Earnings Call: Q2 2016

Jul 21, 2016

Good day, and welcome to the Tele2 Q2 Interim Report 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Louise Cheadle, Head of IR. Please go ahead. Thank you. Good morning, everyone. A warm welcome to our Q2 2016 results presentation. Speaking with Louise and with me today I have our President and CEO, Alison Kurzby and our CFO, Lars Nordmark. Alison will start by going through the highlights of the quarter as usual, followed by Lars who will present on further Q2 financials. After this, as normal procedure, we will open up for questions, where you have the possibility to ask your questions, so either over the phone or via web. And with this, I will hand over to you, Anatol. Good morning, everyone, and thank you for joining us as we present our Q2 of the year. So let's start with the highlights. As customer focused value champions, we saw Sweden consumer postpaid and large enterprise return to mid single digit growth. In the Netherlands, the positive customer growth trend that we built up during Q1 continued and we achieved a net intake of 57,000 almost double the intake compared to Q1 and 50,000 more than the same period last year. We were also excited to announce the planned acquisition of PDC Sweden to create a unique customer champion in the Swedish B2B market. As I said at the time of our announcement, gives us an even stronger platform for sustainable value creation in our most important market. In terms of technological developments, our 4 gs position has strengthened throughout our footprint. In Sweden, we were awarded with having the best 4 gs coverage of all operators in the Nordics by OpenSignal as our geographic coverage moved towards 90% and outdoor population coverage is now above 97% in both the Netherlands and across the Baltic region. On productivity, the integration of Altel and Tele2 in Kazakhstan is progressing well with cost and revenue synergies starting to kick in. Data monetization is successfully flowing through to the bottom line in the Baltics and the Challenger program is developing in line with expectations and well on track for our 2018 target. In terms of people and culture, the Dutch marketing team made us immensely proud when they were awarded for having the best advertising campaign of the year recently. And I was delighted to welcome 2 new members to our leadership team in early July, when Guillaume Van Gave joined as EVP International, overseeing all of our markets outside of Sweden and the Netherlands, and Richard Piers joined as Chief People and Change Officer, both are veteran telecom industry experts. So let's get into the financials. The headlines are as follows monetization of data remains our key priority, and we do continue to see growth in the quarter despite some headwinds. Mobile end user service revenue was up 2 end user service revenue was up 2% on a like for like basis, which to be clear includes Altel pro form a and is on a constant currency basis. Net sales amounted to $6,700,000,000 up 1% on a like for like basis due to lower revenues from fixed telephony and fixed broadband. And EBITDA was down as expected by around $300,000,000 as a result of increased sales and marketing investments in both the Netherlands and in Sweden, partly offset by good positive developments in Kazakhstan, Baltic and in Germany. So let's look at the markets. First, Sweden. In Sweden, we saw total revenue was negatively impacted by our fixed telephony business and lower operating revenues leading to a decline of 3%. Mobile end user service revenue was flat year on year, but if you exclude the change in accounting treatment for prepaid vouchers, underlying mobile end user service revenue was up 1.5%, sequentially better than we have seen in recent quarters. Both consumer postpaid and B2B large enterprise were up mid to high single digits, very much driven by Comvique and continued strength in Large Enterprise where we added some important new customers in the quarter. In the B2B SME segment, we have seen some of the recent competitive pressure subside, but year on year trends are still negative. EBITDA was down as it was affected by both the accounting treatment change for prepaid vouchers and the claim for music remotes, which combined totaled DKK51 1,000,000. And as communicated last quarter, investments into sales and marketing activities, particularly in the Tele2 brand also had an impact. That being said, our trends are improving. Our dual brand strategy continues to drive positive postpaid net intake and positive mobile end user service revenue with it growing 5% year on year, as I said, very much driven by Combi market share development, but we are now also seeing some improved momentum in the Tele2 brand. Our value champion strategy continues to attract higher ASPU customers to the larger data buckets. And this strategy in addition to our increased network coverage is driving our network experience and customer satisfaction to best in class levels, as was also proven by the OpenSignal report. We recently upgraded the connectivity for our customers through launching plus but also improved the coverage we provide alongside the rail network. Having now reached 87% geographic coverage, we're increasingly providing our customers with a great connectivity experience no matter where they are in the Swedish country. So moving to the Baltics, commercialization and monetization of our 4 gs investments continue to drive good top and bottom line development. Net sales growth of 3% continues to be strong, thanks to an ever increasing demand for data and of course, handset sales. Mobile end user service revenue was impacted by the new roaming regulations, which we did expect. Adjusting for this, our underlying growth was up 4% and in line with our mid single digit objective. EBITDA growth, however, was better at +8%, driven by Lithuania where we achieved a 38% margin as we are seeing data monetization in that market successfully flow to the bottom line. This strong data monetization being driven very much by the ongoing prepaid to postpaid transition, our data centric pricing models and increased 4 gs coverage. After development is solid at 3% supported by an increasing share of 4 gs smartphones in our base, but we're still only 28% of smartphones being 4 gs enabled, there is still room for much more data growth and data monetization across the region. 