Good day, welcome to the Tele2 Q1 Interim Report 2016 conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Louise Tjeder. Please go ahead.
Thank you. Good morning, everyone, a warm welcome to Tele2's first quarter 2016 conference call. Speaking is Louise Tjeder, and beside me I have our CEO and President, Allison Kirkby, and our new CFO, Lars Nordmark. We're also streaming this presentation via our webpage, tele2.com, welcome everyone that has joined us also via the web. Allison will start by going through the highlights of the quarter, followed by some further financials presented by Lars. As normal procedure, we will open up for questions, where you have the possibility to ask your question either over the phone or via the web. With this, I hand over to you, Allison.
Good morning, everyone, thank you for joining us this morning. On what's a beautiful spring morning here in Stockholm. Let's start with the highlights from the quarter as we continue to deliver on our long-term strategy. As value champion, group mobile end user service revenue continued to grow in line with our mid-single-digit objective in the quarter. We enjoyed a particularly strong quarter in the Baltics, and we saw continued growth in our Swedish consumer business, albeit at a lower level this quarter. Data monetization continues across the group, accelerating in March as a consequence of progressing the Netherlands launch strategy further and the actions we took in Sweden. In terms of technological development, 4G is now available throughout our footprint, having switched it on in Croatia at the beginning of March and having merged with Altel in Kazakhstan.
As planned, we now have nationwide LTE Advanced 4G network coverage throughout the Netherlands, as a result, we have seen a significant increase in the number of 4G customers on our base. We also now have our first users on VoLTE and can officially say that we are the first 4G-only operator in the world. On productivity, Challenger Program remains on track to achieve 1 billion savings per annum by 2018, since closing the transaction in Kazakhstan, both cost and revenue synergy plans are well underway. As I've said before, this JV creates a more sustainable and significant player for us in the Kazakh market while de-risking our investment there. Also in the quarter, we've announced the vendors and the plan to virtualize and cloudify our internal network and IT system stack to drive significant efficiencies in the future and prepare for 5G.
In terms of our people and our culture, we're delighted to welcome almost 1,000 new Altel employees to the Tele2 team. They are all now being actively onboarded on the Tele2 way to embrace and live our culture and our values. It's my pleasure to welcome here today our new group CFO, Lars, who joins me on the call and who you'll hear from later. Moving to the headline financials for the quarter. Monetization of data has been and is still our key priority, and we continue to see growth in the quarter with mobile end user service revenue up 4% on a like-for-like basis, which, to be clear, is on a constant currency basis and includes pro forma for Altel. Net sales were up 2% like for like, due to lower revenues from fixed broadband and fixed SME.
Finally, EBITDA fell almost SEK 200 million as a result of the planned increased sales and marketing investments in the Netherlands and actions required in Sweden in the quarter. This was partly offset by positive developments in both the Baltics and in Germany. Turning to the markets in a bit more detail. Sweden first. In Sweden, total revenue was impacted by lower equipment sales and declines in both fixed and the B2B segments. The latter was driven by a decline in SME, given the continued price aggression in the market that has continued into the quarter and which we mentioned in previous quarters. Mobile end user service revenue was flat to down 1% year-on-year. The continued positive development in consumer is ongoing, albeit lower than we aimed for.
We continue to see growth in large enterprise too, all of this was offset by declines in SME. EBITDA was impacted by higher sales and marketing investment focused on regaining momentum in B2B and in Tele2 residential. It's also worth noting that in Q1 last year, we did have a particularly low investment quarter. The initiatives and the actions that we've taken recently, however, have driven improved momentum in March, and we continue to see that in the month of April. Let's go into Sweden in a bit more detail. I'm sorry, I'm jumping ahead here. All of that said, consumer is still growing, but at a lower rate this quarter than we expected to achieve. The long-term fundamentals of the Swedish business, however, continue to develop positively.
First, our dual brand strategy and a particularly strong Comviq brand equity and set of propositions continue to drive positive postpaid net intake and positive mobile end user service revenue. Both Comviq prepaid and postpaid grew in the quarter, resulting in a total consumer growth of 3%. Tele2's value champion strategy continues to attract higher ARPU customers to the larger data buckets. This strategy, in addition to increased network coverage, is driving customer satisfaction to best-in-class levels. Whilst it was a fairly flat quarter from a revenue perspective, we are comfortable that the foundations we have in place and the actions we have taken will enable further opportunity for data monetization in both consumer and in B2B going forward. As we now look at the Baltics, we saw good top and bottom-line growth from the commercialization and monetization of our recent 4G investments.
