though, in the context of the market that you know we need to look at the channels and what we need to do also in the 2nd quarter to move forward, which we're doing. I would also want to say that last points, that as we move into this quarter we will see some effects right from price adjustments and from roll off of Q4 campaigns all coming into you know all playing out into the regular base.
That's based on a strong and I think continued outlook and sustainable outlook on broadband and the effects of moving the TV proposition in the 2nd quarter onto its new packages during the period May to July certainly will help, you know, gaining that momentum on the consumer business as we go along.
Thank you. Can I just ask one follow-up? You obviously mentioned the large commissions used by a certain player during Q1. We also saw Telia raise mobile pricing across its, you know, main brands. Overall, what's your perception of the market, i.e., or how much price rise it will afford you to be able to make? Is the market presenting a greater platform for price rises this year versus a year ago or 2 years ago, or less of a platform for price rises?
I would say the way we look at it, Andrew, is that, you know, in the end, we do feel there's always momentum for certain price adjustments. I wouldn't say the current inflationary environment, you know, gives us an additional opportunity as such, but because at the same time, the customers may get used to inflationary pressures. They're also getting more conscious about their spend. I think it's always a balanced game. We do that in the context, of course, of competitive environment, because if you adjust your pricing on the one hand, but on the other hand go very aggressive on your offers and discounting, then you still end up with a zero-sum game.
Yes, we're looking at you know the potential of price adjustments like we do every year. We've already implemented some of these on the broadband base in the 1st quarter, as you may have noted.
Yeah. Thank you.
Thank you. The next question comes from Ulrich Rathe, from Jefferies. Please go ahead. Your line is open.
Yeah, thanks very much. I wanted to ask two questions, please. The first one is on your inflation commentary, which focuses very much on the Baltics. If you take this one step up to the group level, would you say that this is starting to put some pressure on guidance? Or does the guidance essentially bake in more or less what you are seeing in terms of actual inflation developments? Or is there a picture, you know, as an alternative where you can adjust plans near term to adjust whatever inflationary pressure is higher than you expected, maybe at the time of issuing the guidance in the first place? That would be my first question. The second question is on the B2B comment.
Obviously, you had a very strong Q1 now, and you're highlighting that this isn't gonna be a straight line. Could you talk a little bit about which areas the volatility could come in and where maybe Q1 was unusually strong compared to what you would expect for the rest of the year? Thank you very much.
Maybe Charlotte on inflation and then Stefan on B2B.
Yeah.
On inflation, when it comes to Sweden to start with, there we don't see that much of the inflation as up to date. Of course, we are conscious, and we are following this closely all the time, and see if there are changes that we will make and can make going forward. We also have, when it comes to wages, for example, then that is pretty much in control, the way the system we have here in Sweden with the, what's it called?
Union negotiations.
Yeah, the union negotiations that we have here. When it comes to the inflation in Baltics, of course, that is double digits, so that is quite substantial. We also have the electricity prices. In Baltics, if you look at historically, they've also been very good at compensating for this when it comes to price rises, which they are doing on a continuous basis. We see that that's how we're going to deal with this going forward as well. I'd just like to make one more comment when it comes to Sweden and the energy and the electricity cost. We have actually hedged our costs, so pretty much during 2022. After that, of course, we will probably see bigger impact of it. Yeah.
Perfect. Thanks. Hello, Ulrich, and thanks for your question. In regards to B2B then, and then the fluctuations that Charlotte was talking about, I would say, there's two things. One is about the nature of the business. The second one is some risk that we see or some concerns in regards to semiconductors. We see that some of our vendors have had problems during Q1 on deliveries in regards to some equipment. That may continue both in the networking area but also in the handset area. That could affect both some mobile postpaid sales in the B2B arena.
In regards to our solutions business, basically, where we are dependent on equipment. That is sort of a risk part. The other part that I started off with the nature of the business, I mean, we are dependent on that our customers want to engage in different projects, especially in the solutions area. That is the area that I think I would like to highlight. Depending on how the customers want to buy their services and hardware, how they want to build their solutions, we could from time to time get more equipment sales, and from time to time we can get more solutions business going forward.