4 gs coverage is now above 90 7 percent. And in Lithuania, we are seeing for the first time the usage of 4 gs surpassed the usage of 3 gs, which now takes me into the Netherlands. Well, we saw the momentum we built in March continue throughout the Q2. For the quarter, net sales were up 4% driven by increased equipment sales and mobile revenues offset by declines in fixed broadband and telephony. Mobile engine as a service revenue was up 1% as revenues from a higher mobile customer base was offset by the disruptive proposition that we put into the market at the end of February and the doubling of data that we gave to our existing base when we launched the MNO back in November. EBITDA was as expected impacted by the sales and marketing investments that are part of our mobile launch strategy and the decline in fixed. So let me just take you through a little bit more of what we've been focusing on in the Netherlands as we continue to build momentum in that market. During the Q2, our main focus has been to continue the positive growth trend that we built up during the Q1. At the outset of the quarter, we have all components in place, a disruptively priced handset lineup including the iPhone and aggressive SIM only offer with extra launch discount and a high speed broadband VULA offer. Based on this, we achieved a solid mobile postpaid net intake of 57,000 almost double the net intake compared to Q1 and the highest level of net intake that we've seen since 2013. On the fixed consumer side, we continued the positive net intake trend from Q1 where we turned to growth after several quarters of decline. Our fun Rebel brand platform based on a drown yourself in data care free message was not only recognized by a growing customer base, but it also won 2 prestigious awards. Tele2 won the San Excellence Award for the best advertising campaign of the year and also the ABCN award for the best creative campaign of a service company. It's this brand campaign and now an increased focus on larger data bucket that's helping drive continued progress in brand awareness, brand consideration and market share development. We continue to take above 20% of the postpaid switchers market during the quarter, including 35% of handset switchers, proving that we are becoming the preeminent challenger in the market. On the network side, we continue to expand our LTE Advanced 4 gs network, which has now reached above 97% outdoor population coverage and indoor population coverage of 81%. And our 4 gs on loading reached 67%. As for VoLTE, we continue with the aim of rolling out the entire base during the second half of the year. So a good quarter of continued momentum. Our disciplined investment strategy is delivering as we further establish ourselves as the preannen challenger in the Dutch market. Moving to the other end of Europe now, Kazakhstan, where we saw strong underlying mobile end user service revenue growth of 19% from an increased customer base and new pricing propositions. EBITDA developed significantly in the quarter from improved operating leverage. This is early proof that the JV will enable a much stronger and more sustainable platform for growth in the future. The strong financial performance has been driven by 3 things: a competitive advantage in 4 gs, as our competitors are yet to be able to launch 4 gs commercially an increasing customer base despite the significant changes that we've made to the propositions in the market, our focus now is very much on building quality and driving ASPU and not necessarily on intake in the short term. And thirdly, a comprehensive integration synergy plan that is being executed with discipline. More than half of the integration milestones have been achieved already, which is which we are now seeing synergies start to filter through. And then finally, let me just quickly update you on the Challenger program, which is very much developing in line with expectations and well on track for our 2018 target. In the quarter, our product simplification initiative progressed with 700 products closed in total and an additional 1,000 products we closed during 2016. We've defined new ways of doing product development throughout the group and are on our way to harmonize around half of our product. And we've also started to execute on simplifying our portfolio and expect to see the results of this next year. Strategic procurement continues to expand into new categories and during the quarter we integrated most of the Dutch network and IT organization into shared operations, enabling a platform for further consolidation and transformation in the future. And we now have around 100 FT feet feet feet feet feet feet feet feet feet feet feet feet Es working in our outsourced provider in India. So we're very much on track and these benefits are allowing us to reinvest selectively and in a disciplined manner to ensure that we develop sustainable top and bottom line growth into the future. On that note, I'd like to pass over to Lars. Thank you, Alison. Let's turn to Page 14 for an overview of the mobile end user service revenue development. On the left hand side, you see the reported figures for the last 5 quarters showing a year on year increase of 1%. Looking at the quarter from a constant currency and pro form a perspective, we saw a growth of 2% year on year. On the right hand side and looking at the individual operations, we've had strong development in Kazakhstan, driven by an increased customer base. In the Baltics, continued data amortization is driving the growth, which is offset by the new roaming regulation. Sweden is impacted by a nonrecurring item related to adjustments on prepaid service balances. Excluding this adjustment, Sweden was up 1.5% versus the same