Good morning everyone, and welcome to the Q2 report call for Tele2. With me here on this end is 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 you are most interested in covering. In the quarter, we closed the sale of our operations in Kazakhstan and announced the sale of Croatia. With these steps taken to optimize our geographical footprint, we can now focus on our core Baltic Sea region, where we see future of sustainable revenue growth and cash flow generation.
During the quarter, we have also improved the sustainability of business by implementing a new anti-corruption policy and whistleblowing policy, by continuing to generate positive results in diversity through our recruiting strategy, and by reporting to Carbon Disclosure Project. We are proud that our efforts have been recognized by MSCI ESG Research with their highest rating this month. Please turn to slide two for a brief summary of the Q2 results. Since we have announced the sale of our Croatian operations, Croatia is now reported as discontinued operation and is therefore not included in the numbers on this slide. The Tele2 Group revenue declined by 2% on an organic basis, including Com Hem, in the comparable period. End-user service revenue declined as mobile services increased by 1%, while fixed declined by 5% due to decline in legacy services.
Underlying EBITDA, excluding effects of IFRS 16, increased by 3% to SEK 2.2 billion, driven by cost reduction as we continue progress on the synergies. CapEx, excluding spectrum and leases, amounted to half a billion Swedish krona in the quarter. Now, let us take a look at our strategic initiatives on slide three. On this slide, you can see the main strategic pillars that will help us become a true integrated challenger over time. In our largest segment, Sweden Consumer, we made great progress on our FMC strategy with 93,000 customers now on FMC benefits. This represents a penetration of almost one third of the addressable overlap between the mobile and fixed customer base after only eight months since the offer were launched. We introduced FMC offers to the Boxer customer base for the first time this quarter.
We expect this to increase pricing power as we reduce churn and increase customer satisfaction in the Boxer customer base. We launched a major rebranding campaign of the Tele2 brand with the aim of raising it into a more premium position in the consumer market. The campaign was well-received and had a positive effect on net adds in the quarter and will continue strengthening the brand over time. In the Sweden Business segment, we continue executing on our plan to turn into revenue growth and improve profitability. We made progress on cost reduction in B2B this quarter and had a strong mobile RGU intake. As expected, the revenue trend will take some time to improve as price pressure in the large enterprise segment continues. Key for the future will be focus on the SME segment, where price pressure is not as intense and Tele2 is underrepresented.
In the Baltics, we see continued great momentum with a 6% growth in mobile end-user service revenue and 10% in underlying EBITDA, excluding IFRS 16. We continue to execute on cost reduction, which had an impact of SEK 100 million in the quarter, adding up to SEK 150 million in the first half of the year. We actually reached our year-end run rate target of SEK 450 million already after six months, and now raise our year-end target to a run rate of SEK 600 million due to a faster execution of headcount reduction. Please move to slide four. We are adjusting our guidance to reflect that Croatia is now reported as discontinued operation. We maintain our guidance for end-user service revenue.
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 EBITDA. We aim for mid-single digits underlying EBITDA 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. For CapEx, excluding spectrum and leases, we reduced the midpoint of our guidance by SEK 300 million this year to SEK 2.6 billion-SEK 2.9 billion, down from SEK 2.9 billion-SEK 3.2 billion, adjusting for Croatia and a slight delayed start of the 5G rollout. For the midterm, we reduced the midpoint by SEK 200 million to SEK 2.8 billion-SEK 3.3 billion, down from SEK 3 billion-SEK 3.5 billion, adjusting for Croatia.
Through revenue growth, OPEX reduction, and low capital intensity, we will continuously increase our cash flow, which we intend to return to shareholders. In May, we paid out half of the ordinary dividend of SEK 4.4, and the second half is scheduled for October. In addition, we have proposed an extraordinary dividend of SEK 6 to distribute the proceeds from the sale in Kazakhstan and the Netherlands, while maintaining our leverage within the target range of 2.5x-3 x. Let's take a closer look at the segment, starting with Sweden Consumer on slide six. We made operational progress in this segment with very strong volumes across the board.
Our core services had a net adds of 34,000 RGUs, and the legacy service decline abated with an outflow of only 12,000 RGUs. In a market with a gradually shrinking share pool from the main FMC players, this kind of momentum on volumes is a sign of the strength that our brands and offers carry. While we have good momentum in volume, we need a combination of volume and price in order to get to revenue growth. As expected, we had pressure on ARPU this quarter as our price increases on fixed line services was significantly smaller compared to last year. We believe that the progress on volume is a result of churn reduction as an early effect of the FMC strategy, with 93,000 customers now on FMC benefits, combined with a positive response to the Tele2 rebranding campaign and a widening pricing gap compared to our competitors.
These same factors that contribute to volume growth also build pricing power. Combined with a positive pricing environment in the market, we see an opportunity to adjust prices already this year to support the ARPU side of the equation. Volume growth in our core services led to continued growth in end-user service revenue for our core services, which you can see on slide seven. End-user service revenue in our core services continued to grow up 2%, although at a lower pace than previous quarters, as volume growth did not compensate for lower ARPU in the quarter. Mobile end-user service revenue turned into a 1% growth, driven by volume growth in postpaid and both volume and ARPU in prepaid.