Those are the two basic topics, areas of in regards to fluctuations that Kjell was talking about.
Very helpful. Thank you very much.
Thank you. The next question comes from Andreas Johansson from Swedbank. Please go ahead. Your line is open.
Thanks a lot, and thanks for taking my question. I would like to dwell into the Viaplay partnership a little bit more and your ambition of this, especially in terms of where you see the main impact. Is it churn prevention or that you can add more customers or is it on price, et cetera? Also maybe on the cost side that you mentioned that you had some lower costs this quarter, but that could come up again. Is that regardless of what is happening on the top line, or will those costs come anyway?
Yeah. Andreas, I'm happy to sort of talk to you about our partnership and about Viaplay. A couple of things here. You mentioned the churn, price and cost, and you know what our objective is. Clearly, as Kjell pointed out, if you look at the Swedish business, you know the TV side has been forming a drag for quite a while. I think we clearly also stated in capital markets there already last year that we clearly intend to stabilize this business by basically driving quite a lot of innovation revitalization throughout the product line. In January, we announced that we are rebranding our streaming offer in preparation of you know this and following moves.
Viaplay is in that sense a first, you know, quite substantial move. The key for us therefore is to basically stabilize our business not only on the DTV side, as you can already see in our results today, but across the whole category. We should be able to offset the continued decline on DTV going forward with, you know, the move we can do here with Viaplay. Basically, if you look at the new packages that we've been announcing and you relate that to the old packages, we have put a lot of value in these packages, but at the same time, we're raising our prices between, you know, 50 and 60 SEK across the board on all these packages.
We do intend to roll all of our DTV linear base onto these packages in the period May, June and July. That has already been announced, and customers have been informed. That will, I believe, drive quite an extent of stabilization. That to me is the first, you know, tick in the box. The way the cost will develop, Andreas, to give you a view, it will develop as the business and customers pick up the service. It's to a high degree variable. What we expect going forward is more innovation to come because the world is moving on to streaming. As you may have seen also with the Netflix announcement, we see that there's maturity in the streaming business.
We do believe that operators have a very well-chosen position for bundling and buying your streaming package through an operator. That I think will come much more to the forefront. I believe we are well positioned there because the choice in the market is just too large for consumers with the number, with the value, with the SVOD stacking you see, and therefore the choices consumers are starting to make. The combination of having Tele2, having an integrated streaming service that has a lot of content and value in it, we believe is quite a nice proposition for the market.
Thanks a lot. Very good.
Thank you. The next question comes from Ondrej Cabejšek from UBS. Please go ahead. Your line is open.
Hi, thank you for taking my questions. I maybe had a couple of follow-ups to the previous one.
Sure.
First of all, in terms of the B2C trends and specifically in terms of mobile service revenues, you mentioned that you're confident that the competitor being maybe more aggressive in terms of unlimited tariffs, et cetera, will not do that for too much longer. Just a question in terms of what makes you confident, are you already seeing that receding? Then maybe on the Viaplay deal also, in terms of the migration. What kind of reception you expect? Because you're, as you mentioned, you're increasing the prices quite significantly.
Is there also a risk that you might see, you know, elevated churn and people just not wanting to pay for this maybe more premium offering that you're now basically imposing on the entire customer base, if I'm not mistaken? Thank you.
Okay. Ondrej, I'm happy to take the question, and thanks. First of all, on competition, we do believe still that we have a in Sweden, you know, at large a rational market that is, you know, driving a balance of value and volume in general. We do of course see these sort of temporary more tactical you know, offensive plays. In a way sometimes they are done to make up for lost quarters beforehand. Clearly, if you look into last year, you can see there has been some weaker performance with some of the players that, you know, probably now has been sort of tried to rectify to a certain extent.