period last year. Moving to EBITDA, we reported a decline of 22% year on year. In Sweden and as communicated in Q1, we have increased our variable investments related to sales and marketing to regain momentum and top line growth. In addition, EBITDA in Sweden was also impacted negatively in the amount of SEK51 1,000,000 by the adjustments mentioned earlier by Allison. As expected, Dutch operations were impacted by the costs related to the commercial launch and decline in fixed revenue. In Baltics and Kazakhstan, we've seen strong positive results driven by data monetization and improved operating leverage respectively. The other segment is down due to increased headquarter project spend as well as investments into the M2M arena. On the CapEx side, we saw a decline of 20% versus the same period last year, driven by less investments in Sweden and the Netherlands. For free cash flow, we see a significant increase, primarily driven by positive development in working capital related to the handset financing in Sweden and a lower level for CapEx spend. Let's move on to our debt and leverage. Our economic debt to EBITDA was at 2.26 at the end of the quarter, driven by the dividend payment and Dutch investments. As previously communicated, we will be above our target range of 1.5 percent to 2 percent during the investment phase in the Netherlands. The definition of economic debt is net debt excluding liabilities from Catsec Telecom and liabilities guaranteed by Castlight Telecom. This reflects the fact that we will not be required to provide funding to the Castlight business in the foreseeable future. The next page shows our portfolio and where we play. As we have laid out before, the way we look at our business is that we divide our footprint into 2 categories. The first category is established markets made up of Sweden and the Baltics. These markets generate significant cash and debt and monetization is at the core of what we do. Let me also add that the cash flow that we generate in these markets more than covered the dividend. The second category is our investment markets in Kazakhstan and the Netherlands. In Kazakhstan, the focus is very much on JV integration and does not consume cash as a result of our JV agreement. In Netherlands, we are currently in an investment phase where we grow our customer base and have a negative cash flow, which is funded by a low interest rate environment. On guidance, we confirm our guidance for 2016, which we communicated at the beginning of the year. Please note that the mobile end user service revenue is based on constant FX and pro form a. And with that, I'll hand back to Alison. Thank you, Lars. So in summary, momentum is building and our key priorities remain very much focused on the following. Maximizing our dual brand strategy in Sweden to sustain momentum in our core market and return it to top and bottom line growth Monetizing 4 gs in the Netherlands, Baltics and Croatia and establishing ourselves as a preeminent challenger, especially in the Netherlands. Integrating our JV in Kazakhstan, driving both cost and revenue synergies, continuing to execute on the Challenger program, And of course, it's a great excitement that we're now preparing for the closing of the acquisition of TDC, an acquisition that will step change our growth strategy in our most important market. So in summary, we remain absolutely focused on further data monetization across our businesses and delivering long term shareholder value. So that brings us to the end of our presentation. And myself, Louise and Lars will be very happy to take any questions that you might have. Thank We will now take our first question from Nick Lyall from Societe Generale. Please go ahead. Yes, good morning. It's Nick from SocGen. Could I ask 2, please? On the I think you've made some comments this morning, Alison, on the wires about heavy investment to continue next year in the Netherlands. Is it possible for you to quantify that for us? And also given where consensus is at about €270,000,000 positive for next year in the Netherlands in total and €400,000,000 loss for mobile. Is that a hint that maybe that's just too high? And then secondly, on the Vula and the fixed margin, fixed margin did look a bit depressed in the Netherlands this year. Is that because of one off costs on Vula? Or is that the sort of run rate we should expect from now on, please? Thanks. Thanks, Nick. So I think what I said on the interview this morning that our Dutch investments will continue into next year as we've always said as we build up our market share. So we're not giving any guidance for next year yet at all. But as you are seeing, the marketing investments that we are putting into the Dutch market are giving us good traction. We're getting over 20% of the available market and around 35% of the handset switches market. So we are happy with how that's developing and it's very much developing in line with what we expected. So we've always said that the investment years would be 2016 2017 and that's the guidance we've been giving for quite some time, but not yet ready to say what the implications are for our total group yet for 2017. And Lars, do you want to take the Vula? Yes. On the Vula, we are investing into the rollout and we are progressing on making sure that we can offer a competitive offer of 100 megabit per second. We're currently around 60% of coverage through the KPN agreement and we're looking to increase that towards north of 80% by the end of the year. So I think from a commercial proposition perspective on upgrading the customers that we have and also new intake, we should see an improved level of active development on us targeting the upper kind of bandwidth that we can offer the customers. Just to get, is there quite a lot of one off OpEx still in the EBITDA margin there? So we can sort of we can get back towards previous levels? Or is this a sort of level to expect now of RULER? Is it just as you raise the ASP, you actually get some more margin through, but costs are set? Yes. I mean, there are no one offs