In spite of improving volumes, fixed end-user service revenue declines accelerated to minus 5%, due to decline in legacy services and pressure on ARPU in fixed broadband and digital TV due to smaller price increases this year. Total end-user service revenue continued to decline down 1% this quarter as an 8% decline in legacy services offset growth in core services. It is clear that while we see good momentum in core volumes, we need to grow through price in order to offset the legacy decline and return to growth. With a positive momentum in our FMC strategy and benign pricing environment, we see ARPU upside already this year. While we execute an initiative to reignite growth, we continue to make progress on cost reduction. This resulted in a 3% growth in underlying EBITDA in the quarter, despite the revenue decline, partly offset by investments into growth initiatives.
Please turn to slide eight for our Sweden business segment. Within B2B, we see no fundamental changes in the market. Our focus remains on gaining market share in profitable network-based services on our network while reducing cost. We continue to make progress on volumes with a 5% increase in mobile RGUs and 17,000 net adds in the quarter, while ARPU continued to decline by 9% due to price pressure in the market, particularly from large enterprise and government contracts. With a 5% increase in RGUs and a 9% decline in ARPU, it is clear that we are not growing our market share fast enough to make up for the price erosion in the market. This is why mobile end-user service revenue declined by 4% this quarter, leading to a 4% decline in total end-user service revenue.
Unfortunately, the government segment, where Tele2 has the strongest position, has the most pressure on price. Focus within large enterprise going forward will be to compensate ARPU decline by volume growth in the private sector, where we see less price pressure. We also see an opportunity within the SME market, where the pricing environment is better and Tele2 is underrepresented. Throughout the year, we have taken steps to rebuild the SME sales organization, invested in sales capacity, and expanded to new sales channels. In addition, we plan a launch of fixed services during H2, which will allow us to introduce an FMC offer for smaller businesses. We saw continued growth within our solutions business, and the revenue mix is improving. We expect this to continue as we grow higher-margin revenue like cloud-based PBX and network as a service.
We have a plan in place, we are executing on it. While we implement our plan to return to revenue growth, we are continuously reducing costs to ensure that we can grow EBITDA. On slide nine, you can see that underlying EBITDA, excluding IFRS 16, grew by 4% in the quarter as cost reductions offset revenue decline. Please go to slide 10 for an overview of Sweden as a whole. Underlying EBITDA, excluding IFRS 16, grew by 3% despite the revenue decline driven by cost reduction, which was partly offset by investments into growth initiatives. We continue to see strong cash conversion of 72%, as CapEx spend is relatively low now in between investment cycles. On slide 12, you can see that we have continued great momentum in the Baltics, with a 1% growth in mobile RGUs and 5% growth in ARPU.
As in previous quarters, this was mainly driven by Lithuania and Latvia. In Estonia, we see signs of improvement, with positive net adds in the quarter and continued ARPU growth, but we are yet to see a sustainable turnaround. On slide 13, we see the effect on mobile end-user service revenue, which rose by 6%, and underlying EBITDA excluding IFRS 16, which increased by 10%, driven by Lithuania and Latvia, while Estonia remains a drag. This resulted in continued strong cash generation, as you can see in the chart on the right. With that, I hand over to Mikael.
Thank you, Anders, and good morning, everyone. Please go to slide 15, group profit and loss for the second quarter. Since this is the officially reported income statement, Com Hem is not included in last year's numbers, while revenue and operating performance can't be compared between the reporting periods. Total revenue for the group amounted to SEK 6.8 billion for the second quarter, with underlying EBITDA, including effects from IFRS 16 of SEK 2.5 billion. In the quarter, we recorded costs related to the integration of Com Hem of SEK 227 million, which are included in items affecting comparability. The major step up in depreciation and amortization is explained by additional amortization of surplus value from acquisitions of SEK 298 million, as well as depreciation of right of use of assets under IFRS 16 of SEK 296 million.
Profit for the quarter was negatively affected by goodwill impairment of SEK 452 million relating to our business in Estonia. We concluded on this write-down after reassessment of future cash generation, reflecting a lower starting point following last year's decline in profitability from the country. The book value attached to the Estonian operation is now SEK 850 million. Net profit of SEK 2.1 billion for the quarter includes a capital gain of SEK 1.6 billion from the sale of our operations in Kazakhstan, reported under discontinued operations. Let us move to the cash flow for the quarter on slide 16. Equity free cash flow more than doubled in this quarter compared to same period last year, reaching SEK 1.1 billion. With the addition of Com Hem in this year's numbers explaining about SEK 300 million of the increase, and the remaining SEK 300 million explained by improved cash generation in the remaining continuing operations.
