Ladies and gentlemen, thank you for standing by and welcome to the Tele2 Q3 Interim Report 2019. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. We would like to remind you that questions should be kept to one per person if possible. I must advise you that this conference is being recorded today, Thursday the 17th of October 2019. I would now like to hand the conference over to your speaker today, Anders Nilsson. Please go ahead.
Thank you very much, Serena. Good morning everyone. Welcome to the Q3 report call for Tele2. With me here I have Mikael Larsson, CFO, and Samuel Skott, EVP Sweden Consumer. Today, we will walk you through the results for the quarter, give you an update on our ongoing initiatives, and then move over to Q&A so we can address the topics that you are most interested in. Please turn to slide two for a brief summary of the results for the quarter and of the first nine months of the year. The Tele2 Group end user service revenue was flat in the quarter and year to date. This is in line with our full year guidance of flat growth. Underlying EBITA, excluding effects of IFRS 16, increased by 5% in the quarter and 4% year to date, driven by cost reduction as we continue progress on the synergies.
This is also in line with our full year guidance of mid-single-digit growth. CapEx, excluding spectrum and leases, amounted to half a billion SEK in the quarter and SEK 1.7 billion year-to-date. Since the 5G rollout in Sweden will start later than anticipated, we have decided to lower the CapEx guidance for 2019 to SEK 2.3 billion-SEK 2.6 billion, down from SEK 2.6 billion-SEK 2.9 billion previously. The conclusion is that we are performing in line with our guidance for the year. Let's look at our strategic initiatives on slide three. The Sweden consumer segment continued to make progress on our FMC strategy with 141,000 customers now on FMC benefits. This represents a penetration of almost half of the addressable overlap between the mobile and fixed customer base after less than a year since the offers were launched.
We took a major step by introducing mobile pricing as a new growth driver this quarter. Similar to what we have done on the fixed side for years, we believe that we can achieve sustainable growth by monetizing increased customer satisfaction through annual price adjustments. This is what we call the more for more strategy. As a part of this more for more strategy, we introduced a new family offer and new data buckets in the Tele2 brand. Samuel will give you more detail on the strategy in a few minutes. In the Sweden business segment, we continue executing on our plan to turn into revenue growth and improve profitability. However, this is still work in progress at this point, as price pressure in the large enterprise market persists and the strategic changes we have made are yet to have impact on revenue growth.
In large enterprise, our focus is to take high margin contracts in the private sector while cutting cost. In SME, we aim to take market share and reduce churn by improving our mobile offering and using our fixed mobile convergence capabilities. One area where we do see sustainable growth is the Baltics, where end user service revenue grew by 10% and underlying EBITA, excluding IFRS 16, grew by 6% in the quarter. We continue to execute on cost reduction, which had an impact of SEK 150 million in the quarter, adding up to SEK 300 million in the first nine months of this year. Now raise our year-end target to a run rate of SEK 750 million. Please move to slide four. We maintain our guidance for end user service revenue.
Since we expect revenue benefits from the commercial strategy to gradually ramp up, we expect end user service revenue to be roughly flat in 2019 and thereafter grow by low single digits. We also maintain our guidance for EBITA. We aim for mid-single digit underlying EBITA growth excluding IFRS 16 in 2019 and over the midterm, mainly driven by front-loaded cost synergies in 2019 and a combination of revenue growth and cost reduction in the coming years. Like I mentioned, we now lower the midpoint of our guidance for CapEx, excluding spectrum and leases by SEK 300 million this year to SEK 2.3 billion-SEK 2.6 billion, down from SEK 2.6 billion-SEK 2.9 billion, to reflect a later rollout of 5G in Sweden. We maintain the CapEx guidance for the midterm at SEK 2.8 billion-SEK 3.3 billion.
This is the model by which we translate low revenue growth into slightly higher EBITA growth through OPEX reduction. We achieve even higher cash flow growth through disciplined CapEx spend. In addition, we use our balance sheet to lever up the growth in EBITA within our target range of two and a half to three times to grow the cash available for shareholders even more. This should lead to a very attractive shareholder remuneration profile over time.
This year, we have distributed a total of roughly SEK 7.1 billion to shareholders through the ordinary dividend, which was paid out in tranches of SEK 2.2 per share in May and October, and the extraordinary dividend of SEK 6, which was paid out in August to distribute the proceeds from the sales in Kazakhstan and the Netherlands. Now let's take a closer look at the segment, starting with Sweden Consumer on slide six. The Swedish consumer segment continued to deliver strong volumes with net intake at the highest level in several years. Our core services had a net intake of 35,000 RGUs, and the legacy service decline slowed down further with an outflow of only 11,000 RGUs.
It is great to see such momentum in our core services, since this is the area where we can really extract value over time through both volume and price, as we execute on the More for More strategy and drive FMC in the customer base. As you can see in the chart to the right, we are yet to execute on the second part of this strategy and monetize customer satisfaction through ASPU growth. As expected, the ASPU pressure continued this quarter, as the effect of this year's smaller fixed-line price increase remains. This slide paints a good picture of how we use customer satisfaction to drive growth. All of our commercial initiatives this year have been aimed at doing one thing and one thing only: improve customer satisfaction. So far, we have monetized that customer satisfaction through volume growth, as you can see on the chart to the left.