in Agula if you look at the fixed segment in Holland. As we put Vula out there, there's modems that have to be invested in, but that's mainly CapEx. Yes. That's part of the rollout and investing in getting the ports. What we're seeing is good traction towards our ZULA product. You've seen as KPN and ZIGO have taken pricing up in the market, we are seeing more traction to our fixed offer again. So we're probably getting more traction to the VULA product. I think if you've seen the last 2 quarters, we've been slightly positive on the customer intake on the net adds, but you should not expect a step change in that development. Yes. That's great. Thank you. Thank you, Nick. Operator, can we have the next question please? We'll take our next question from Sunny Patel from Bank of America. Please go ahead. Yes. Hi. Thank you. I just have two questions. One is on SWE and mobile margins. I just wanted to understand a little bit what the additional expansion costs exactly are and how much of it will fall away as we roll through the rest of this year? So how much of it effectively is like a one off investment versus just the ongoing investment of having to compete into the market as it stands today? And then my second question is just around the Netherlands, just around the top line. I still need to sort of work back, but it seems implied, but I just wanted to know if you could share some numbers of what the ASPU is for a 3 gs customer and what it is for a 4 gs customer and how that evolves as you migrate your base and bring new 4 gs customers on board as well? Thank you. Okay, thanks. So on Sweden mobile margin, as we said last quarter, we put around $20,000,000 per quarter on top of our normal investment levels back into the market. And that was particularly focused on 3rd party channels, because we have become uncompetitive in 3rd party channels during the course of last year. And that is 3rd party channels, not just for consumer, but particularly for SME and Soho and of large of B2B. We expect those to continue in the second half. We are getting some traction from it, particularly in the Tele2 Residential brand. We're seeing it helping trade up the average bucket size and that's why we're seeing ever increasing more customer base moving into 5 gs and above, which is very positive from an ASCO development point of view of Tele2. So yes, I think that additional investment And it will be in the Q4 where we'd be doing some repositioning of the Tele2 brand as well. In terms of Netherlands top line, yes, the ASPU is muted, but if you think about what we have done since we launched in November, first of all, when we launched, we doubled the data for our existing customer base. So this time last year, we were getting more top up revenues for customers that were consuming data outside of the base on 3 gs on buckets. And that's probably and then obviously at the end of February, we launched a more disruptive offer on the iPhone or behind the iPhone and on we had a launch phase with SIM only where we were discounting SIM only by around 10% through until the end of May. So all of those impacts have taken as to down. In terms of 3 gs versus 4 gs evolution, it's quite difficult to give that because we were only 3 gs in the past and we doubled data and we put so much more into both the 3 gs and the 4 gs bundles because we just have one price. We don't have a different price for 3 gs versus 4 gs. So as we've been launching disruptive offers and transitioning the base and giving them that more, obviously, as to has gone down in some areas. But overall and as we've been going through the quarter and we've removed the launch proposition on SIM only and we've also started to steer our promotion and our marketing campaigns to 4 gs, we're actually starting to see ASPU starting to develop on a more positive trend. Thank you. We will now take our next question from Henri Kurz from Credit Suisse. Please go ahead. Yes, thanks very much. If I can just firstly follow-up on the Aspe development in the Netherlands. Just wondering where you're seeing kind of the more the iPhone customers, what type of bundles do they come in on? I mean, if I back it out, it looks like your ASPR now is around €10,000 which implies customers are on very small bundles. So where do you think that could trend towards? And then secondly, I think you've said in the past you expect to be EBITDA breakeven sometime in 2017. I was just wondering if that's still what you're targeting. Thanks very much. Okay. So we're very much seeing the majority of our intake coming still in the 1 gig and the 1.5 gig bundles. But what we have seen is that since we start promoting this, the 4 gig bundle is we're starting to trade people up as I just said there. I don't know where you're getting the €10 ASPU from. Maybe Louise can take that offline with you because certainly it's not as low as that at all. And it's significantly more than that. So Louise will handle that offline. In terms of expectation to breakeven, we are very much focused on building out the business and building good momentum at the moment. We're obviously still doing it in a very disciplined way. But at this stage, I'm not yet committing to whether it will be breakeven during 2017 or not because it's still very early days, but we're happy with the momentum. Okay. Thanks very much. Thank you, We will now take our next question from Andreas Jolson from DNB. Please go ahead. Yes. Good morning. A question on the Challenger program. You showed a slide on the progress, but I'm a little bit curious on when we could see some effects on the profitability actually, because if we compare the 2014 level with the implicit level that the guidance applies for 2016? It's roughly the same EBITDA margin if we exclude the mobile business in the Netherlands. Intake that you have now, would you say that that is enough in order to reduce losses for 2017? Thanks. Okay. First of all, on Challenger, the benefits are definitely coming through and we're seeing that in customer service costs across the group. We're seeing it