We are very careful to just, you know, not hop on, you know, on the first inclination, because we, again, ultimately we want to drive value into the Swedish market. Competitive activity in that sense has already been residing as well, in terms of the offering, and it's clearly just a quarterly activity. That's what we can see for now. On the migrations, yes, of course, there will be, you know, a part of the customer base that will probably scratch their heads by having to pay more for possibly content that they are, you know, not what they themselves are looking for. What we expect though is that because there's so much value packaged in, and we do see, you know, many, many households in Sweden that have streaming.
We would say the majority of customers and consumers are actually quite happy, and first reactions are, you know, in that line. And we also feel that this will be very appealing to, in particular, the younger, you know, parts of our customer base, and of the market. We feel that there is a market between 20 and 40 that has years of age and families that has a lot of potential that we have not fully tapped into, and we can much better tap into with an offering like this.
Thank you very much.
Right. Ondrej, I think the second question was in relation to how we can sustain the growth in the B2B segment. First of all, I mean, we have a trend in the B2B market which is based on digitalization and improvement, efficiency, growth in our customers' businesses, et cetera. That whole underlying trend that is happening is supporting our business. When we set out the strategy last year, it was based on that trend. We also set up a couple of growth areas, how to build on that. I think we are well positioned to be close to our customers and support them on this journey with all the expertise that we have.
Secondly, we have the segmented approach to the market. I mean, it brings different segments like the SME segment, small and medium segment, the public, the key, et cetera. So there are different segments where the growth is coming from, and we have a segmented approach to that market. Then lastly, the third leg in our strategy is really to develop our product offerings, develop our business models that we bring to the customers to support them on this journey. I would say that it's all about, and that has been the case for the last couple of quarters.
It's all about the execution and consistency on delivering on this strategy, which has proven to be good, and to be disciplined in the execution of that strategy. I think we have the capabilities in place to further develop on this. It's both, you know, an internal perspective but also an external perspective, and we truly believe that we will see growth for the full year for B2B.
Thank you.
Sure.
Thank you. The next question comes from Peter-Kurt Nielsen. Please go ahead. It's from ABG.
Thank you very much. Thank you for the opportunity. You have talked about the Viaplay agreement and your expectations for that. Can I just ask more specifically, how should we view content costs in the coming quarters? I assume there will be an increase in cost here related to the premium content. Could you give us any indications how we should think about that? Thank you.
Well, Peter Kurt, thanks for the question. Of course, as Kjell has also been alluding, there will be, as we roll out our new TV packages to our customers, there will also be a reflection of that on our cost line. You know, we cannot share any sort of inherent details here on the call. What I can, of course, tell you is, which I've alluded to before, that these costs are having a variable nature, okay? They are very much linked to the customer usage and the customer volumes.
Basically, what we intend to do in the agreement is that we are basically repackaging and relaunching our linear offerings, our DTV offerings that have been announced already, and that we also intend to further strengthen our streaming offer that we will launch pretty soon actually, but that's still to come. In both elements, you know, the NENT agreement has a big role to play. In both elements, of course, there's cost associated, and, you know, the totality is of a variable nature.
Okay. Thank you.
In other words, our strategy remains the same. We are not making huge upfront content. The commitment is limited, and it's like Hendrik says, it is linked to usage by and large.
Okay, thanks.
Thank you. The next question comes from Stefan Gauffin from DNB. Please go ahead. Your line is open.
Yes, hello. A couple of questions. The first one relates to the pressure that we saw on consumer postpaid ARPU this quarter. You have stated that it was more activity from a competitor. I just wonder what is really driving the pressure on your ARPU. Have you been forced to lower prices in response to this competition? How long time should we see this pressure on the ARPU? Is that for a longer period of time? The second one relates to commercial spend. In Q4, you mentioned that it should be a higher commercial spend in Sweden in the first half, and it seems that was not the case, partly likely due to the COVID situation.
Should we see that this marketing spend is pushed into Q2 and perhaps later in the year? How should we view the totality on marketing spend?
Okay. Stefan, it's Hendrik here. Happy to talk to you about that. Good questions. First, let me take the latter commercial spend. I think we addressed the content part of it. If you look at the commercial spend as in marketing and commercial costs, then yes, we indicated you know, more investments as we would enter the year. We did find ourselves in a pandemic situation. You know, we entered that, of course, second half December, as you will recall. That you know, had quite a long tail. It stayed pretty much with us January and February, and it has profound effects just on consumer behavior.