When we look at these charts again next year, you should expect to see the effect of this strategy on the chart to the right, as well as we monetize customer satisfaction through back book pricing. On slide seven, you can see the financial effect of the strategy so far. Total end-user service revenue saw the first quarter of growth since Q1 2018, with a slight growth of 0.4%. End-user service revenue in our core services continued to grow, up 3%. As you saw on the previous slide, this was mainly driven by volume. We also see a lower drag from a decline in legacy services, driven by great performance in mobile prepaid and slight improvements in DTT ASPU, which is an area where we actually did significant pricing this year. Continued execution on cost synergies resulted in a 4% growth in underlying EBITDA this quarter.
Now Samuel will walk you through our More for More Strategy in more detail.
Thank you, Anders. Over the next few slides, I will talk about our new growth driver, mobile pricing, and how we execute the More for More strategy to build customer satisfaction, which we then can monetize through volume and price. I, however, want to make clear and hope that you all appreciate that we will never publicly comment details and exact timing for possible pricing moves before they are implemented. Pricing will always be dependent upon market environment and the More for More principle, i.e., increasing customer satisfaction. Let's start on slide eight. We have a structured and continuously ongoing approach towards pricing, with the foundation being our focus to create great value for our customer. That's where it all starts. Customer value is created through award-winning network and products, great brands which we position as leaders in the premium segment, and clear More for More benefits.
This then creates value for the customer that we can benefit from in different ways, pricing being one. We have a yearly pricing cycle that includes both fixed and mobile products. Updated front book prices and proactive value given to our customers are then used for gradual back book repricing, the majority of which is done in the first quarter. On slide nine, you can see how we implement this strategy on the fixed side. In broadband and TV, this strategy has been in place for several years, and after a relatively slower year of pricing in 2019, we have on the back of several product improvements and our FMC strategy increased the front book prices for broadband. In the fourth quarter, we will now execute some smaller back book adjustments to optimize our approach as we do the major adjustments in Q1.
Let's turn to slide 10 to look at the mobile pricing plan. For our mobile business, pricing is a new growth driver that we're leveraging. However, the principle and the mechanics are the same as in fixed. In the third quarter, we updated our Tele2 mobile portfolio as we increased front book pricing. At the same time, we launched an advantageous family plan where you can add members for only SEK 199 per line, and where everyone in the family gets their own data allowance. The family plan is simple and beneficial to our customers, and it will help us on our quest to win the full household. Just like on the fixed side, we will do some smaller back book adjustments in the fourth quarter to optimize our approach as we do the major adjustments in Q1.
All in all, this is how we aim to achieve sustainable growth in the consumer segment. Each year, we build customer satisfaction by giving our customers tangible benefits that they value, and in turn, we will be able to translate that increased customer satisfaction into revenue growth through a mix of both volume and price. With that, I would like to hand back to you, Anders.
Thank you very much, Samuel, and please turn to slide 11 for our Sweden business segment. Within B2B, we see no fundamental changes in the market. The price pressure for government contracts continues. This is having an impact on our performance, which will likely continue for some time. Our initiatives to turn this business into growth are yet to have an effect, and as a result, our performance is similar to previous quarters. The most important factor here is to turn mobile into growth. As you can see in these three charts. The 4% growth in mobile ARPU was offset by the 8% decline in ASPU, leading to a 4% decline in mobile end-user service revenue. Our plan is to refocus the large enterprise segment toward the private sector, where pricing is better, and go after high-margin contracts and cut costs to keep growing EBITDA.
In SME, we have historically not put enough effort to take our fair market share, and as a result, we are underrepresented in this segment. Our focus will be to take market share by improving our mobile portfolio, manage our existing customer base better, and utilize our FMC capabilities. On slide 12, you can see that we are cutting costs in this segment, which resulted in a 4% growth in underlying EBITDA, excluding IFRS 16, in spite of revenue decline. Please go to slide 13 for an overview of Sweden as a whole. While we see end-user service revenue inch its way up toward growth, we are still not there, as the decline in the business segment offset the slight growth we saw in consumer this quarter.
Underlying EBITDA, excluding IFRS 16, grew by 4% despite the revenue decline, driven by continued execution on the cost synergies, partly offset by investment into growth initiatives. We continue to see strong cash conversion of 72%, as cap spend is relatively low now in between investment cycles. Before we move on to the Baltics, I would like to walk you through the conclusions of the Swedish network audit, which we started last quarter to investigate the recent network outages. Please move to slide 14. We find the conclusions of the audit reassuring for a few reasons. The audit found that the quality of our radio access network is excellent. As further proof of this, we were actually named the best network in Sweden by the recent P3 benchmark test.