Net sales growth was up 7%, driven by equipment sales, which is enabling improved penetration of 4G handsets, and therefore potential for increased data growth across the region. Mobile end-user service revenue was up 5% overall, and in Lithuania and Estonia 8% and 6% respectively. EBITDA growth was 6% up, driven by Lithuania, which is up 14%, achieving a 37% EBITDA margin. The strong data monetization in the region in the quarter has been very much driven by the ongoing prepaid to postpaid transition, increasing penetration of 4G handsets, data-centric pricing, and increased 4G coverage to 95% for the region. ARPU development, up 8%, is similar or slightly ahead of mobile end-user service revenue development, with mid to high single-digit development in Lithuania and Estonia.
If you look at how the penetration of 4G handsets is still only 25% in our base, there's lots of room for further ARPU development going forward. We were also in the quarter successful at securing the 900 and 1800 MHz spectrums in the recent Lithuanian auction, future-proofing data monetization for the foreseeable future in that market. Let's get into the Netherlands now. As expected, we experienced a continuation of the trend seen in the fourth quarter into the first two months of this year, with momentum accelerating in the month of March. For the quarter, net sales were up 3%, driven by increased equipment sales and mobile revenues, offset by declines in fixed broadband and telephony. Mobile end-user service revenue was up 6%, but with a significantly higher run rate at the end of the quarter than at the beginning.
As part of the launch strategy, EBITDA was impacted by the sales and marketing investment, although partly offset by a €7 million one-off benefit from a renegotiated property lease in the quarter. Let's get into the Netherlands in more detail so you can understand how we are gaining momentum. If you recall at launch, our primary focus was to build brand awareness, disrupting the handset section of the market, and grow the share of VoLTE-enabled handsets in the base. We launched with a disruptive handset offer, and in Q1, we continued to focus on putting in place the additional components necessary to enable higher customer base growth. In February, the 4G handset penetration in the Dutch mobile market allowed us to launch a disruptive SIM-only offer, and we saw good growth throughout the quarter on the back of that.
We also completed our handset lineup by introducing the iPhone into our handset portfolio at a disruptive entry price. The SIM-only and iPhone launches had a step-change impact on our growth through the quarter. Share of new postpaid contracts, all new postpaid contracts, handsets and SIM-only, jumped from 12% pre-launch to 20% in February and to 25% in March, based on the information that we just got last night from GfK. In March, if you recall, that's when all elements of our plan strategy were live. Brand awareness, consideration, 4G customers in the base, and share of available switchers built sequentially across the quarter. On the fixed side, with a growing VULA high-speed fixed broadband footprint, we have been able to stabilize our customer base after four quarters of decline.
Operationally, we've been focusing very much on improving 4G onloading to support our future profitability and increase the freedom that we have in our offers. We have continued to improve the network coverage throughout the quarter, but also put processes in place to improve our steering towards 4G customers, which delivered a higher ratio of 4G versus 3G handsets in the base. At the end of Q1, our data usage on our own network had increased to 61%, from 27% pre-launch. All of that being said, churn is still higher than we'd like, mainly in 3G, but continues to dilute the positive development in growth intake that we've seen since launching all elements of our plan. If there's one thing we want to fix going forward, it's to reduce churn going forward, and work is very much underway there.
Finally, on the network side, we continue to improve both our outdoor as well as our indoor coverage. As planned, our LTE Advanced 4G network reached nationwide outdoor population coverage by the end of the quarter. We're now above 97% outdoor and 78% indoor. P3, earlier in the quarter, also conducted a benchmark study, and we achieved nine out of ten, which showed that while still in rollout phase, we are already on a par with the other three MNOs in this country. Now, the last week of March, we have our first users on VoLTE and can now officially say we're the first 4G-only operator in the world. We expect to enable VoLTE for all our consumer and B2B customers during the third quarter.