Income taxes paid were elevated due to withholding tax related to the sale of Kazakhstan, paid in this quarter and to be refunded in coming periods. In addition to equity free cash flow of 1.1 billion SEK generated by the group in Q2, we also received the proceeds from the sale of Kazakhstan. SEK 2.1 billion in repayment of shareholder loan and SEK 1.6 billion in equity proceeds. Please go to slide 17, synergy update. In the quarter, we had a positive impact of approximately SEK 100 million of OpEx savings in the books, leading to a total of SEK 150 million in the first half of this year. At the end of the quarter, the annualized run rate of realized OpEx synergies, they reached SEK 450 million, while we have upgraded the target for the end of this year to SEK 600 million based on faster headcount reduction than we originally planned.
The SEK 900 million target in total annual OpEx synergies to be realized until the end of 2021 remains unchanged. For the revenue synergies, further initiatives were taken in the quarter by including the Boxer customer base in the FMC benefit packages, leading to nearly 100,000 customers now being on FMC benefit packages at the end of the quarter. Let's move on to slide 18 with a summary of our financial guidance, updated to reflect Croatia now being reported as discontinued operations. As Anders 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, mainly explained by exclusion of Croatia, but also due to slightly delayed start of 5G investments. Mid-term range for CapEx has been lowered by SEK 200 million, reflecting Croatia moved to discontinued operation. Please go to slide 19.
At the end of June, we reported leverage of 2.4 x, measured as economic net debt to underlying EBITDA after leases. Down from 2.8x at the end of 2018 and 2.6x end of March, which has been achieved by strong cash flow generation in the business and from the proceeds from sale of Netherlands in Q1 and Kazakhstan in Q2. This means that we are now temporarily below our target range of 2.5x - 3 x before distribution of proposed extraordinary dividend of SEK 6 per share in August. Adjusted for the proposed extraordinary dividend totaling SEK 4.1 billion, leverage would have been 2.8x end of June. With that, I would like to hand back to Anders.
Thank you very much, Mikael. Please turn to slide 21 for our key priorities going forward. One of our top priorities is to reignite growth in Sweden. We will do this by ramping up FMC penetration in the customer base to reduce churn and increase pricing power over the long term. Already this year, we've seen opportunity to capitalize on our improved pricing power. We also aim to turn the Swedish B2B business into growth by taking market share and improve profitability by focusing on high margin on net growth. On the cost side, we will continue executing on the restructuring process and aim to reach a run rate of SEK 600 million by the end of this year and SEK 900 million within three years. 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 on this later this year. 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. Later this summer, we will distribute the proceeds from the sales in Kazakhstan and the Netherlands through an extraordinary dividend of SEK 6 per share, if approved by the EGM in August. With that, I hand over to the operator for Q&A.
Thank you. As reminded, ladies and gentlemen, if you wish to ask a question, star 1 on your telephone keypad. If you wish to cancel your request, please press the hash` key. Our first question comes from the line of Stefan Gauffin from DNB Bank. Please go ahead. Your line is now open.
Yes, hello. I have a couple of questions. First, relating to the room for pricing in the Swedish market, start with Telia now have acquired a company called Fello, and will keep this as a fighting brand. Now you are the only operator without an ultra-low-cost fighting brand in the market. What's your view on this? Also relating to this, you said that you see a more benign pricing environment on SME and SOHO. Have you here considered the latest price move by Three, which launched unlimited usage for SEK 249, whereas you charge SEK 299 for one gigabyte of data. Then just a question on the IoT business, which we have seen quite significant sequential improvements in profitability two quarters in a row. What should we think about this business going forward in terms of both growth and profitability? Thank you.
Hi, Stefan. Thank you very much for your question. Let's kick this off with the fighter brand end of the market, and it's quite correct, we don't have a brand in there. Comviq is the closest we have, but that's more a mainstream, a middle-of-the-market brand and a kind of a market leader in that segment. We are looking at the fighter brand end of the market to see if it makes sense for us to establish ourselves there, and we will come back to you on this if we decide to do so and when that happens. If we go then to your question on pricing in SME and SOHO versus large enterprise, it's clear that we have seen a price move from Three during the quarter where they lower their price to the SME and SOHO segment.
We have, however, seen very limited impact of that on our sales and our customer base. If you compare the pricing in SOHO and SME at current market prices to what you get in large enterprise, there is a significant upside in SME and SOHO compared to large enterprise. If you further consider that we are significantly underrepresented in SME and SOHO in terms of market share, this leads to a big opportunity for us going forward. The second question when it comes to IoT is absolutely, you spotted it, Stefan, you're absolutely correct.
You could say we changed strategy a bit end of last year, where we went from trying to grow this business very, very fast all across the world, the globe, and investing heavily into it, to making it more a kind of service which we treat as a part of the B2B portfolio with less ambitious growth targets. On the other hand, burning less cash and faster coming to profitability. That's what you should expect going forward. You should expect lower rates of revenue increases, you should expect a much more profitable business than having been run in the old way of doing it. That, I hope, answers your questions.
Yes. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Lena Österberg from Carnegie. Please go ahead, your line is now open.