As you may know, the radio access network is where the bulk of the network CapEx goes, which reassures us that we do not have an underinvested network. The area where we need to make improvements is the core network. These improvements are mainly related to simplification of processes rather than financial investments. The good news here is that the recommendations of the audit are in line with our current core upgrade plans, which means that everything is already included in our CapEx guidance. We now have a pipeline of improvements which have already started and will continue over the next few quarters, including consolidation of our network operating center into Sweden to improve our ability to properly service the complex mobile and fixed networks we have there.
We will also improve the way we work with our suppliers so that we can be strategic long-term partners and grow together. We look forward to implementing the recommendations of this audit and ensure that we continue to have the best network in the country. Let's look at the performance in the Baltics on slide 16. We continue to see strong results both in terms of volume and ASPU this quarter. While Lithuania is the main driver, we are also happy to see that Estonia has maintained positive momentum in both volume and ASPU for a few quarters now. ASPU growth was particularly strong this quarter across all three markets. While we do see a great underlying trend, this quarter was somewhat boosted due to the easier comps in Q3 last year, when we unfortunately had roaming outages.
On slide 17, you can see that we had continued strong growth in end-user service revenue with solid growth in all three markets. It's worth noting that Estonia turned the corner and grew revenue for the first time since Q4 2017, and saw underlying EBITDA growth for the first time in three years. Underlying EBITDA, excluding IFRS 16, for the Baltics grew by 6%, somewhat lower growth than we are used to due to elevated equipment margins in Lithuania in Q3 last year. Continued EBITDA growth and low capital intensity led to strong cash flow generation, as you can see on the chart to the right. With that, I'm happy to hand over to Mikael.
Thank you, Anders. Good morning, everyone. Please go to slide 19, group income statement for the third quarter. Revenue reached SEK 6.85 billion in the quarter, with a record high underlying EBITDA margin of 41%, or 36% if we exclude the positive effect from IFRS 16 in this year's numbers. In the quarter, we recorded costs related to the acquisition and integration of Com Hem of SEK 72 million, which are included in items affecting comparability. The major step up in depreciation and amortization versus last year is explained by additional amortization of surplus value from acquisitions of SEK 298 million, as well as depreciation of right-of-use assets under IFRS 16 of SEK 296 million. Net profit for the quarter almost doubled to about SEK 1 billion, which is the result of the Com Hem merger and the transaction in the Netherlands.
Let us move to the cash flow statement for the quarter on slide 20. Equity free cash flow increased by 67% compared to the same quarter last year, reaching SEK 1.8 billion in this quarter, explained by Com Hem being included in this year's numbers. Also improved cash flow generation in the rest of the business. EBITDA increased by 70% for continuing operations when excluding effects from IFRS 16 in 2019 numbers. CapEx pace were some SEK 200 million lower in this quarter, mainly explained by the divestments of Kazakhstan and the Netherlands. Negative trend in working capital during last year has been reversed with positive development year to date, largely driven by introduction of Comviq handset financing arrangement. Please go to slide 21, synergy update.
In the quarter, we had a positive impact of approximately SEK 150 million of OpEx savings in the books, leading to a total of SEK 300 million year to date. At the end of the third quarter, the annualized run rate of realized OpEx synergies reached SEK 650 million, while we have upgraded the target for the end of this year to SEK 750 million, which is mainly explained by faster headcount reduction than we originally planned. The SEK 900 million three-year target in total annual OpEx synergies remains unchanged. Also for the revenue synergies, realization goes as planned, with now almost half of the overlapping customer base on FMC benefit packages. Let's go to slide 22 for a summary of our financial guidance. As Anders already mentioned, guidance for end-user service revenue and underlying EBITDA is unchanged.
While the CapEx range has been lowered by SEK 300 million for this year, explained by later than expected start of 5G investments. Midterm target range for CapEx is unchanged at SEK 2.8 billion-SEK 3.3 billion during the rollout phase of 5G and Remote PHY in the fixed network. Please go to slide 23. Group leverage measured as economic net debt to underlying EBITDA of the leases was at 2.6 at the end of September, up 0.2 in the quarter, explained by payout of extra dividend of SEK 4.1 billion, partly offset against the strong equity cash flow of SEK 1.8 billion. When including the second tranche of this year's ordinary dividend, total amounting to SEK 1.5 billion, which was paid to shareholders in beginning of October, leverage would have been 2.75 times end of September, i.e., in the middle of our target range, 2.5-3 times.
This means that we have year-to-date distributed 10.4 SEK per share, or a total of 7.1 billion SEK to shareholders. While we, at the same time, have slightly reduced leverage from 2.8 beginning of the year down to 2.75 end of September. With that, I would like to hand back to you, Anders.
Thank you, Mikael. Now please turn to slide 25 for our key priorities going forward. The key to achieve sustainable growth for Tele2 is to reignite growth in Sweden, especially in our largest segment, Sweden Consumer. We will do this by ramping up FMC penetration in the customer base to reduce churn and increase pricing power over the long term. This, along with a new profile and offering of the Tele2 brand, is how we will win the Swedish households. We look forward to executing on the next step of the More for More Strategy and growth through pricing as well as volume going forward. In B2B, we have the ambition to turn into growth by focusing our efforts in large enterprise on the private sector and take high-margin contracts while continuing to reduce cost.