in lower network and IT costs. But what that as you say, it's been offset very much by the investments that we're putting into the markets at the moment in the Netherlands, partly offset by Sweden. And obviously, Kazakhstan, now that it's a much larger business, distorts the overall group as well. So we are delivering in line with what we expected from Challenger. It's allowing us to invest back where we need to, to maintain momentum and ensure we have sustainable top and bottom line growth going forward. And as I said, we're very much on track. It's just so many moving parts, you can't just see a total level. In terms of Netherlands run rate, we are taking around 20 in the quarter. We took 22% of the available postpaid switches market. And as I said, around 35% of the available handset switches market. So we're very much on track towards the 20% market share target that we set out to achieve by 2020. May I have a follow-up on the Challenger program? Would you expect that to give a net cost reduction effect by, let's say, 2018? Well, absolutely. It's aimed to have a margin impact on all of our businesses. So it's one of the key drivers in driving Sweden from a 30 ish margin up towards a 35 ish margin. It's one of the key drivers that will help continue it's helping to drive Baltic's margin development. And it's one of the key drivers of SINA's extract a lot more cash and profit out of Germany. And you will see another market going forward. What you can't see obviously is it happening in the Netherlands at the moment because of the investments that we've put in there not just into mobile, but we're obviously having to put some investments into fixed to sustain that as well. And we've only just recently moved just under 300 employees in the Dutch organization into the shared operations organization to enable further consolidation their future, but that all kicks in, in 2017 as does the product simplification and harmonization. So I'd say it was all it's all about driving margin development in our core markets, and you will see that between now and 2018. Very good. Thank you. Thank you, Andreas. We will now take our next question from Ulrich Rat from Please go ahead. Yes, thanks very much. I have several, if it's okay. I would like to start with a follow-up to Nick's initial question on the Dutch broadband market. I mean expectations there seem to be consistently sort of different from what you reported. I've sort of looked back and 4 or 5 quarters in a row, there's a double digit percentage sort of difference between what you report and what the market expects. So I was just wondering whether it's worth maybe to disaggregate the drivers of that margin between I understand there's no one offs, but between the migration and the sort of migration costs and the underlying margin that you might sort of eventually expect once the transition to Wula sort of has finalized? So give any other sort of color that might decrease this because group business in some way can be attributed to that relatively small business, I suppose. The second question is on Kazakhstan. You talked about the synergies coming through. I was just wondering whether you'd be willing to comment a bit more on the phasing towards your of these synergies coming through raising the margins towards the midterm ambitions, which you've stated in Kazakhstan? 3rd question is, can you you mentioned the roaming impact. Could you quantify that either for Sweden separately or for the group or however you want to do this? Those will be my 3 questions. Thank you. Okay. So on the first question on the Bula, I mean, we will not break that down into the migration on the margin. I think what we are seeing is that on the top line, it has been a challenge. What we are doing on the Bula is we are rolling out that or KPN is helping us obviously doing that. And we are doing 2 things. 1 is obviously migrating up the base that we're having to an offer that is significantly better from a customer experience where they're currently having about 20 megabit per second to 100 megabit per second. And the way we do upgrade there is obviously to try to increase the ASPU and then go after new customers. So like I said before, I mean, the broadband market on the consumer is a tough market in Holland. So you should not expect a step change. What I would hope to see is an improved deceleration in the negative margin that we've seen in the last quarters. And I think we're seeing some early signs on the net intake, and it's important that we are focusing also on getting a stabilization in the base at a profitable level. And that's what we're focusing on. And I think we take on board your feedback on expectation setting in that area. We'll take that on board for the future. In terms of Kazakhstan, synergies, this is just very early days. And the integration plan is a 2 to 3 year program that will start to kick in more materially in next year and the following year. And then roaming impact, we're still sticking to our guidance for the year of around 100,000,000 dollars impact across the group. You started to see some impact of that on the top line in particular in Baltics in the quarter And we expect a bigger impact in the Q3, but very much still in line with the guidance that we gave at the beginning of this year. There's nothing in the early stages of the roaming changes to say that we're not stepping away from that guidance. That's great. Thank you very much. We will now take our next question from Johanna Alvest from SEB. Please go ahead. Yes. Two questions, if I may. The first one related to the Netherlands once again. And if you can say something about the ARPU difference on your existing base versus new intake. And the second question relates to the EBITDA margin in Sweden. If we exclude the one offs in this quarter, it's around 31% EBITDA margin. And should we expect this to increase due to normal seasonality in the second half? Thank you. Okay. So the ARPU difference on the existing base versus new intake, again, it's there's not a huge difference between the 