It's not, you know, that's not the right time to, you know, press the metal, let's say. It's more the pandemic and macro situation than any competitive activity in itself that, you know, has led us to be a bit moderate on the commercial spend. Now, that's sort of going away now. We do feel, as I said, on the call already from March onward and also now into April and into the 2nd quarter that we, of course, can ramp up. Not just around, you know, TV and Viaplay and our new portfolio, but also around our broadband and our mobile business. Yes, the commercial spend, you know, we definitely intend to carry on with the investment, as we said late last year. On the ASPU, the following.
That's, you know, that competition and the nature of competition has an effect on it. At the same time, you know, you need to look at the quarterly trajectory of ASPU development on the mobile side, right? Because there's, of course, a level of seasonality that you continuously have in our business. And typically, of course, we see that, you know, the Q2, Q3 are typically quarters where we have a lot more variable spend that, of course, are also lifting the ARPU. At the same time, we have the effect now of the pandemic residing, so that will have an additional kick, we believe, as we go throughout the year.
Last but not least, and quite importantly, we typically see that our Q4s are quite active quarters in terms of trading. You've seen in our Q4 that we've sort of really had quite a big push on the mobile in Q4. Some of that volume has come in at quite you know discounted prices, but they will all roll off quite a bit already in the 2nd quarter. That will all go into regular pricing. Of course, we have continued roll off on you know on price adjustments that some of that we did in Q1, also on the mobile side.
Some of it is still stemmed from last year, where our customers that have been on 12 months are rolling off onto their regular pricing. There's a more composite picture on the ARPU, and I hope you can see that.
Yeah. If I understand this correctly, I mean, if I look at the postpaid ARPU, consumer postpaid ARPU, it was down around 1% year-over-year. That is despite some positive tailwind from roaming.
You are certain that you can return to solid ARPU growth in the coming quarters?
Yes. To just give you an example, just one illustration of what I just said. For example, last year, if you look at a year-on-year basis, last year we already had some price adjustments in the 1st quarter that we are not having, you know, this year in the 1st quarter. That is already in effect, you know, of price adjustments in 1 quarter versus another quarter that, you know, creates a delta, right? Yes, we're quite confident that we will, you know, see a pickup on the ARPU as we go through the year.
That's very clear. Thank you.
Thank you. The next question comes from Nick Lyall from Société Générale. Please go ahead, your line is open.
Hi there. Morning, guys. Just a quick question, please, on the business. You mentioned large business specifically in the presentation today. I just wondered, is that you're a lot more hopeful now that you can maintain pricing in large businesses? There's nothing one-off in nature in the course that I'm assuming in terms of sign-up of subs or new contracts or whatever. Is this something that you think is sustainable now? Secondly, just a little bit like Stefan's question just now, but more specifically on the marketing budget for the 2nd quarter. I mean, you told us you were gonna pull back on the marketing budget, I think, as you went sort of through the 1st quarter. Is that gonna be significant?
Can you give us any idea of this sort of SEK million amount that you might have to see sequentially, 1st quarter to 2nd quarter, in terms of lifting the budgets back up? Is it big like it was back in COVID and really quite substantial marketing budget rises you're gonna have to see in the consumer Swedish business as well? Thank you.
All right. Thanks, Nick. Stefan here. Thanks for your questions. Let's start off in regards to the B2B questions. I would say then if you look at where we get the intake in the B2B business, and Kjell was mentioning the large business, but if you look at mobile, the intake is coming from basically all segments. It's good to see that we also see that coming in the large segment. The intake is coming both on new customers that we acquire, but it also comes from existing customers expanding their business with us. We also seen that the discipline that we have created in regards to deals and margin requirements we have on the deals are yielding results.
You've seen that on the mobile ASP where we've been flat now for 3 quarters in a row. That is a testimony to the actions that we're taking in order to safeguard margins. In general, it's not a big customer that had yielded these results in the mobile revenues. It's generally from all of the segments. I would also add that we had a really good development in regards to our churn, actually better than our expectations for Q1. That is the answer on large business or your questions on B2B. Hope that answers your question, Nick.