Good morning. I have two questions. First, I would like to ask you about the reinvest synergies into Tele2 brand. You say it was a substantial campaign. I was wondering if you maybe could say something about how much extra you spent on sales and marketing and what we should expect into Q3. Will the campaign still have spillover effects, or will we be back to a more normalized level for Q3? Also on the price increases in Swedish Mobile. Given now that Tele2, you've lifted it up to be more of a premium feel, the same look and feel as the Com Hem brand.
Do you still, when you look at your price position relative to Telia, do you still envision that you will have a similar pricing difference as you had in the past when it was sort of less of a premium feel to the brand? Do you think you can narrow the price gap between you and Telia when you now do your price adjustments on mobile?
Thank you, Lena. It's Mikael here. I will try to respond on the first question. You're correct, we spent extra marketing on the Tele2 brand in the second quarter, this affects profitability, of course, short-term on the negative side.
We haven't mentioned a specific amount. You should then also factor in what we spend on the other brands, where we have on the Com Hem and Boxer and Comviq brands. It has affected profitability. This, in combination with us investing into FMC capabilities in the organization, has affected profitability somewhat, which takes down the effects from the synergy realization in Q2. I'm sorry, I can't be more specific with only definite amounts. Going forward, I should mention that for Q3, we will continue to invest into FMC capabilities. Marketing spend, we don't comment on it per quarter.
Okay. Hi, Lena. Samuel here. On the second question, I think what we're seeing is on the back of a very successful repositioning and first campaign of that for Tele2, we definitely see pricing being part of the strategy going forward as we move Tele2 to more premium position. The exact details of that plan is, of course, not something we can disclose. It's definitely part of the strategy.
I think it's fair to say also in addition that, we now have started to build pricing power by introducing offers, repositioning Tele2, and so forth and so on. Already in the second half of the year, we'll start the pricing cycle, which will be initiated and run throughout second half and into the beginning of next year. Which leads us to believe that we will start seeing effects in our numbers from pricing as we progress and come later in the second half of the year.
Okay. Thank you.
Thank you. Your next question comes from the line of Maurice Patrick from Barclays. Please go ahead. Your line is now open.
Yeah, morning, guys. Couple of questions from my side, please. Just on the B2B side, your numbers show a solid net intake of customers, but the ARPU does look weak as you have called out. Just wondering where that sort of front book and back book differential in pricing sits. Are you seeing pressure on existing contracts, or is it new contracts that are bringing down the ARPU or maybe both? Where do we sit in terms of that back book, front book differential? Just to sort of re-ask the previous question in a slightly different way. Telia's put their pricing up on mobile quite significantly. You have been quite consistent talking about fixed-line price increases and this year, years before, well-trodden path. I wondered about your thoughts in terms of if there is scope of putting up price on the standalone mobile brands. Thank you.
Thank you, Maurice. On B2B, what you see is basically pressure, especially in a large enterprise when it comes to government contracts. That is both when you renew and when you bid for them for customers we do not have. That is where you see the big pricing pressure. When it comes to back book, front book, we do not really comment on that, and we have not disclosed that yet, so I am not going to touch upon it. The whole dynamic here is that as these contracts are basically bids you do in a kind of a public procurement process, it is very price sensitive. Right now there is a big, and has been for quite some time, big price pressure when you go into these kinds of bids. That is not the same dynamic you have when you go into private large enterprises.
Therefore, we will focus more on those, and get higher prices there. It is absolutely not the same when you go into the SME segment, where we have not been focusing nearly enough historically. That is something where we built a lot of capabilities and still are in order to get our fair share of that market. It is a combination. It is not one answer. If we do this in combination, I am sure that it will lead to us being able to take in more RGUs and not see the same pressure on ARPU that we see currently. That will then ultimately lead to us being able to turn into growth on end-user service revenue. When it comes to pricing on the B2C side, you called out that Telia has done price moves.
What we are doing right now is that, as you know, we have repositioned the Tele2 brand. We have introduced other kinds of FMC capabilities. We have now 93,000 people on our benefit packs, and so forth, and we'll continue to do more for our customers. Therefore, we think we are now ready to start the pricing cycle also for mobile. That's what we're going to start the second half of this year. The way this works normally is that I am not going to do the timing because it's kind of sensitive. I'm not going to talk magnitudes, but it's something that's going to be initiated during the second half of the year. We expect it to have impact on our revenues towards the end of this year, and obviously be a component for turning into growth in 2020 in line with our guidance.
That's super clear. Thank you so much.
Thank you.
Thank you. Your next question comes from the line of Siyi He from Citigroup. Please go ahead. Your line is now open.
Hello. Thank you very much for taking my questions. I have two question, please. The first one, I just want to follow up on the pricing powers. I wonder if you can comment on what you see the pricing power on your fixed business. I understand that you only increased one third of what you increased last year. Whether you see now you have a better pricing power on the fixed side. The second question is, you talk about you are investigating the further cost saving opportunities. I wonder if you can give us some flavor on what that would be and what other safeguard measurements in place to ensure that it's not going to affect the ambition to return to top line growth. Thank you very much.