Overall, good progress in the quarter, and we remain absolutely committed to our disciplined investment strategy in the Netherlands as we further establish ourselves as the preeminent challenger in that market. Let's go into Kazakhstan. We saw underlying mobile end-user service revenue growth in constant currency up 31% from a higher customer base in what is an intensively competitive environment. The competitive environment, expansion costs, and the devaluation of the KZT impacted EBITDA in the quarter, but we were still able to deliver a positive sum. As I said earlier, the closing of the transaction and the steps we've already taken on cost synergies and market pricing will enable a stronger and more sustainable platform for growth in the future. Since closing just seven weeks ago, we have already launched 4G to the Tele2 customer base and national voice roaming to the Altel customer base.
We have started executing on the synergy plan. Also, as of April, we have discontinued Altel's unlimited data offerings as part of the rationalization of the bundles offered by the new JV. These unlimited bundles were eroding network capacity and quality of service and were obviously unprofitable to us. This was a critical part of the integration plan. As you can see, this will result in an increase in the price we charge per gig to around 168 KZT, which is around $0.50. Still extremely attractive considering bundles in the market are somewhere in the 10 to 30 gig range. Integration plans are progressing well. Briefly, before I hand over to Lars, I just want to give you an update on Challenger Program, where we very much remain on track to achieve the SEK 1 billion target per annum by 2018. We are showing good progress.
We have 60 initiatives in place. The vast majority are all very much focused on execution now. In the area of simplification, we have defined a new approach to product development throughout the group and are on way to harmonize around half of our product development. We've started to execute on simplifying product portfolios and expect to see results from this in the end of 2016 and onwards. Already, we've simplified the product portfolio in Estonia, down by about 50%. In Croatia, closing almost 80% of the product portfolio. In terms of improved discipline, we are seeing an increase in the spend we manage strategically and are well underway towards our target of 80%. As an example, we're implementing a consolidated approach for the group within handset management, covering both purchasing and campaigns to better leverage scale and coordination across the group.
The strength in the Samsung Galaxy S7 campaign is a result of a joint effort, not only resulting in campaign benefits, but also in greater efficiencies in working capital. It's not just in our OpEx that you will see the benefits from Challenger ongoing. You will also see revenue opportunities and working capital opportunities, too. In consolidation, I've mentioned previously, we've decided to move our network and IT functions into the cloud to cater for 5G using Network Function Virtualization in order to enable a smarter, user-friendly, future-proof, and even more cost-efficient internal management of our network and IT stack. This shift to technology will enable us to deliver a wider set of services to our customers within all segments, including business, consumer, and more importantly, to enable development in the Internet of Things division.
In transformation, as you saw in the results, German EBITDA is benefiting from last year's restructuring. The new operating model we launched in October allows us to deliver economies of scale throughout the group. We've already seen now around 100 FTEs outsourced to India, providing support to our Swedish, Dutch, and finance operations. On that note, I'm now going to hand over to Lars.
Thank you very much, Allison. Good morning, everybody. Let's turn to page 14 for an overview of the end-user service revenue development. On the left-hand side, you see the reported figures over the last five quarters, showing a year-on-year decline in Q1 of this year of 1%. On the right-hand side, looking at the separate operations, we can see good developments in the Baltics, driven by good improvement in the ARPU. Also a shift from prepaid to postpaid. In the Netherlands, we have seen an increased Q by customer growth. In Kazakhstan, due to the valuation of the tenge, we experienced a decrease year-on-year for operations over there. Looking at the quarter from a constant currency and pro forma perspective, we saw a healthy growth of 4% year-on-year, where the Netherlands, Baltics, and Kazakhstan were the main contributors.
Moving on to EBITDA on the next page, we report a decline of 14% year-on-year. As expected, the Dutch operations were impacted by the investments related to our commercial launch. In Sweden, we had increased variable spending related to sales and marketing to regain top-line growth. In addition, we also saw some tailwinds in Q1 of last year. These investments had a negative impact on EBITDA in the quarter of this year. For the remaining countries, we have seen strong positive results coming through from the Baltics, as well as good bottom-line impact from Germany, where we restructured the business in 2015. In Germany, we had non-recurring items of approximately EUR 3 million-EUR 4 million in the quarter of this year. Turning to CapEx, we saw an increase of 23% versus the same period last year.
This was primarily due to an increase in the Netherlands and the Baltic operations. Specifically, the increase in the Baltics is a result of us acquiring the 900 and 1800 MHz licenses in Lithuania in the amount of 123 million SEK. Please note that only 26 million SEK was actually paid in cash, and the remaining amount will be paid over the next 15 years. CapEx for the Netherlands increased due to investment in fixed broadband, where we continue to strengthen our ability to offer competitive offers in this segment with speeds up to 100 megabits per second. On the next page, we see that free cash flow was at approximately the same level as for Q1 of last year. The improvement in interest is related to negative impact in Q1 2015 as a result of FX swaps for the Norwegian operations.