Yes, thanks.
Yeah.
I'm sorry, on the marketing budget as well. Is that something significant for the 2nd quarter?
Yeah. Just wanted to answer that one for you, Nick. On the marketing budget, yes, we will increase versus Q1. Again, Q1 is a result of the pandemic, not of us wanting to spend less. Secondly, versus year-on-year, you know, we'll be in the range of last year. The thing you need to take into account there, last year, we still had two brands that we were supporting with Com Hem and Tele2. Of course, you know, we did rebrand, and we had all, you know some of these business transformation efficiencies. On a underlying basis, you know, it will probably.
It will translate into a bit of a higher, let's say, spend, I would say, you know, versus Q2, where we were spending on two brands. On an absolute level, it will be same type of level, I would think.
Great. Okay.
Yeah.
Is there any? Can you give us any idea of the sort of sequential rise? I mean, was it a big slash in the marketing budget for the 1st quarter just because of those two months where you had low activity, or is it reasonably insignificant in terms of sort of EBITDA and other numbers?
You know, in terms of the total EBITDA of the company, you know, it is pretty insignificant, I would say. You know, it's still in terms of market momentum, you know, it is still something that makes a difference ultimately.
Okay. Thanks very much.
Thank you. The next question comes from Titus Krahn from Bank of America. Please go ahead. Your line is open.
Good morning, everyone, and thank you for taking my question. I have just two topics to touch on, if I may. The first one would be a follow-up on the Baltics. You already mentioned the inflationary pressures there, and I was wondering more about the timing of the impact on EBITDA. I mean, energy is already felt. I assume you haven't had much of it, but also can you talk a bit on the timing of the wage inflation in the Baltics, given that you currently still have quite a strong EBITDA growth this quarter? To what extent is it sustainable, and have you already felt the full impact on the inflation in the Q1, or is it rather increasing over the remainder of the year?
The second question would be on the wholesale growth, which you flagged as one of the main drivers of the EBITDA growth this quarter as well. Could you maybe provide some more color on the outlook, particularly as we had now, I think, four quarters of double-digit revenue growth in the segment? How should we think about it going forward? Is there any specific effect that could annualize, how should we think about it for the next couple of quarters? Thank you.
Okay. Thank you, Titus. On the Baltics, yeah, we do have some level of hedging in the Baltics, but still we are impacted by the prices for power, for electricity going up, and that's of course all reflected in our numbers. There is more wage inflation in the Baltics than there is in Sweden. Sweden has collective bargaining generally, so it's a quite predictable system. In the Baltics, there is an even more fierce fight for talent. We are pretty good at retaining people and an attractive employer, so that helps. There is some level of wage inflation.
I think it's a strong sign that during this time of relatively high inflation, I think Estonia had the highest inflation in Europe a couple of months ago. It was just for a specific month that was recorded that we are able to offset all of that and still grow our EBITDA. Of course, at some point, these trends will start abating, and then the underlying strength of the business, the application of the more for more strategy which has given us growth, will then be helpful to drive cash conversion. Clearly you are touching on issues that are more of an issue for us in the Baltics than maybe in Sweden.
When it comes to roaming, some of this is related to wholesale. Some of this is related to roaming, and we are also extracting good, very good value from delivering A2P wholesale services, which is a rapidly growing market. Of course, that's helpful to our business.
Okay, thanks. That's likely to kind of continue in a similar range over the next quarter, so maybe a little bit lower, but nothing material changing.
I think you will continue to see volume expansion within A2P for some time. Of course, the level of growth, the relative level of growth will probably slow down.
Okay. Very clear. Thank you very much.
Thank you. The next question comes from Stephen Malcolm from Redburn. Please go ahead. Your line is open.