We also aim to take market share in the SME market by revamping our mobile portfolio, reducing churn, and utilizing our FMC capabilities. On the cost side, we will continue executing on the synergies and aim to reach a run rate of SEK 750 million by the end of this year. In addition, we are investigating the potential for more structural change over time to turn Tele2 into a true integrated challenger. We aim to get back to you with more details when we report our Q4 2019 results. Outside of Sweden, we will build on the momentum we have in the Baltics, and we look forward to closing the sale of Croatia later this year. With that, I hand over to our operator for Q&A.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your request, please press the hash key. As a reminder, questions to be limited to one per person if possible. Once again, please press star one if you wish to ask a question. Our first question comes from the line of Maurice Patrick from Barclays. Please ask your question. Your line is now open.
Morning, guys. It's Maurice here from Barclays. Question really on the timing of B2B recovery. You've sort of talked about the timeline for that recovery in the past. Now you're saying it's going to take some time. Looks like mobile FX is reasonably tough. What do we think about the timeline for stabilization of B2B revenues? Where do we see ARPU stabilizing? I know you talk about a mix of different segments there. Thank you.
Hi, Maurice. It's a very good question and a very tough one at that. It's very hard to answer it because we do not have a crystal ball here that looks into the future. What I can tell you is that we are going to aim to make this happen sometime next year. Whether that is possible or not, it's too early to say, but that's what we aim.
On the other hand, what we are solving for is to get into growth in Sweden. There are two components, as you know. It's consumer and it's B2B, and consumer is by far the largest part. The most important thing here is that consumer goes into growth, which we are now. We're trying to deliver an 0.4% growth in Q3. Small, but still growth and a nice trajectory there.
We do believe that we will be able to grow Sweden and the company next year, even if B2B does not go into growth. That's what I can give you right now, Maurice.
Thank you, Anders.
Thank you.
Your next question comes from the line of Roman Arbuzov from JPMorgan. Please ask your question. Your line is now open.
Good morning. Thank you very much for taking my question. My question relates to the cost savings, it's the interplay and potential substitution between the synergy-related cost savings from the Com Hem and Tele2 merger and the structural cost initiatives that you talk about as a potential additional lever for cost-saving opportunities going forward. When you take the Com Hem synergies, you are now pretty much delivered on your SEK 900 target, and it looks like you'll be almost done by the end of the year. A lot of those benefits will come through in 2020. Since that, because you've achieved the run rate just now, they'll be coming through a little bit later. What about 2021, when you talk about mid-single-digit growth ambitions for EBITDA in that year as well?
With your current guidance, it looks like you will have nothing left from the Com Hem merger for 2021. I guess this is where the structural cost savings can come in quite handy. Ultimately my question is, I had previously thought of the structural cost savings that you talked about as an additional lever that will come on top of the Com Hem, the savings, and that would mean that you could potentially exceed your mid-single digit EBITDA growth. The way the numbers are shaping up and the way your communication is, it looks like it will just be a lever that will allow you to maintain the current momentum, the mid-single digit EBITDA growth, and not necessarily something that will come on top of it. Any color here will be much appreciated, please. Thank you.
Thank you very much. I think that's an interesting line of thought to have there, Roman. The way we look at it is that, if you look at our midterm guidance, obviously since we don't have much of growth right now, all the EBITDA improvements more or less comes from the synergies we realize on the cost side. Over time, as growth comes into play, we will actually see EBITDA growth coming more and more from the revenue growth. We can see a scenario whereby we can deliver mid-single digit EBITDA growth only by the leverage we have from growing our top line. I don't think savings is a necessity midterm to actually grow mid-single digits. Revenue growth is, however.
The way I look upon it is that as the cost savings are phased out, if you will, revenue growth is phased in, and we still should deliver the EBITDA growth. The structural savings we are talking about, those in my mind are also in addition to the plan we have and our guidance. What remains to be seen, however, is what kind of structural savings we can have, and that we are not in a position to talk about right now. We're looking into them. We're planning them and planning what to do, and it's something we plan to be able to discuss with you when we release our full-year results in the beginning of next year.
That's what I can give you at this point in time.
No, that's great. Thank you so much.
Thank you.
Your next question comes from the line of Terence Tsui from Morgan Stanley. Please ask your question. Your line is now open.
Thank you. Morning, everyone. I just had a question around the pricing strategy in the Swedish mobile environment. You mentioned that Q3 you saw really strong volume growth. Just wondering whether you're seeing any signs that the competition are fighting back to protect their market share. If not, do you think that when customers start to absorb the price increases that you are starting to put through, whether you'll see less churn than was the case when you started to increase prices in broadband and TV? Thank you.