2. Obviously, when we're starting to sell the higher buckets, then that is positive versus our existing base. But the low end bucket when they were being sold on promotion was probably quite similar to our existing base. But as we trade people up and as we have taken away the SIM only discount, we're starting to see positive development in the ASPU that we're bringing in the Netherlands. In terms of Sweden EBITDA margin, yes, you're right, it's closer to 1% if you 31% if you strip out the one offs. Q3 is always seasonally a higher margin quarter and then Q4 goes back down again because of investments and launches of new iPhones and Samsungs and whatever. So I'd expect that trend that we see every year to continue. And obviously, every year we're aiming to be stepping up the margin that bit more. And when Challenger properly kicks off, it will help it kick in even more as well. But obviously, this year's investments mean it will be more limited and kicking up this year. Just a follow-up on the Netherlands. So given that there is no, as I interpreted you, no main difference between existing and new intake, do you expect ARPA to sort of stabilize around the level that we see right now? Or do you expect it to continue to deteriorate year over year? No, we expect it to go up because we are now we've now taken away the same only promotional offer. And we are now stealing our promotions and our advertising to the bigger buckets. So we are expecting it to go up. Okay. Thank you. We will now take our next question from Terence Tsui from Morgan Stanley. Please go ahead. Thanks. Good morning, everyone. I've got a couple of questions on Sweden, please. In the past, you spoke about end user service revenue ambition to grow potentially 2% to 3%. I'm just wondering if you can walk us through what needs to change now in order to get to that target and maybe when do you expect to get to that target eventually? And then secondly, just a clarification. I'm interested in the adjustments to the financials in Sweden. Maybe you can just remind us ourselves remind us all about the adjustments on the prepaid expenses on the prepaid balances. And also just wondering how recurring the one off is with Copy Swede? Thank you. Hi, Karen. So I'll take the first question and Lars will take the second one. In terms of Sweden, 2% to 3% end user service revenue ambition, yes, that very much remains our ambition. In the quarter, if you strip out the prepaid adjustment, we were at 1.5 percent. So what do you need what do we need to change to get to that 2% to 3% sustainably? 1st, get SME back to growth again, but still it's still a negative drag in the quarter. And secondly, getting Tele2 Residential, not just ARPU development, but also some customer development going there as well. So those are the 2 key areas with total consumer postpaid at mid single digits that very much driven by Combiq, It's Tele2 that will help improve that. And then it's the SME segment that will help us improve the overall business. So both of those are frankly achievable, but I don't see them being all achievable in this year because we still have quite a drag from SME because it continued to decline during the course of last year. And then on your second question on the adjustments, so there's 2 ones, the $35,000,000 related to the Comvig brand on the prepaid cutoff. So basically, in the past, we had allocated customers that came in around the 20th of the month. They are top up completed to that month and we are not corrected for that. So we only allocate the usage that is pertaining to that particular month. So that's the $35,000,000 that you see. And the $16,000,000 is related to COPY 3, which is basically royalties to musicians and artists. And that is a retroactive adjustment that we have made for periods going back several years. So the going forward adjustment there will be significantly lower because then we would just do it on a monthly basis. Basis. That's really clear. All the way back to 2,009. So it's a very small amount going forward. We will now take our next question from Maurice Patrick from Barclays. So on the wholesale costs in the Netherlands, you've said you've got, I think, is 2 thirds of data traffic on your net now. So how does that not using your partner? I think you've spoken in the past about the wholesale costs spiking and peaking rather than Q2 and therefore easing off in the second half. Is that still the plan? So yes, 2 thirds of our data is on net, but obviously all of our voice, the majority of our voice is still off net because Volpe is only being rolled out properly in the second half of the year. What we are seeing is the cost of that wholesale, the NRE cost is basically fairly flat quarter on quarter. So it's still around the €15,000,000 per quarter. And that's likely to continue, is it for the next few quarters or either half? Yes, I kind of expect it to be at that level for the next few quarters as we start to ramp up VoLTE. Understood. And in terms of the And then it would decline next year. Got it. And in terms of the SEK 250,000,000 to SEK 300,000,000 quarterly losses, are we still on track for that for the rest of the year? Yes, very much. I think it was just under SEK 280,000,000 in the quarter. And so that's very much where we're spending at and we'll continue at. And so one quick follow-up. And per the previous question, I think it was Ulrik asking about trajectory into the following years, just on the moving parts. Presumably, whilst you see an opportunity for taking market share and continue to do sort of the marketplace, that will dominate how you run the business and therefore the sort of EBITDA growth or losses will sort of go seek from that as opposed to guiding towards an EBITDA number for next year? Absolutely. We are looking at how we develop this business in the best way to create value over the medium to long term. And so we will invest in a disciplined way to make sure that we're generating good top line momentum that we see turning into good bottom line development over time. Okay, very