Hi, it's Samuel here. Let me start with the first question of pricing on the fixed side. I think what we see going forward is a very similar look for both fixed and mobile. We are building an FMC capability that benefits customers both on mobile and fixed world. We're working hard on improving customer experience and product quality. That, together with the successful branding campaign we're doing, will build pricing power over time. As Anders said, we see that we can start working with this already this year and then going into next year.
Yes. Then for your second question, which comes to additional cost opportunities above and beyond the SEK 900 million synergy target, we call that the integrated operator. What we have now in Sweden are basically three separate organizations run in parallel. We have a B2B setup, we have a mobile consumer setup, and we have a fixed consumer setup. What we intend to do now is to blend them together into one operation covering all three segments in as large extent as possible. That will lead to efficiencies. Let me give you one example. If we take the network side of the equation, then we basically have today three network organizations. If you blend them together into one network organization, you will find synergies. You don't have to have three functions doing the same thing. It normally is enough with one or something like that.
That will lead to further cost opportunities. You can do that across a number of the functions. Then you create a more agile company, run much more efficiently, and being able to service our customers faster and better, and at a lower cost base. This is the opportunity we're sizing up right now. We hope to be able to come back to you later this year with what we think is possible to do, and then start executing on it. I hope that answers your question.
Sure. Thank you very much.
Thank you. Your next question comes from the line of Ulrich Rathe. Please go ahead. Your line is now open.
Thank you very much. My first question is a bit of a follow-on on what Lena asked about the reinvestment of synergies. The synergy guidance has been raised quite a bit for the year. I know that's a run rate, but still, you would expect some of that to stick also on a higher net effect. You're maintaining the EBITDA guidance. I understand Croatia is a bit of a drag, but still, it just feels as if you have changed your plans a bit in terms of how much you want to reinvest in the business. We see the top line outlook essentially unchanged. All of this together feels as if I want to say it very crudely, as if you find yourself having to invest more commercially in order to maintain the same top line.
How would you frame that question? That would be my first question. The second one, on the business mobile front, is there any element on the top line decline of you consciously walking away from business, in particular in these more price-aggressive areas? Are you willing to quantify that? I'm talking about really decisions to essentially not bid, rather than getting into these price pressure situations. Potentially a third question, if I may. You are, of course, having a lot of upheaval in the organization, I suppose, because of the synergy realization. Now you're hinting at more synergies, which ultimately means job losses. How do you maintain the motivation in the company? How do you see that? Is those job losses made in the legacy businesses where it's going to spin down anyway?
Is there really an element here that people are essentially having to fear for their jobs on a continuous basis now that you're hinting for further cuts beyond the ones you have announced earlier? Thank you.
Thank you. It's Mikael here. I will try to respond and comment on your first question or area for this discussion. I think the way we look at this is the guidance we give you, that is, first of all, on a yearly basis. What you refer to is probably the midterm guidance. That's where we have the low single-digit growth for end user service revenue, mid-single-digit growth for underlying EBITDA, and mid-single digit. There is, of course, a range to both of these targets. These are the midterm and also the guidance for this year, but it's on a yearly basis. You come back to how we play this tactically from quarter to quarter.
If we invest into extra marketing to grow top line, and that is what we have done in Q2, and you see the results in the customer intake we have in this quarter, but negatively affecting profitability short term. These tactics will continue to play each quarter, and that's why I don't comment specifically on marketing spend in one single quarter in the future. Short term, I agree with your conclusion, but if you look forward into the coming quarters, we will play this tactically different from quarter to quarter, depending on the opportunities we see. I agree with your conclusion about the performance for this quarter, but it doesn't mean that we have to do the same in the coming quarters.
To add on on that, let's go back to the first question we had, for instance, from Stefan Gauffin on the question that was if we consider going into the fighter brand end of the market. Let's assume that we would do that and thought that was a great idea. That will take some investments in order to get there, which are of a temporary nature. On the other hand, it will lead to revenue opportunity, if successful, which are bigger than what we see today. It's also a trade-off of what kind of revenue initiatives we go for and when we do it. I don't think you will, at any point in time, see the full effect in the guidance of everything we're doing.
Therefore, my take is that right now, we're investing what we need to invest temporarily in order to get to the guidance for next year. It is in line with what we have talked about before, because what we're investing in is into the three buckets where we see revenue synergies coming through. I stress once again, these are a temporary effect. It's not an ongoing increase in OpEx or CapEx. It's a temporary effect. While the synergies we take out are of a permanent effect. That effect you will have over the long period of time. The second question was on B2B and solutions, basically. Are we walking away from deals where the price is so low that we say no to it?
We have made a deliberate choice to try to focus on products where we have a good margin. We have found that some products have a bad margin, even negative margin, and we have stopped selling products with negative margin and only sell product we actually make money on, which I think is good business sense. That will have some effect on the margin of our growth aspirations. On the other hand, we're taking the efforts or the sales efforts that we historically spent on selling these solutions which we didn't make money on, and focusing them on selling stuff where we have a good margin. Ultimately, I don't think this will lead to a better or a worse growth profile or growth opportunity. It will most likely lead to the same growth opportunity, but with a better profitability.