Hi, Terence. Samuel here. I think on this strategy, the mobile market in Sweden is a competitive one and has been, and we see three different segments in this market. It is highly competitive and will remain like that. However, our investments into the Tele2 brand, together with having a full product with Com Hem, makes us a stronger player in the premium segment and therefore less sensitive, I would argue. On the back of that, we can do pricing, but also, of course, we introduce the family plan at the same time so that we can continue to have a good balance of both volume and price going forward. I think net-net, this should be just a continued gradual positive move for our mobile business going into 2020.
In my book, in addition, this is value for money.
Yeah.
We're actually providing much more value for money now than we have done historically with this new pricing plan. That should go hand in hand in the premium segment, I think.
Definitely. Even if we would lose some in a single play mobile area, we are definitely winning more by being much stronger as a household player now, and that is our focus going forward.
Thanks. That's really clear.
Your next question comes from the line of Abhilash Mohapatra from Berenberg. Please ask your question. Your line is now open.
Yes. Hi, it's Abhilash from Berenberg. Thanks. Thanks for taking my question. I've just got one on CapEx, please. You've obviously reiterated your midterm CapEx ambition. I guess we've seen some pressure from one of your peers today on CapEx guidance. Appreciate that obviously they're more sort of diversified than you and have more countries to think about. Yeah, just would be interesting to sort of hear your thoughts on your sort of 5G plans, and then whether you think there's any risk that it ends up costing more than what your guidance currently entails. Thank you.
Thank you. It's Mikael here. I will try to respond on your question. For us, how we look upon this and in our plans and projections we are having, the only thing that has changed since last quarter is that the 5G rollout will start a bit later. It will probably be completed a bit later than we originally planned. It's just that we are pushing CapEx further into the future. The additional spending we will have for 5G. Except for that, there are no changes in the total envelope for building 5G. That is per our original estimate. Those numbers are better confirmed now than they were one year ago when we communicated the CapEx guidance. It's just that we are pushing CapEx somewhat into the future. At the same time, we are building capacity in the existing network.
From a customer experience perspective, it doesn't affect customer experience short term that we have this slight delay in 5G. I hope that answers your question.
Yeah, that's great. Thank you.
Your next question comes from the line of Ulrich Rathe from Jefferies. Please ask your question. Your line is now open.
Thank you. I'd like to come back to this question of competition. You talk about volume growth in continuing in consumer. You mentioned the sort of shift towards higher value, which you think makes it sort of less vulnerable to competition, and also about outright share gains in SME. On the other hand, Telia has more or less sort of indicated today that part of the actions they're taking is actually there to relieve or build budgets for commercial measures. I'm not entirely sure why exactly you think that really taking share and increasing volumes in the higher end is the more or less risky strategy, in particular because the FMC capabilities that you now have are not unique to the market. They're new to Telia too, they're not unique in the market.
Could you just explain why in the higher end, you expect less of a sort of market share defense of the players who have share and that you're trying to attack? Thank you.
Samuel here. No, I think we can be very open about that we don't see this as a big market share kind of competition in the premium segment. For us, it's about gaining trust, satisfaction and loyalty with our own customer base so that we can grow there with additional products that creates volume, but also pricing as satisfaction grows. For us, this is about positioning ourselves as premium and making sure that we give our existing customers even more value so that they buy more and stay longer with us. We don't see this as a big kind of market share war in this segment in Sweden. I would say, actually, on the opposite, what we've seen in the market the last year is the main brands in general providing more value to the customers.
That is something that is beneficial for the customers, but also for the market dynamics in general. For SME, which you also talked about, I think what we consider being our fair market share all the time, and therefore, you get to a higher volume game when it comes to SME. That's what we have for you on this one. I hope that explains our thinking at least.
Thank you very much.
Your next question comes from the line of Andrew Lee from Goldman Sachs. Please ask your question. Your line is now open.
Yeah. Thanks. Good morning, everyone. I had a question on the top line as well, but maybe just slightly more positive on the market growth outlook, including your ability to grow within that. First question was on the Swedish end user service revenues, which improved to just under 1% decline, I think, in Q3. You've highlighted in the past that you've spent a greater amount on marketing spend in Q2 and Q3, and presumably the benefits from that are backend loaded. Do you think there's an opportunity for your improvement in Q4 to extend, and therefore maybe potentially get back to service revenue growth, in Sweden as early as Q4? That's question one. Secondly, today we heard Telia highlight greater scope for price rises and ARPU uplift in 2020 than 2019.
Obviously, you can't be specific on what you're about to do, but is that something you can concur with? Thank you.
Thank you very much, Andrew. On timing, when we're going to go into growth, this is very hard to predict. I'm going to refrain from doing that. What we do see is that we are in a position now, we have evidence and we see it happening, and we have traction and momentum. We see we're going in direction of going into growth. That leads us to the conclusion that we today think that we will be able to grow this company at low single digits, end user service revenue for next year. I don't want to be more specific than that because it's really, really hard to predict what's going to happen next month and so forth, and when you're actually going to tip over. You have to make do with that for now, at least, Andrew, I'm sorry about that.