clear. Thank you so much. We will now take our next question from Keval Khiura from Deutsche Bank. Please go ahead. Thanks. I've got two questions and also in the Netherlands, please. So firstly, if we annualized your net adds in Q2, it implied that you're adding roughly 1 percentage points of market share for the full year. Are you happy with this rate of development, bearing in mind your longer term targets for market share? And secondly, if the VodafoneZiggo merger in the Netherlands does go through, do you expect that to impact your prospects at all? And are you seeking any remedies as part of that deal? Thank you. Okay. As I said, the net intake we are taking is equivalent to us taking around 22% of the available market on postpaid, because we don't have a prepaid offer, we're just focused on postpaid. So that is very much in line with our objectives and that's what we'd like to see being sustained. In terms of the Siggo Vodafone merger, we are responding to the EU questionnaires on that. We obviously have serious concerns about the consolidation implications of that in the market. And we are proactively seeking remedies as a result. Thank you. We will now take our next question from Roman Arbuzov from UBS. Please go ahead. Thank you very much for taking the question. On the SME segment in Sweden, could you just remind us what is the impact in terms of the drag on growth in percentage points, please, that's coming out of that business segment? And also, when do you expect to see improvements in the SME? Is it towards the year end? Or is it perhaps earlier than that or maybe in early 2017? And also in terms of net adds in Sweden, you've mentioned that you would like to improve Tele2 Residential Momentum, but you already are spending some extra resources on the marketing side in Sweden. So what do you think needs to change for you to momentum in Tele2 Residential? And perhaps as part of that answer, you could just also give us an update on how you've progressed with the various initiatives you've outlined in Q1 to fix the business? Okay. So in the SME segment, I guess the way to look at it, Roman, is ideally we'd be in the 2% to 3% growth range for Sweden sustainably. This quarter, if you strip out the one off, we're at 1.5%. So if we get SME to positive again and we get more intake momentum in Tele2, we would be in the 2% to 3% range because Compeek and Large Enterprise performed very strong. So I think that's the best way to look at it without me giving you an exact percentage of the drag. In terms of net adds in Sweden, yes, it's predominantly Convee posted. So in terms we are what needs to change in Tele2. While we're doing a great job of trading up customers and bringing new customers in the higher ASPU bundle. And that has been that was one of the objectives of the incremental investment that we put into the market in Q1. And that's what we are seeing positively. What needs to change? As I've been saying for several quarters, the brand communication needs to be clear. And Scary Frank selling lots of data is probably not the nicest of campaigns for Tele2. And we've been working on we have been working on a new campaign for the Q4 when we always bring a new campaign into the market. So I think it's much more of a communication situation with Tele2 rather than anything fundamental because we've got great propositions out there and we are increasingly giving a much better experience than some of our competitors as open signals have just proven. And then how we're progressing with Q1 initiatives. With the Q1 initiatives, 1 was getting the messaging out on Tele2 that really drove the data and the trading up of data and that's working. The additional investment was putting money back into 3rd party channels for both residential and SME. And we have seen some traction there. But as I said, SME what we've always managed to do is stabilize SME, but year on year, it's still negative and will remain negative for the balance of the year, for the balance of the year, Roman. Okay. Thank you very much. We will now take our next follow-up question on the Challenger program. When you announced it, you said that for this year, you actually have higher investment costs because you have, I think, euros 500,000,000 of costs and you have accumulated efficiencies of €400,000,000 But next year, you expect to have accumulated efficiencies of, I think, euros 800,000,000 and the costs will go down for implementation to €300,000,000 So going back to the earlier question, as it's a big step change in the difference of accumulated savings and costs for extracting the savings. Do you expect a net of $500,000,000 to be achieved on a run rate by the year end '17? As I said, we're still on track with our original objectives, Lena. Quite a lot of the consolidation of rules and the product simplification benefits really starts to kick in next year with lower investments than in this year. But a lot of those investments spike up in the second half of this year so that we can reap the benefits in next year. So very much the numbers are in line with our original trajectory. Okay. Can I also ask a question on just how many 4 gs enabled phones or Voalte enabled phones do you have in the Netherlands now? Well, in our base? Yes. Well, basically all of the handsets that we have been selling since launch are 4 gs VoLTE enabled and we probably have about 50% to 60% of our base has 4 gs VoLTE enabled handset in that range. So assuming that you migrate those customers relatively fast, is that sort of the full effect of the lower OpEx on T Mobile, the roaming costs? Or as they are data heavy and they are, I guess, the 3 gs customers are more voice heavy, how much will you get of those costs while migrating these customers that are now on Voalte enabled phones, because you will have the rest of the base still on T Mobile's network? Yes. But as I said, those benefits were more. We're expecting those to come in next year as we're still rolling out Voalte. And we're also Samsung, we are ready to switch we can switch on Voalte