When we come to the third question, which is about motivation, how do we motivate a company where we go through so drastic transformation? I think it's fair to say that change takes a lot of effort, and you get quite tired of making this amount of change. The change we've gone through the last half year or eight months is on a scale that I don't think this company has ever seen before. I think there's a lot of people who now need to go on vacation in order to get some rest and perspective, and then come back and fight for the second half of the year. We're absolutely happy to send everybody or most people off on vacation now.
What I think we have gathered around here is the idea that we can take a very good company and actually build it into the challenger it was meant to be when it was launched in the 1980s, namely to challenge the incumbent here in Sweden. Now we, for the first time, have all the capabilities in order to do that. We have fixed, we have mobile, we have video, so we can challenge the household for it. This is something that is a very positive thing and something that this company basically was created to do. Therefore, it's something that people feel is motivating.
On the other hand, we need to do it and be more agile and faster than our competitors, and I think there is an understanding that this will mean that we will have to become more cost-effective, and that ultimately leads to losses of jobs. This is something that the organization has been aware of since, I think, the beginning of this year when we start talking about this, actually. With the effect that we have not seen morale go down from that point, I would say. I think it's been rather the opposite, that we see that we can gather around something that actually is positive in the end. I believe this is manageable to do in the way we have set it up and are executing.
Thank you very much. Very clear.
Thank you.
Thank you. Your next question comes from the line of Terence Tsui from Morgan Stanley. Please go ahead. Your line is now open.
Thank you. Morning, everyone. I've got another question about reinvestment of synergies, I'm afraid. Looking further ahead, are you confident or still confident that the move towards FMC will mean that you'll see less need to reinvest in the brand, less need to chase customers, and more rational pricing dynamics in the future? We should be able to see the realization and the synergies in EBITDA and cash flow further out. My second question is just on the network outages. Maybe you can say a few words around the recent outages and reassure us potentially that this shouldn't lead to higher CapEx in the future. Thank you.
Hi, Terence. Samuel here. If I take the first question. Yes, we're definitely confident that we can do that. We're not the first one pursuing an FMC strategy. If you follow many other countries, you have two parts of FMC. One is the volume and the value growth of customers, making them more happy and more loyal, providing more products, and working with pricing. The other part, of course, is becoming more efficient. We will work with both, but tactically, short term, we're focused more on the first part. We need to build an FMC customer base. We need to build that loyalty. We need to build that trust in order to do both. We're definitely confident we can do both.
Yeah. There is nothing today that tells us that we should not be able to deliver the revenue synergies of SEK 450 million in five years' time. We're tracking well in all the initiatives we are doing every day. I hope that reassures you, Terence, that so far it looks good, at least. On the network outages, for everybody's information, we have had, I think it is three network issues the last year. We had one not long ago, which was quite severe, I have to say. On the back of that, we have launched a kind of investigation into our network and how we operate it and how it's constructed, and so forth, by external experts. This is something that will go on for a couple of months time.
The reason we do this is obviously that we need to have the best network quality in the country, and that's what we aim at, and we're not going to rest until we're there. We have got the first feedback from these experts, and the conclusion is that we do not see a need for any major investments. This is not about investments. This is about more how processes and how we do things when we do change and when we do upgrades and things like that. It's more operational than CapEx heavy, if you will. It will not drive more OpEx either, because it's how we work rather than how many we are who do the things we do. Our conclusion is that this is not something that's going to change our CapEx guidance at all. I hope that reassures you, Terence, as well.
Thanks. That's really clear.
Thank you. Your next question comes from the line of Andrew Lee. Please go ahead. Your line is now open.
Yep. Morning, everyone. A couple of questions. Firstly, just tying together, I guess, all the concerns this morning, which is basically whether you see the Swedish market as less supportive to top line growth at Tele2 now. Do you think the legacy headwinds are getting worse just more broadly? Obviously, we discussed the B2B market backdrop looks a bit worse. TV doesn't look great. Does this mean the burden on price rises is even larger as we go forward in your view? Second question, obviously, you're in execution mode at the moment, but strategically, just wondered your view on the need to own your network and the scope to sell the network in the same way that we've seen other challenger operators do in the past year. Thank you.
Yeah.
That'd be great. Thanks for mobile.
Yeah. Okay, I understand. Thank you very much, Andrew. When it comes to the market as such, I don't think we see any major changes. There is no fundamental change in the market dynamics. If you go through it, there is big pressure on large enterprise public sector, which we acknowledge, and therefore we try to sell elsewhere where there is less pressure. On mobile, you see rather the opposite, where you see increasing prices, which I. Samuel, do you remember when you saw increase in mobile prices last time?
Can't remember, to be honest.
You've been here since 1922 or something like that.
Exactly.
Yeah. It's probably a first for many years. When it comes to TV, what you see there is the effect of people buying less premium, which is also a thing that we have seen over quite some time, and the effect of us not taking price this year as we did last year. That's what's hurting us. I don't really see a major shift in the market. I think it's actually slightly better given the mobile environment. What do you say, Samuel?