When it comes to pricing in the market, what we do, and I think what the company you're referring to are doing as well, is that we are loading up our customers with customer satisfaction, as Samuel talked about, by various means. Therefore we gain pricing power. Telia has done this before us, so they have a head start and they have seen the positive effects of that. We come later and hopefully we will see the same, and we anticipate to see the same. We're quite bullish from where we sit now on being able to use price along with volume as the two measures in order to grow this company for next year and onwards.
Yeah. That's really helpful. Thank you.
Thank you, Andrew.
Your next question comes from the line of Nick Lyall from Société Générale. Please ask your question. Your line is now open.
Yeah, morning everybody. It's Nick at Soc Gen. Could I just ask Anders, please, on the pricing? I am just interested to see how far you think you can go. You mentioned on the network review that you thought you had best quality on network, and you are sitting at anything between a 15% and 30% discount, like for like on Telia prices. How far can you push that? How sustainable, or how large does the discount have to be to have growth in FMC and growth in family products? Could you talk a little bit about how much pricing you could think about putting through in time, please? Thank you.
Yeah. Thank you very much, Nick. I am going to answer in a slightly different way. What we are trying to do now is to put ourselves in a position so we can use price consistently over many years. It's not about having a one-year mega price increase, if you will. It's having smaller price increases every year, that together with a small volume intake we are going to plan for, is going to lead to low single digit end-user service revenue growth. That's what we are solving for. It's rather doing it for a long period of time, small magnitude, than doing it in a short period of time with a high magnitude. Now, our adjustment today is that we are in that position for next year and onwards. We have built a lot of customer satisfaction.
The pricing plan that Sam talked about, the family package, the FMC benefit packs where you get double data or highest speed tier, or both, actually, if you're an FMC customer. We have more coming up next year in terms of benefits that really are meaningful for customers. That we now have a super-duper network quality, and got that stamp from P3 will help us. The rebranding of Tele2 is another thing. I think we've built a lot of customer satisfaction that underpins the ability to dictate pricing in the premium segment over quite many years. That's actually the aim. That's what we're trying to do. So far so good, I would say. We executed quite well, I would add, or Sam has executed quite well on this. That's how I would like to answer it, Nick.
Great. Thank you.
Thank you.
Your next question comes from the line of Stefan Gauffin from DNB Bank. Please ask your question. Your line is now open.
Yes. Hello. A follow-up on the earlier CapEx question. First of all, you postponed the 5G CapEx spend. Can you just give an indication when you expect this to happen, to start? Is it first half of 2020 or second half? Secondly, Telenor has highlighted the need for a modernization or a network swap of the 2G and 4G equipment in Sweden. Is this already part of your medium-term CapEx guidance, or could that modernization or network swap come on top of that?
Hi, Stefan. Thank you very much. I'll start with the second one. The modernization of 2G and 4G is included in our CapEx guidance going forward. That's not in addition to anything, it's already included. We'll do that when we do the 5G rollout. When it comes to the timing of 5G rollout, it's a bit unclear today. First of all, what needs to happen is that we need to have the spectrum, and there is a spectrum auction coming up. The high band auction may be in Q1 next year. The date has not been set, so we need that one. That's one gating factor. The second thing we need to understand is the network security legislation, which is also due to happen both in Sweden and on an EU level. When we know what they actually say, we're in a position to choose vendors.
Before that, it's a bit risky to do so. We are making a lot of investments, obviously, that should last for a very long time, and you don't want to end up in a situation where you have to change while already having invested. Those are the two gating factors, which are a bit out of our control, I have to say. We'll have to watch by the sideline as you, and once we get clarity, we can move in and actually start building. I hope that answered your question, Stefan.
Yes. Very clear. Thank you.
Thank you.
Your next question comes from the line of Steve Malcolm from Redburn. Please ask your question. Your line is now open.
Yeah, thanks. Good morning, guys. Two questions, please. One just on the wholesale contribution to Swedish B2B. It looks like you said that the EBITDA growth came from cost cutting, but what I can see at all and more comes from the wholesale revenue growth. I think there was SEK 30 million extra EBITDA contribution this quarter. There was SEK 40 million last. Can you just give us a bit more detail on where those wholesale revenues are coming from and how sustainable the growth that you're getting out of the wholesale business within B2B is? Secondly, on Lithuania, Telia gave a sort of muted warning on their ability to offset inflation in Lithuania going forward. You don't seem to have the same concerns. Maybe just sort of outline why you're sort of relaxed that you can keep taking price against an inflationary cost backdrop in Lithuania. Thank you.
I will deal with the Lithuania question to start with, and then Mikael will take wholesale. On Lithuania, we have different positions in Lithuania, Telia and ourselves. We are the market leaders. If you know the story, I think 10, 15 years ago, when our current CEO became CEO, we were number 3 in the market. Since then, we have surpassed our competitors, Bite and Telia, and are now number 1. In my mind, Tele2 in Lithuania is an extremely well-run super-duper operator with a very strong brand and has outperformed the market consistently for quite many years. I think we are in such a strong position that we'll be able to continue this going forward.