We have seen an improvement in the change in working capital, mainly due to Sweden, where we have launched an external financing program for handsets during the first quarter of this year. The one-offs were mainly related to costs associated with our Challenger Program. Now let's look at our debt position and our leverage. Our economic debt, CDD, was at 1.7 at the end of the quarter. The chart also reflects the impact of the upcoming dividend payment, which will take leverage up above 2. This is in line with our previous communication, where we have stated that we will be about 2 during the investment phase in the Netherlands.
The definition of economic debt, which is net debt excluding liabilities from Kazakhtelecom and liabilities guaranteed by Kazakhtelecom, also reflects the fact that we will not be required to provide funding to the Kazakh business in the foreseeable future. Let me end on confirming our guidance, which we communicated during our last call. Please also note that mobile and fixed-service revenue is based on constant foreign exchange and pro forma . With that, I'm going to hand back to Allison.
Thank you, Lars. Just to summarize, our priorities remain, and very much focused on five key areas. One, to maximize our dual-brand strategy in Sweden to regain momentum in what is our core market. Two, to monetize 4G in the Baltics and now also in Croatia. Three, accelerate our growth in the Netherlands as our investment establishes us as the preeminent challenger. Fourth is to integrate our JV successfully in Kazakhstan and drive both the cost and the revenue synergies. Finally, to continue to execute on the Challenger Program. As you will see, we remain totally focused on further data monetization across our businesses in order to maximize long-term shareholder value. Thank you. That concludes our presentation for today, and both Lars and Louise and I will be very happy to take your questions now.
Thank you. Ladies and gentlemen, if you wish to ask a question over the telephone, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment, and please state your name before posing your question. Once again, press star one to ask a question. Our first question comes from Nick Lyle of Societe Generale. Please go ahead.
Morning. It's Nick at Societe Generale. A couple of questions on the Netherlands, please, Allison. Is it possible for you to tell us the 3G churn? Was it similar to last quarter? You mentioned the P3 tests, I think, in the release. It also looked like T-Mobile did very well in those tests as well. On the sub side, could you tell us how much you assume in the long term, how much share do you assume is going to come from T-Mobile in your assumptions? The second one was on the fixed line side and the margin fall. Could you explain, does that have anything to do with one-off costs on VULA, or where does that margin come from that slipped below 20%, please? Thank you.
Okay. Thanks, Nick. Yes, 3G churn, it was similar to last quarter. I think there's still the sub-brands and the MVNOs are still being very aggressive at that end of the market. That's fine because those customers would be unprofitable to us anyway. What we are now seeing, though, is we've got 60% of our customer base is now 4G, that's a really positive development. In terms of the P3 test, yes, T-Mobile did well, but we got nine out of 10, and it was taken in January, and we built the network further between January and the end of March. We're already on a par with the others. Regarding taking share from any one player in the market, we are taking share from everybody at the moment. We're taking 25% of all available new postpaid contracts. We are doing well against everyone.
We're still keeping firm to our 20% long-term target, market share target. Finally on fixed line, I don't think there was any one-off negative impact in the quarter. I think that's just a reflection of the business declined again, and we have an increasing percentage of the business off net now than on net. Gross margin was pretty stable. There might be some marketing costs that are being allocated in that area because we're promoting the Tele2 brand at the moment. As I looked at gross margin, I think it was pretty stable.
Right. Okay. In terms of VULA, it's still a very small effect for the quarter, is it? It's not sort of indication that VULA is going to bring margins down substantially below 20 or anything like that?
No, no, no. As we've always said in VULA will stabilize the customer base, and that's what we've seen
The first quarter that we haven't declined in over a year. What you're seeing is, as we've always said, our aim is that VULA would help us drive ARPU up, and therefore the margin dilution would not be as big if it was all being sold at the same price. We're still early days in VULA. As I said, gross margin was stable in the quarter.
That's great. Thank you.
Thanks, Nick.
Our next question comes from Henrik Herbst from Credit Suisse. Please go ahead.