If I could add, I think we're seeing improvements in prepaid. We're also seeing improvements in the Boxer environment, which is part of legacy that is actually improving. I agree.
Yeah. When it comes to the network side of it, what we have done, as you know, we're big believers in network sharing. We build network 4G and 5G together with Telenor. So a lot of the benefits that others take out in form of selling their network, we have taken out by operational efficiencies and lower CapEx by doing network sharing. I'm not a stranger to, at some point in time, looking at our network assets together with Telenor and see if there is some smarter way of doing that. It's nothing that we have discussed with them yet, but maybe something we perhaps should do in the future. I hope that answers your question, Andrew.
Yes. Thank you.
Thank you. Your next question comes from the line of Mandeep Singh from Redburn. Please go ahead. Your line is now open.
Thank you for taking the question. I'd like to ask primarily on the top line in the sort of synergies growth versus net and the EBITDA growth. I mean, your consumer revenue trends have deteriorated sequentially four or five quarters in a row. Business revenue trends have deteriorated sequentially two or three quarters in a row. You've delivered SEK 240 million of year-over-year EBITDA growth in the first half. I could annualize that or maybe give it a little bit more run rate. I'm trying to square top line growth versus EBITDA growth and growth synergy guidance versus net EBITDA growth. The sector is littered with examples of massive growth synergy savings not translating to a strong EBITDA growth as people expect, and the culprit is usually revenues.
I'm trying to understand confidence around revenue growth, given we've had four or five consecutive quarters of revenue deterioration. Beyond that, you might do some pricing actions. What else can you tell us that will give us more comfort on revenue trends, please?
That's a fair and good question. What we have done now is that we have embarked on the FMC strategy. We started that in November. We have outlined three major initiatives that will drive revenues. We have put out the target of 450 million revenue synergies in five years' time. They are selling mobile services into the fixed base. It is selling fixed services into the mobile base, and it's reducing churn by having more RGUs on the same customers. They, on an EBITDA basis, are roughly equal, these three measurements. All of them, we are tracking well. Price is not one of them, but now we have found another driver, which is price, which we then will start using also. I should also tell you that in our revenue synergies, we estimate a churn reduction of, I think it's one percentage point in five years' time.
In our case, that would mean going from 18% down to 17% churn on an annual basis, which is not very ambitious if you look at other operators who have done significantly better. Look at KPN, for instance, which are hovering around 10% in terms of churn as an FMC operator. I think there is much upside to this if we execute it well. So far, for instance, we have done so. I would say we have a third of the overlap already on FMC benefit packs. We are actually so far ahead that we now can start taking price on mobile, which was not part of the plan. We have other opportunities, which are not part of the original plan either, which we're investigating.
We have already today talked about one of those, that's the fighting brand, which is a part of the market where there is growth, and we are not participating in it. If we were to launch ourselves into that part of the market, that would be additional growth drivers. We have, on top of that, going back to video or TV, which Andrew mentioned in the previous question, we have not put into the plan either to go OTT, which is something probably we will do and which we are preparing right now, something for next year that will help us tap into part of the market where there is growth which we are not participating in, and so forth and so on. We have more growth drivers at our disposal than we have in our guidance, if you will.
That gives me confidence that over time, I'm sure that we will find enough growth drivers to get us to the growth we're guiding you to. We're in the ramp-up period, and we also said that this year, 2019, is the year when we build for the future. Don't expect growth this year. We are building so to expect growth from next year.
Okay. Thank you.
Thank you.
Thank you. Your next question comes from the line of Frederic Boulan from Bank of America. Please go ahead. Your line is now open.
Hi. Good morning. Thanks for taking the question. Just a quick focus on the fixed line side. If you could update us on your plans in the SDU area, whether you think there's an opportunity there to increase share. Secondly, to come back on the previous questions around ASP dynamic, especially in TV, ARPU has down quite a lot. If you could explain a bit more what's driving this. Is it mix? Is it, as you were describing, customers taking cheaper packages? As we think about OTT, we're probably strengthening that move, but what's the impact on ARPU, what's hopefully the potential impact on profitability versus your traditional pay TV business? Thank you.
Hi, Frederic. Samuel here. If we start with the SDU area, I think we already now are making good progress in that area, taking in customers, especially on the broadband side, both with the Com Hem brand, but also with the Boxer brand. Going forward, we continue to see this as an opportunity as we expand our universe.
More of our brands that actually go into that market to take a really good share. If we turn to TV, the big difference actually is pricing. Yes, there is an underlying trend of consumer viewing habits changing from a linear to a more on-demand habit, but that is nothing new to us. It's been here for a couple of years, and it's changing in the same pace that it's done before. Yes, that is leading to customers buying less premium, but they're still buying TV packages from us. That's a positive thing. The change in itself, yes, it is there, and it's putting pressure, but not more than before. The actual difference is pricing.