We do not see any of the pressures when it comes to cost and the like that others may see. I think we will be able to continue the path we're on. When it comes to wholesale, Mikael?
Yes, I will try to answer that question, although I cannot go into that many details. This is a regular wholesale business where we are conducting in Sweden in the B2B sector. Both revenue and profit varies between quarters, and it is more volatile business than the rest of the business, I would say. We have changed the accounting methodology somewhat due to the integration of Com Hem over the past year. You should look at the Q3 numbers now. They are more representative for how we manage this business today and in the coming quarters. I hope that answers the question.
Is there a sort of one-off-ish boost from the accounting change in the EBITDA growth we can see from wholesale and B2B?
You have one-offs in previous periods, yes, if that answers the question. Yeah.
Okay. Thank you.
Your next question comes from the line of Peter Nielsen from ABG. Please ask your question. Your line is now open.
Yeah, just two, one, please, if I may return to the B2B market. Last quarter on, as you talked about the intense pricing process in the large enterprise market, which, if I recall, might you sort of consider stepping slightly back from this market. You're now talking about taking high-margin contracts in the large enterprise segment, which sounds easier said than done. Are there any high-margin contracts left in this segment to be taken?
That's a very good question, Peter. There are two basically segments in the large enterprise market. You have the public markets, public customers, and they are all won under tender. This is where basically price is the only variable that you can put in. The outcome of these and the price that won will become public as well in the end. Therefore, you have a tremendous pricing pressure on these contracts. You have the private sector, i.e., all companies not held by the state or municipalities. There you have a negotiation, and there are no tenders, which means that you don't see the same pricing pressure at all, which you see in the public sector. This is the difference.
We will then obviously continue going after the public sector, of which we have quite much in terms of customers, and put more effort also into the private companies where we are underrepresented today. I hope that answers your question.
Okay, cheers.
Your next question comes from the line of Jörgen Wetterberg from Nordea. Please ask your question. Your line is now open.
Yes. Thank you. Good morning. A follow-up question on the CapEx questions from before as it relates to the 5G rollout. You talked about the uncertainties around vendor restrictions, et cetera. Previously, you talked about that it could lead to increases in cost for you that you would have to pass on to customers. Could you give us a sense of the magnitude if you would not be able to continue with the current vendor set up or if you see risk to the CapEx guidance at all? The second one is also relating to the 5G introduction. How do you see device availability for Sweden going into a potential 5G launch? Is that a bottleneck, or do you see that resolving during next year? Thank you.
Thank you very much, Jörgen. Regardless of which vendor you use, there will be obviously an uptick in CapEx when we build the network, and that's what we have been related to or what we meant when we talked about price increases or cost increases going forward. It was not related to a vendor as such, but the phenomena of investing into new technology.
As Mikael explained earlier, we now have much more visibility when it comes to the investments needed in order to do 5G from all the vendors than we did a year ago when we actually came out with the guidance. We, at this point in time, feel fairly comfortable that this is under control, and we will be able to live according to our guidance going forward, regardless of who the vendor in the end will be. That's what I can say on that one. When it comes to the devices, I'll hand over to Samuel.
Yeah. I think, we are seeing 5G devices around the world now, and many handset manufacturers are investing heavily into producing newer and more. I think especially given that we see a postponement of 5G currently in Sweden, there is no worry about having good 5G handsets whenever we launch.
Okay. Thank you.
Your next question comes from the line of Adam Fox-Rumley from HSBC. Please ask your question. Your line is now open.
Thank you. It's Adam from HSBC. I wanted to ask a question about the Tele2 brand perception in Sweden, please. Your new advertising's been in place for a bit of time now. As you say, you're trying to make yourself more premium there. Is there any metric or evidence that you're tracking, in terms of consideration or promoter score that you can share with us as to how that's going? Secondly, just on the Com Hem synergies. Briefly, can you tell us what's left, and what you're expecting there? Obviously you're guiding for that to take another two years to come out, if I understand things correctly. Thank you.
Hi, Adam. Sammy here. On the question on the Tele2 brand, we've basically seen improvements across the board since we did this rebranding. It's one of the most liked campaigns we've ever had. We've seen the intake profile of Tele2 brand improving, both through more sales but also lower churn. We also see the NPS figures improving since launch. Overall, very positive. Of course, we need to continue this. It's about educating the market as well about our new position. So far, very good, I would say.
Your second question, it's Mikael here. The synergies. What remains and will remain for 2020 and 2021 is network and IT-related synergies. We have said from the start that these will come in the later period, since it takes time to realize the synergies. It's about combining the 2 networks, mainly, and some IT systems. Those remain.
Perfect. Thanks very much.
Your next question comes from the line of Siyi He from Citig roup. Please ask your question. Your line is now open.