Yeah. Good morning, guys. I'll go for 3 questions if I can. I just wanna first come back to the NENT deal. Can you give us some idea of the cohort of customers in your linear base that already take Viaplay? I guess for those customers, they'll end up spending less, but will you book the revenues gross so that'll look like service revenue growth, but the customer will actually be paying less? That's the first question. Second is on the sort of addressable market. You added another 50,000 homes this quarter, I think. The broadband base didn't really grow.
Can you just give us a sense of, you know, how much more growth you've got in terms of open city networks going forward, and whether you think there's a lag effect in growing the broadband base, or whether we should just assume that penetration across that footprint continues to decline, I guess, at about 100 basis points for the last couple of years? Then finally, just coming back to the Baltics, I mean, following up on the last question, which I thought was a very good one, I mean, do you see any sort of I think we're sort of talking about inflation in very much a two-dimensional way at the moment, price, energy, stuff like that.
You know, do you see any growing risks that, you know, Baltic consumers begin to resist price rises because of the rise of their energy and their food costs? I mean, Lithuanian inflation I think was 16% in April. You know, could that have a much bigger impact on EBITDA, you know, going forward, or are you very much of the view that this is kind of transitory and the pricing will stick forever? 'Cause it just feels like the Baltic inflation is running a little bit out of control. It sort of moved from nice high inflation to worrying inflation, if you see what I mean. Thanks.
Thanks, Steve. I'll start on the Baltics and then maybe Henrik will go back on the Viaplay and broadband part. Clearly, for segments of the population in the Baltics, you will get into a situation where you'll start prioritizing your spend harder than you have done before. When we speak to customers and we speak to our people in the three different markets there, we don't detect any hesitation around the value that is provided by our mobile offerings. There is a quite strong, good demand. It hasn't popped up as a big issue. You know, in the future, if we see these trends going for a long time, that could of course be a factor.
Well, as of now and where we see things, it is not a major issue for us.
Isn't there a slight risk? That's Kjell, that's slightly backward-looking because, you know, energy prices have only just doubled, tripled. Food prices are only just going up by 20%. You know, it feels that's all quite a backward-looking perspective at the moment.
Well, we could argue back and forth what is backward and not backward, but that is what the feedback is from the market today, or last week.
Okay.
Yeah. I can see that you could have an argument that it's still early days, and I would respect that argument. But from what we hear at this point, it is not a major issue. I think we will have to be a bit cautious, of course, and I think we all understand that to have massive double-digit growth is not gonna go on forever. I'm not trying to say that everything is gonna be continuing exactly as it is today.
Okay, thanks.
Okay. Steve, just on your two other questions on broadband and on NENT. Let me start with broadband first. We believe the overall market, you know, that has been growing at 7%-8% over the last number of years will at some point, of course, start to tail off a little bit, but still have, you know, a good mid-single digit growth number within. We, of course, you've seen that we've been able to grow our business around 4%. We do believe that in that range, you know, we can sustain that still for a while, but in the context of, you know, overall growth starting to tail off a little bit over the next period, I would say.
That's, I would say, our outlook on broadband. We feel
Good
Quite okay there.
Just on the addressable market, I think you added 50,000 in new homes in the quarter. I mean, how much longer do you think you can do that in terms of increasing your addressable market by accessing open city networks and the like?
Well, there's still you know a lot of network and universe that we can access. It may not be through our own HFC, but it would then be of course through, you know, fiber out there, which we're quite well interconnected with. It's a question of how far we want to reach out. We certainly have not fully, you know, how do you call it? Fully executed on that opportunity at this stage. That's still, you know, room to grow. There is of course a different level of, you know, marginality to it, and that's of course why we also need to tread carefully there in the right balance. There's clearly more room there to grow into for us.
On the NENT side revenue growth, we don't share, you know, details of what our customers have in terms of their subscriptions. Viaplay of course is a popular service in a way, but still has a lot of room to grow. We you know we believe that the balance of upside far outweighs, you know, maybe a small set of small number of customers that feel that they are, you know, paying for it now and they can get into a package and that therefore would be a revenue loss for us in a way. We're also bundling the service as part of, you know, linear TV and of Tele2 Play+, which, you know, gives them that additional value to come in as well.