Well, hello. I got two questions, please. Firstly, on the Netherlands, I'm just kind of trying to tie together your OpEx spend or EBITDA loss in Q1 versus your full-year guidance of, I guess, an average of SEK 200 million-SEK 300 million loss per quarter, and how I should think of your EBITDA loss as your subscriber momentum kind of ramps up, and given that you're now in Q1 already underlying SEK 290 million EBITDA loss. Secondly, in Sweden, I would just be a bit interested in hearing what you're actually doing with this incremental spend. What is it going to, and I guess, for how long do you think you'll maintain a higher spending level? And what do you expect it to result in? Is it improvement in ASPU, you'll migrate customers up to bigger data bundles, or will it be better subscriber trends? Thanks very much.
Okay. Thank you, Henrik, for your question. The first question on Netherlands and the OpEx spend and what we have been referring to as the mobile EBITDA losses of 200-300 a quarter. Allison, if you could answer on that question, how that would build up, given that we will build up momentum in the customer.
Then I'll just take Sweden afterwards.
Yeah.
Hi, Henrik. Good morning. You're right. Underlying EBITDA loss in mobile for the quarter was around 290, which as we said, we will be around SEK 300 million per quarter for the year, and that is still our projection as we look forward. No change to that forecast based on what we've seen in the first quarter. In terms of Sweden, what are we doing? There are, I guess, three elements to the plan. The first of those was always part of the plan anyway, which was the spring campaign on Tele2 residential, which was very much to focus on data and start to stimulate trade up of the bundles again, and to keep that ARPU development. That's the first part of the plan.
The second part of the plan was to look at third-party channels in the consumer segment to ensure that we were competitive in both direct, whether that be online or in our stores, but also in the indirect channels where we did not prioritize last year. Then the third aspect is in the B2B SME area, where again, focus on third-party channel development and also starting to be more competitive against some of the below the line offers that have been out there. Now, just a reminder, last Q1 2015, it was a low sales and marketing investment quarter anyway. If you recall, around half of the benefit we got from lower expansion costs was because we'd spent it in Q4. The incremental spend in the quarter is not as much as the year-on-year trend because we had a very low investment quarter last year.
You shouldn't expect to see that impact in all the quarters going forward. A bit higher at the moment, but we are seeing good early impact. As I've said there, we already saw momentum improve in March back to the levels that we aim to have in our Swedish business, and that has continued into April. We are seeing the intake of the new customers in the Tele2 brand are definitely trending towards higher ARPU bundles. Our Tele2 focus is much more about ARPU development, encouraging the higher value customers to be with us and stay with us because we give them bundles that give them more freedom to stream and surf and not have to worry about hitting the top end of their buckets.
In the B2B SME segment, and in the Comviq segment, that's a mix of both ARPU development and attracting new subscribers.
Great. Thanks so much. Very clear. Just, if I can follow up on the Netherlands, please. I guess as your subscriber adds goes up, there needs to be costs coming out somewhere else if you're going to stick with the 300. Can you maybe explain that, please?
Well, as you heard, we are already getting 61% on load on our own network. The more we have the customers consuming on our network, the more the cost of the roaming goes down.
Okay. Thanks very much.
We will now take our next question from Andreas Joelsson from DNB. Please go ahead.
Yes. Good morning. It is Andreas here at DNB. Could you maybe just give us some indication of how much spending you increased in Sweden? Also maybe a comment on the ARPU in Sweden, which is coming down. Is that entirely related to a different mix in the subscriber base with more Comviq versus Tele2? Maybe also then give a sort of an indication of how much more ARPU a Tele2 customer is spending versus a Comviq customer.
Thank you, Andreas. Three questions. If you could give us some indication on the spending in Sweden. The second question on the ARPU coming down, if that is due to the mix in the base. If you could give an indication on the ARPU Tele2 and how that is trending.
Okay. I think if you look year-on-year, what was Sweden down almost SEK 100 million, roughly? Around SEK 50 million of that was us getting back to more normalized levels of sales and marketing investments because we were very low in Q1 last year. The balance SEK 50 million, around two-thirds of that was, we had real tailwinds last Q1 from the changing price plans from the old propositions into the new bigger buckets. The final third is probably roughly around the incremental spend in the quarter. It's nowhere near the SEK 100 million, just to reassure. I would expect our spending to be slightly higher, in line with Q1, in the next couple of quarters. In terms of ARPU is down, and it is mainly because of mix.