Hello. Hi, good morning. Thanks for taking my questions. I just have one, please. I want to circle back to your midterm top line, mid-single digit growth targets. I understand it's quite a wide range. If I think about you put 8% price increases in both of your fixed mobile front book, and you're going to pass it to the back book, and you'll have a strong message on your Baltic performance. I was wondering whether you are now looking at a performance going forward. Would you be more confident that top-line growth rate could be more geared towards mid-single digits rather than towards 0% in the midterm? Thank you.
Hi, thanks for your question. This will ultimately be a tactical decision in the end, and I think if history is a guide into future, look at what was done where we used this strategy before in the Com Hem brand for several years, and I think you ended up with a 1%, 2%, 3% effective price rise every year. That's probably somewhere in that range we're going to end up here as well, I would guess. As I said, again, it's a tactical decision, and it's something which we then will have to combine with volume growth. If we have stronger volume growth, we'll probably do less on pricing and vice versa. I don't think we're going to outstretch ourselves to try to short-term do very strong revenue growth, because that will cost later on.
We will need to have sustainable growth over multiple years. I think that is the key here. It's quite hard also to be very specific on the midterm, more specific than we are, given that we are just starting this journey. As we go along, I think we will be able to give you better guidance than, unfortunately, I can do right now. That's what I have for you.
Thank you very much.
Thank you.
Your next question comes from the line of Henrik Herbst from Credit Suisse. Please ask your question. Your line is now open.
Yeah, thanks very much. I just want to sort of follow up on your pricing strategy and brand strategy, I guess, in Sweden. I think you have talked about a potential gap in the market you're seeing at the very low end. You being Comviq, more of a mid-end brand, and potentially launching something for that lower end. Any update you can give on that? Also, in terms of your back book pricing, I think in fixed line, you've always had quite a big gap between back book and front book, which allowed you to raise back book pricing even if you didn't do front book pricing in a year.
I guess it's a little bit more difficult. It's a bit more complex on mobile side, but any thoughts there in terms of how much room you have to raise back book pricing without changing your front book prices? Is there a material gap? Thanks very much.
Thank you very much, Henrik. On the low end of the market, you're absolutely right. We have identified a segment where the low end of the market, where we are not present with a brand. Com Hem sits in the middle of a segment, and Tele2 and Com Hem on the top. We are investigating whether that makes sense to actually go into that segment or not. This is something we're still looking at. We have made no decisions yet, but it's certainly something we're eyeing very close. For the second part, the back book.
Yeah. For the second, the back book potential. As you saw in the presentation, we see a potential, but both Com Hem and Tele2 have diminished the kind of gap between, or the historical bigger gap between back book and front book pricing. I wouldn't say that that's an additional opportunity. The opportunity we have is to continue the journey now gradually with increasing value, and thereby also being able to use pricing as a growth driver.
Great. Thanks so much.
Thank you.
Your next question comes from the line of Lena Österberg. Please ask your question. Your line is now open. Lena Österberg from Carnegie.
Hello. Sorry to come back to CapEx again. I was wondering if you maybe could say something about when you expect to peak your 5G rollout, if that has also been pushed out in time, or if you still expect 2021 to be the peak year. Also if you could say something about price expectations on the Swedish high band licenses compared to the 700 megahertz.
Hi, Lena. It's Mikael here. I will try to answer the first one. The peak, what we definitely can say is that 2020 will not be a peak year. It's still too early to say if the peak year is 2021, 2022 or 2023. We don't have that detailed visibility based, given the factors Anders just mentioned, uncertainty around licenses and the political situation. It will be later than 2020. That's the only thing we can say. Also this is, as we have said before, we expect this to be somewhat higher CapEx, but it will also continue over several years. You shouldn't expect any sharp increases in any single year.
When it comes to the spectrum auction, I think this is obviously highly sensitive for competitors to discuss. I think I'm going to refrain from that, Lena. I think what you probably should do is that you should look at the rules for this auction and compare it to the rules of previous auctions, and maybe you can find something there which will lead you to a conclusion.
That would indicate that you will have to pay lower prices this time around. I was just wondering if you also think so.
We'll have to wait and see.
Okay. Could you maybe say something on the costs of swapping your network if it would come to that you feel that you have to change vendors? If you think that that would significantly increase your CapEx, or if you think that you could keep within the range.
Our estimate is that when we go to 5G, we can keep it within the range we have provided the market with.
Irrespective of if you have to swap vendors.
Yeah. When we go to 5G, we expect us to be able to be in that range. There are several ways of getting to 5G. What you're explaining is one, and then there are other ones as well. Then some cost more and some cost less, but our estimate is that we will be able to go to 5G regardless of the method within the guidance. We base that on what we know today.
Okay. Thank you.
Thank you.
There are no further questions at this time. Please continue.
Okay. Thank you very much for all the questions and your interest in Tele2. Much appreciated. If there's anything after this meeting, you know where to find us, and we're more than happy to discuss whatever with you. If not, I hope to see you in the near future, and by the latest when we release the full year report back on this telco again. Thank you very much and have a great day.
This does conclude our conference for today. Thank you for participating. You may all disconnect.