Some of them already pay as part of Tele2 Play+ today. All in all, there will be, you know, a very small number maybe. You know, in the bigger scheme of things, that will not be significant.
Just to be clear, if I currently pay for, you know, linear TV from you and Viaplay separately, and then it's bundled together at a cheaper price, presumably with a wholesale discount, you know, you would then book the whole revenue gross. It will look like revenue growth, but for the consumer, they actually end up paying less for that cohort of customers.
Well, yes, if a customer today has Viaplay, you know, from NENT, right? Direct to consumer.
Yeah
It just bypasses us in that sense.
Yeah.
It now becomes a buy through, then obviously that's revenue for us, incremental revenue for us in the package, yeah.
Margin. Okay.
Yeah.
Thank you.
Thank you. The next question comes from Abhilash Mohapatra from Berenberg. Please go ahead. Your line is open.
Yeah, good morning and thanks for taking my questions. I just wanted to come back again, sorry, just to this, to the Viaplay agreement. Just to follow up on the question earlier, just to confirm, you know, so for a customer who already has the Viaplay package and they now get it through you, the revenue that you book, that would. Would that be the sort of old ASP plus the market price of the Viaplay offer, or would it just be the increased bill? You know, whatever the new bill is. Would I think it would be the latter, but if you could just confirm that'd be helpful.
Yes.
Secondly, just to follow up, I mean, you sort of indicated that the ultimate sort of goal here, the main goal here is to turn the TV revenues back to stability, which is obviously quite a big swing, compared to the 4% decline at the moment. Clearly the way you're doing it is by hard bundling this product and raising prices. You've also sort of mentioned that you don't think churn will be a big issue, but you know, what happens, say, you know, if you raise prices now and if in a year's time, let's say a customer wants to spin down, will you sort of allow them to do that to a lower price point?
Would you be okay to just sort of let go of that customer, if you will? Thank you.
Yeah, I'm just happy to talk to you about your questions. First of all on how it works. If customers today have you know a SVOD service, this could be Netflix or could be Viaplay or could be Disney+ or whatever, which actually is the issue in the market, right? There's too much stacking and too much individual payment in the mind of the customer. They now get it packaged and buy it through us. Of course, it would be like an SVOD cut, right? Instead of cord cut, it would be an SVOD cut. I do believe that is some market trending that we hope we will start to see in a very mature and overcrowded SVOD market. The combination...
For us, it means, you know, it becomes our billing customer, driving our revenue, driving our ultimate marginality of it. That's the bottom line for us, right? Hopefully that answers your question on that one. Then just remind me of your second part of your question. Sorry.
Yes. Sorry, it was slightly long.
It was a long one.
Yeah.
Oh, the down-
Churn rate.
The downside. Yeah. Sorry. I got it.
Yeah.
The downside. Yeah. Of course, we offer customers choice, and if customers want to move to different packages, they're more than welcome to do so. The way we have designed the packages, and that hopefully also will give you some confidence of, you know, our strategy to drive value into the market. If you look at the package, the way we designed the packages is that the mid-tier is a huge value package that has sports in it. There's a huge amount of content, and that is, you know, a very, very nice deal. Whereas maybe in the past, we saw that a lot of the volume in the old packaging sat, you know, at the entry level.
We feel that with this, we can get way more volume into the mid-tier. Actually, from first results, I think we can already build some initial confidence that I think we're hopefully getting that equation right. Yes, we allow, of course, customers to pick their choice, but we do believe that we built a lot of, you know, value into the packages, and in particular, into the mid-tier, going forward. You mentioned that we tread lightly on churn. I think that's not fully what I said. I just want to make sure that we're well understood. You know, we do believe price rises like of this kind are not taken lightly by everyone.
Although we put a lot of value in, we do expect, of course, some people not to like it, and we do expect a level of churn of this. At the same time, we do also believe that there's a lot, a big part of the market that we are now attractive to. In balance, right, this should give us an upside.
That's helpful. Thank you for the color. Thanks.
Sure.
Thank you. The last question comes from Adam Fox-Rumley from HSBC. Please go ahead. Your line is open.