Comviq was very strong throughout the course of 2015 and has continued to be so in 2016. The average ARPU of Comviq is probably about, what, 40% lower than Tele2? 20%, yes, sorry. 20%. I don't think we've disclosed that, do we, Louise? No, we don't disclose it. I'm looking at her. It's about a 20% difference between the two. What we are seeing now, though, our real focus on data and the focus on getting back to the trading up that we were doing in the back end of 2014 and the early part of 2015, is already showing that the new intake coming in Tele2 is coming in with higher ARPU. Early days, but we're seeing positive development there. Is that all your questions, Andreas Joelsson?
Yes. Just had one more on the Netherlands.
Yes.
You mentioned that the measures you have taken in Sweden had a positive impact in March and also into April. Is that the same in the Netherlands after you launched the SIM-only offering and the iPhone? Has that continued in April?
Yes. I think that the quarter, January, February, was very similar to Q4. March, as planned, because we were switching on the final elements of, or the next stage of our elements of our launch plan in the Netherlands. We saw Netherlands really spike up in March, and we've seen the same in Sweden. It continued into April. The market share results, that 25% share of all new postpaid contract handsets, SIM-only, just came in last night, and that jumped from 20% in February to 25% in March.
Perfect. Thanks.
Thank you.
Ladies and gentlemen, if you find your question has already been asked, you may remove yourself from the queue by pressing star one. As a reminder, to ask a question-- pardon, to remove yourself from the queue, you may press star two. As a reminder, to ask a question, please press star one. Our next question comes from Roman Abdu from UBS. Please go ahead.
It's Roman Abdu from UBS. Thank you for taking my questions. I've got two in Sweden and one in Netherlands. On Sweden, you've mentioned that the momentum of the business in March is already improving. Could you please just provide more color? Is it your initiatives that are already starting to bear fruit, or is it the competitive environment that is improving? You've also mentioned that the business is performing in March close to the level with which you're happy. Just to check, which level is that? Is it the 2%-3% mobile end user service revenue growth that you have previously talked about as your full year target for Sweden Mobile?
For the Netherlands, just wanted to check if your strategic thinking about that operation has changed in any way following the announcement of Vodafone and Liberty of forming a joint venture in that market. Thank you very much.
Thank you very much, Roman. The first two questions on Sweden, the momentum that we are speaking about in March improving, is that a result of the initiatives or competition? Also, on the levels that we are in March, do you mean that that is the 2%-3% mobile revenue growth that we have been talking about in Sweden?
Okay. Momentum improving. The B2B SME segment remains very competitive. We're seeing no change in how fierce competition is there. As I said, the initiatives are having an impact. In terms of the consumer segment, I think no real change in competitive pressure there either. We have just strengthened the plan that we were always planning to do, which was about pushing the data message and returning to ensuring that we were getting the right trade up in our base. I think when I've been speaking to you and others over the last few months, Roman, I've expressed my disappointment at how some of the branding and communication was not getting across some of the great value and great quality that we can deliver to consumers.
I think what we're now seeing is that it's starting to work as we've focused on data again, rather than focusing on bring back, which was rather confusing for the consumer. Yes, that has returned us to levels that I feel this business is able to deliver over the medium to long term, which is 2%-3%. In terms of the Netherlands, has our strategic thinking changed? No. We are very much focused on building a preeminent challenger in that market that really focuses on delivering great quality coverage, and a great source for consumers to consume lots of data at a great price. That's what we remain focused on. It will be great if Vodafone and Liberty are distracted for the next 18 months trying to integrate themselves. No change for us. Very much focused on building another pillar to our value creation story.
Thank you very much. Can I just squeeze one more in on Kazakhstan, please? In terms of the put option that you have three years from now, keeping the business or potentially selling out, what's your thinking on that front, and what are the perhaps particular catalysts that would make you go either way?
At the moment, we're absolutely focused on integration, Roman. We've just started the integration. It's going well. We're still positive about the impact that we can have on that market now that as a combined entity, we have 22% market share and the vast majority of data market share. That's where our priorities are at the moment, and we'll decide what we want to do in three years as we see how the business develops between now and then.
Thank you so much.
Our next question comes from Ulrich Rathe of Jefferies. Please go ahead.