immediately. The iPhone, it takes that little bit longer. So we're also a bit at the behest of the handset manufacturers, although the handset is VoLTE enabled, it requires them put some software upgrades in as well. So that's why we weren't expecting any reduction in the NRA costs in 20 16, but it will definitely kick in, in 2017, Lena. But the cost that you've said, are those for that 50%, 60% of the base? Or do they assume that you migrate the entire base? So that $15,000,000 that we spend per quarter is the cost of all of our voice on all of our customers. And today, around 30% of the data is not consumed on our net. Okay. Thank you. Yes. So I'd expect that the data consumption will continue to increase and then the voice bit will start to kick in during the Q4, but will be much more material in next year, particularly when we have the iPhone software upgraded to be able to use VoLTE on the iPhone. And we probably still have around 300,000 customers that are on 3 gs handsets that we're proactively working to move over to 4 gs. We will now take our next question from Thomas Heath from Danske Bank. Please go ahead. Thomas Heath with Danske Bank. Two questions, if I may. Firstly, on Challenger program. You mentioned a lot of moving parts, but in Sweden, there aren't that many moving parts. As Elena alluded to before, there's a step up of savings from the Challenger program in your forecasts and you say things are going on track. What are the other cost items that you foresee might grow next year that would offset some of the gains from the Challenger program? Or should we expect a sort of full trickle down to EBITDA? It sounds maybe a little aggressive. Then my second question, again, on the net add in the Netherlands. I think market expectations have a higher rate of net intake than you have on a quarterly basis now. Would you be happier with consensus at $57,000,000 per quarter? Thank you. I'll take the net adds and then you can take the challenger questions. I think we were slightly ahead of consensus in the quarter for our consent for our net adds. So and considering that translates to around 20 2% of the available postpaid switcher market, I think that's a fairly good assumption to take forward. And on the Challenger program, again, I mean, we'll see benefits coming through, but we would also reinvest a portion of that benefit into the market in order to be competitive from a sales and marketing perspective. So we're not giving guidance on exactly how much of that will actually end up on your EBITDA margin line. But it's fair to say that there'd be some net positive impact? Yes. Absolutely. There should be some. Yes. Thank you. We will now take our next question from Peter Nielsen from ABG. Please go ahead. Thank you. Just a question related to the planned acquisition of TDC Sweden or rather the funding side of it, please. Have you had any further deliberations on the funding options for this? Are you committed to the rights issue? And do you see any likelihood or chance of that being changed? Thank you. No, we still plan to use the rights issue to fund the acquisition. Although as we said at the time of the announcement, we have the available financing available to a range of financing that we have. So we don't have to use it, but it's still our intention to do the right issue. Issue. We will now take our next question from Russell Waller from New Street Research. It's Russell from New Street. Just a quick one on the EBITDA losses at other, which are up quite heavily year over year, which I think you said due to machine to machine investment. Can we take that as sort of one off in nature? Or will that be ongoing? And what sort of level should we expect for the full year, please, at other EBITDA losses? Thank you. We're not going to give guidance on other EBITDA losses, but we are very optimistic about what Tele2 can achieve in the IoT arena. So we will continue to invest behind M2M IoT going forward. Okay. Thanks. We will now take our next question from Ulrich Rat from Jefferies. Please go ahead. Yes, thanks. This is a follow-up. Alison, I think twice now in this call you mentioned a coming repositioning of the Tele2 brand in the Q4 of this year. Just one question on that. It sounded the first time you mentioned it as if you're sort of mentioning this to sort of highlight incremental costs coming to make us all sort of reflect that in our numbers. Is that really the main message? Or just highlighting this in the context of your efforts to improve trends there? Is a particular cost issue that we should take into account in the Q4 because of something happening Thank you. No, no, no. The main message, Ulrich, is we've been saying for quite some time that we needed to improve the communication and the proposition of Tele2 Residential and it's always been planned for the Q4. So that is I'm not messaging anything else than we need a bit of a refresh of the brand advertising. Great. Thank you. We will now take our question from Anna Olinger from Citibank. Please go ahead. Yes. Hi. My question was answered, but maybe I could just ask on the pricing level in Sweden right now and what you just said on the branding reposition. Are you happy with the levels there? Or will you try move pricing in some way for upselling in Sweden with the new brand repositioning? Thank you. We are always trying to encourage upselling in all of our brands. As more and more data gets consumed, we see an opportunity to treat customers up on the back of that and that will very much be part of any propositions on the Vucatella II brand and the Combi brand going forward for customers that want to consume more and more data. Okay. Thank you. As there are no further questions in the queue, that will conclude today's question and answer session. I would now like to turn you back to your host for any additional or closing remarks. Thank you very much. And we don't seem to have any questions from the web. So this concludes our presentation for the Q3 results 2016. Thank you all for listening in and have a very nice summer. Thank