Thank you very much. I just have a couple, please. In, I think, your closing remarks, Kjell, you mentioned speeding up the Remote PHY build. Is that you kind of linked it to improved customer perception? I just wondered whether or not that's something you've just decided that you want to do as fast as possible or whether or not that is a response to some other competitive element. Secondly, I was wondering or I think a couple of questions around the Viaplay deal are kind of dancing around the question really of can you just confirm that each customer comes with a net cash contribution effectively?
You know, we appreciate that it's a wholesale deal and not retail retail margins, but I think that's what some of the questions are getting at. Then finally, if I may, I'd just be really interested to know in the context of the competitive environment in Sweden, how quickly you can change your tariffs. I mean, I assume that the billing system changes that you're making enable you to move faster. If, for example, you feel like you do want to respond at some point later in the year, can you change your mobile tariffs in a day? Does it take a week? That would just be really interesting to hear. Thank you very much.
Yeah. Let me make a stab at that, Adam. Remote PHY. No, it's not something that we came up with recently. I've actually been pushing for more speed on Remote PHY for quite a long time. We're trying to ramp that up. Yogesh has been very busy with making sure that our migrations go smoothly, which they do. Of course, getting the 5G show on track, plus changing the entire full stack of our core. There have been many things, but we are pushing for speeding up Remote PHY, which is basically, as you know, putting fiber to the building all the way. That's gonna be an improvement of the customer experience because we take away node splits. It's gonna simplify our networks.
In terms of the CapEx involved here, it is just not really move the needle that much. So, it's a no regret move to do that even faster, and that is something that we are pushing for. Now, let me talk a bit about Viaplay here so we don't get too bogged down here. The Viaplay deal is important for stabilizing the TV business from a service revenue perspective. It also adds additional-
Margin to us in terms of profitability at the EBITDA level, and particularly as we move into 2023, when we have got this thing going and running. It's also a strategic move that is important for us in terms of the ability to build a convergent offering. One of the key things we wanna achieve by the journey we're on, the transformation program is not only about saving SEK 1 billion, it is about preparing ourselves for the future so that we can, in a much more, you know, easy way for our customer base, combine our offerings, seamlessly. We wanna have a strong mobile proposition where we're gonna build the best 5G network in Sweden together with our partner. That is a clear claim that we are making.
We wanna make that happen. We are upgrading our broadband with Remote PHY, which basically puts fiber into the building, and we wanna have a proposition on the TV side that has both the traditional linear element that we had, where we've been the aggregator in the market. We're moving that now into the streaming world, becoming an aggregator, earning a margin, keeping our market relevance, and looking at how the streaming market is developing. We see now that it is no longer a super fast-growing business. It's becoming a mature business. Some of those who have been very fond of themselves will probably want to be more cooperative and collaborative going forward, and we are very well positioned for that. That brings it all together in a way from a consumer perspective for Tele2. That's the ambition.
On the tariffs, yes, we of course can change our tariff plans. The fact that we are changing our IT stacks is not, you know, in a big way limiting us from making moves in the market. The thing that we are talking about the 1st quarter here, we made a very conscious choice to educate the market that we are willing to look at value in. While other people are moving a bit more short-term on it, that's okay, but it doesn't stop us from responding if we feel that that is right. Sometimes we definitely will do that, and sometimes we will do it hard in a short period of time just to teach the market that we can also be provoked.
Brilliant. Thank you very much.
Thank you very much.
I think we have a internal thing for all of our employees that it was. I don't think we can take very many more questions, but we don't have to stop right now.
Yeah.
No.
We're okay.
Yes.
All right. If that was the last question, then I'd really like to thank you all for joining us for the session today. I hope you see that we've had a good start to the year. We have a lot of work to do, as always, to continue our improvement journey, but it gives us confidence that this year we can deliver on what we have promised, and that's a good feeling to have. Thank you for all your good questions. They make us think one more time about how we conduct our business, and that's very helpful.
Thank you. This does conclude today's conference call. Thank you all for attending. You may now disconnect.