As we talked about before, as we combine mobile and fixed, as we provide benefits, as we continue to work with quality and customer experience, we believe that we can add pricing into the mix to help with those steps.
Adding on to that on the OTT side, as we go OTT over time, OTT products are normally sold at a discount to the legacy products, and this will be the case here also, obviously. Our business case and experience suggest that if we price ourselves at market for OTT services, we will be able to generate the same cash flow per customer on an OTT service as we do on a legacy TV customer. One of the main reasons is that we do not have to provide hardware to the OTT customer, which is quite a significant cost. Therefore, we will be able to lower the price and still generate the same amount of cash flow.
On top of it's actually much less expensive to operate an OTT business than a broadcasting business for an operator like ourselves, which also helps us on the OpEx side.
Thank you very much.
Thank you. Your next question comes from the line of Keval Khiroya from Deutsche Bank. Please go ahead. Your line is now open.
Thank you. Just going back to B2B, you highlighted the upside from SOHO and SME, but also the downside in large enterprises. Could you just help us understand a little bit more on how the timing of those two dynamics will play through? Should we start to think about the upside coming through more whilst we're still seeing some of this downside in the large enterprise, and should B2B revenue therefore start to improve, or will that be a slow improvement? Thank you.
Thank you very much for your question. The timing of this is very hard to predict. I'm going to stick with what we believe is that from next year, we should be able to turn B2B into growth. It's hard to say when we actually turn the corner and see the inflection. Next year, we target to grow the B2B business. That's what I can give you at this point in time.
Okay. Thank you.
Thank you. The next question comes from the line of Johanna Ahlqvist from SEB. Please go ahead, your line is now open.
Just one question from my side. Back to the price increases. As I understand it's both fixed and mobile. My question is really, do you expect to do price increases on the back book or only new subscribers?
Johanna, I understand the question, but this is sensitive from a competitive standpoint, so I don't think we will give you more than what we already have given you, and I hope you understand that.
Okay. Another question, if I may then. You mentioned this further potential on the cost side, and that you will be back to the market later on this year with definition. Can you give us the magnitude of the expected cost savings? Is it in line with the current program, or do you expect this to result in even more cost savings longer term?
The idea is to generate more cost savings beyond the SEK 900 million in synergies, the magnitude is what we will come back to later this year.
Okay. Thank you.
Thank you.
Thank you. Your next question comes from the line of Jörgen Wetterberg from Nordea. Please go ahead, your line is now open.
Yes. Thank you very much. Hi, Anders. I have a question regarding the spectrum auction outlook here, both for Sweden coming end of this year and then also for the Baltics. What are your expectations for investments to acquire spectrum in these markets, and what visibility do you have on the timing of this? Thank you.
We expect in terms of pricing in an auction, I think that would not be wise. What we can say is that on the auction that is next coming up here, which is in Q1, I think in Sweden, the more high-band auction. We have different sets of rules which should not make the auction as competitive as the one we had last year for the 700 band. That's what I can tell you. We also have other auctions coming next year in the Baltics, and they are significantly less costly historically than they are in Sweden. I will not comment on specific figures.
Thank you.
Thank you.
Thank you. Your next question comes from the line of Peter Nielsen from ABG. Please go ahead, your line is now open.
Yeah, thanks. Just one question left at this stage, please. Anders, you talked about under the CapEx guidance, slightly delayed 5G rollout. Could you just elaborate why is that, please? Thank you.
We're in the middle of the procurement process for 5G, obviously, and we find ourselves in the middle of a trade war between U.S. and China. We also find ourselves in a situation where Europe or EU and local governments are looking to include or implement rules for network security. It's very hard to make a choice on vendor while we have these uncertainties. Therefore, we take it a bit easy when it comes to choosing who to go with at this point in time until we gain more clarity. What we do instead is that we keep on investing into the 4G network where we need to build capacity, not to make the customer experience worse, but at a very good level.
Super. Thank you.
Thank you.
Thank you. We want to take our last question from the line of Kristoffer Carleskär from Handelsbanken. Please go ahead. Your line is now open.
Good morning, guys. Just want to go back to the network outages and the roaming problems over the last couple of years. Do you see any impact in the customer behavior from these problems? I would particularly think that B2B customers might be a bit more skeptical to choosing your services. Are you experiencing any problems in negotiations? Also on Lithuania, you have increased your margin to 38% both in Q1 and Q2. Are there any non-recurring items supporting this expansion, or should we expect that this is a new level for the Lithuanian operation? Thank you.
Thank you. We have, of course, when there are network outages, customers are not happy, that is quite clear. We have not seen any fallouts as a consequence of this, and we have not seen any bids we have not won either as a consequence of this. When it comes to the margin in Lithuania, I turn to Mikael. 38%, is that the new normal?
We can't. I will not give you a guidance going forward. What we can say is that in the first half of this year, there are no material one-offs in the numbers.
Okay. Very clear. Thank you.
Thank you. I guess that was the last question, if I understood it correctly. I would like to thank you all for your interest in Tele2 and for participating in this call, and I hope you all have a great day. Thank you.