Yeah, thank you. Maybe one on Germany and one on the Netherlands. Germany, you sort of talked about the changes due to your shift last year. Is the first quarter now representative of what we should expect, or is this just a ramp and things could get even better? Just to clarify the CFO comment there of these sort of various one-offs, which you indicate in the report only summarily. I heard EUR 3 million-EUR 4 million. Can you confirm that? That's a positive one-off, right? In the Netherlands, one can interpret the sequence of events slightly differently. One could argue that in the fourth quarter, the competitors have tried to stonewall the launch a bit with their own measures, and that Tele2 was forced into adjusting on a SIM-only front a bit.
What confidence do you have that the status quo that you've achieved now in the competitive balance will not be disrupted by competitors from here? Do you see them having spent their powder and now Tele2 can execute, or do you think there's a risk that they will take further measures which would undermine the improved trends you're seeing in March and April? Thank you.
Okay. Thank you, Ulrich. Lars, if you can answer the first question and elaborate a little bit on Germany and if they should expect this level going forward. Allison, if you could answer on the Netherlands question. Thank you.
Sure. Hi, Ulrich. When you look at the German operation, the way you should look at it is that we had about 3 million-4 million non-recurring items in Q1, you should not expect that going forward. They were positive, correct.
Thank you, Lars. Allison, if you could elaborate a little bit on the Netherlands.
The German team have done a fab job there, I must say. It just shows you when you focus a team on a set of metrics that's all about cash generation, it's amazing what we can do. Yes, Q1 is not representative going forward, we're still going to be in a better position going forward than we would have been if we continued without the current strategy. On Netherlands, you reckon they stonewalled us in the fourth quarter, do you, Ulrich, and we were forced into adjusting our plans? Absolutely not. We always planned to become more disruptive in SIM-only when we felt that it was the right time to do it.
If you recall, for us to have gone disruptive on SIM-only when we were only onloading 30% of data onto our own network, would have not been a very financially disciplined way to do it. It was always our plan to wait until there was higher penetration of 4G handsets in the base and for our network to have been rolled out further before we became more disruptive on SIM-only, we were able to take that decision in February. It was always our plan also to become more disruptive when we had the iPhone, we got the iPhone on the 23rd of February. All of those plans came into place in March
The market has been competitive since we launched, before we launched, since we launched, it continues to be competitive. I believe that we are performing well in a competitive environment.
Okay, thanks very much. Thank you.
Our next question comes from Viktor Högberg of SEB. Please go ahead.
Yes, good morning. Three, and maybe a half question here, if I may. First, here on postpaid B2C Tele2 brand, high-end Sweden, is that positive trending out of Q1, the customer intake, or negative? You say that SMB is tough and Comviq is doing good. I was just asking specifically on the Tele2 postpaid brand. Secondly, on the Dutch market. Well, just a quick question here. On the metrics that you specify on spontaneous brand awareness and your share of the churn, it seems like it's slightly down from Q4, or maybe I'm seeing this wrong. Could you just elaborate a bit on how you view that? Maybe it's a no issue. Then on Kazakhstan, can you just repeat what you said on the expected effects from the roaming agreement and the network roll-off that you made on Altel customer intake and maybe profits as well?
Then just to go back to the question on Germany, can you just clarify, is it SEK 3 million-SEK 4 million or EUR 3 million-EUR 4 million, the one-off? Thank you.
Viktor, could you clarify the third question? You said Kazakhstan and roaming. Could you clarify that one?
Yeah. In the presentation, you mentioned that the effects now from the JV is that you have a better network, you can do better offerings. I didn't really hear what you said, maybe you can just repeat that.
All right. Okay, fine. Okay, Allison, if you could answer the question how the postpaid brand Tele2 momentum, also on the Dutch market the brand awareness that is slightly down, if you could elaborate on that, again on the Kazakhstan.
Viktor, the fourth question was I got that.
Yes. Okay, good.
I'll take that German question first. Yes, that was EUR 3 million-EUR 4 million in the quarter benefits that unlikely to see in the quarter going forward. Start with Sweden. Tele2 residential, so premium postpaid, as you said, in B2C. The subscriber base was fairly flat in the quarter, so we didn't really lose any, but we didn't really gain any either. In the Netherlands, spontaneous brand awareness, what we had in November, December was very high advertising levels. We were on air a lot. That came down a bit during January, February, and it ramps up again now, and we've got new advertising on air that just went on last week. Brand awareness does spike up and down based on how often people have seen it, and it is still despite all the other channels, mainly television, that drives that.
I think we were at 44% in December, and so it's gone down to 40%. That's actually only February. We've not got the March brand awareness yet. I think it's February going into March. As I said, that will change. The one that's more positive and I think shows much more sustainability is consideration. We're up to now over 50% of people would consider Tele2, and that's a significant uplift since pre-launch. I think that is very positive. In terms of Kazakhstan, so we are now able to offer 4G to the Tele2 customers in 77% of the country. We're able to offer national voice roaming to all of the Altel customers as a result of the JV, just seven weeks into the JV.
In terms of the offers, we announced in mid-March that we were removing the Altel unlimited data plans that were very much unprofitable and were eroding network capacity and quality of service. As of April, they have been replaced with bundles that offer a price of around 160 KZT per gig, which is roughly $0.50, for a bundle size that's somewhere in the 10-30 gig range.
Perfect. Thank you very much.
Thank you.
Our next question comes from Thomas Heest from Danske Bank. Please go ahead.
Thank you. Thomas Heest here with Danske Bank. Firstly, just a follow-up on the Netherlands. What you could say about the traction in postpaid handset versus SIM-only. Are these pulling sort of equal share of the weight? Secondly, on Netherlands, again, you mentioned you want to reduce churn in the 3G base, but at the same time, you say that you make no money off these subscribers. What's going on there? Thirdly, Challenger Program. You mentioned some positives coming in by the end of 2016, I believe. Is that Q4 in our language? Thank you.
Thank you. We are still slightly more ahead on traction in handset versus SIM-only. If you recall, last quarter, we were focusing on the handset-only segment because that is what our priority was.
The market shares we were giving you was just in that segment. Because we are selling into both segments now, quite practically, we think the new market share information we are giving you is much more representative. Since March, it is about equal, but we made more inroads in handsets between November and March than we did in SIM-only, because SIM-only started to really improve when we switched on the SIM-only deal towards the end of February. In terms of reducing churn, yes, very good point. I should be quite happy to lose all my 3G customers, but my point there is there must be some of those 3G customers that we can convert to 4G before we lose them. We should try and convert them first to 4G, but if we cannot convert them, absolutely we should just let them go.
In Challenger Program, I think it was on the call I mentioned that some of the simplification and product harmonization initiatives will start to come through in Q towards the end of the year. Yes, the simplification and product harmonization piece was always one that would start to come through end 2016 and into 2017. I think it will be a little bit in Q4, but that will build into 2017.
That is very helpful. Thank you.
Thank you.
As a reminder, to ask a question, please press star one. If you find your question has already been asked, you may remove yourself from the queue by pressing star two. Our next question comes from Keval Khiroya from Deutsche Bank. Please go ahead.
Thanks. We've got two questions on the Netherlands, please. Firstly, you sound a lot more confident on the data use on your own network. Should we therefore expect the total roaming payments to T-Mobile to fall this year? If so, how much by? I think previously you said they would rise for 2016. Secondly, you have this metric, the share of total postpaid new connections. Can you give us any color as to how large this pool actually is? In Q4, if I just take the change to the total postpaid subs accounted for by the three largest MNOs, it was around 90,000. This pool, I thought, may be a little bit small if you are indeed tapping on that to reach your market share targets. Thank you.
Keval, thank you for the question. Allison, back to you again on the data use on our own network and what you are thinking about check to T-Mobile going forward.
Yeah, the share of total postpaid.
Yeah.
Basically, the roaming payments to T-Mobile are flat year-over-year. We are very happy with how the network is performing and how we are pushing more and more of that data consumption onto our network. I don't want to talk about what those payments might be going forward, because as we increase the customer base, and whilst we're still rolling out VoLTE, we will still be reliant on the T-Mobile network for a period. We're happy with the progress we've made so far in that area. In terms of how I view the GfK reports and the trends that they give us, this is share of all new postpaid contracts of people that are looking to switch in the month.
I believe that the fact that we are getting 25% of those, no matter what the size of that market is, shows that we are attracting 25% of the market to come and switch to Tele2. That is very positive. Actually, when I looked at the trends, in terms of the total base that is now switching, we have stimulated more switching in the market since we launched. There's been a spike in the available consumers considering moving to a new provider, and we are taking 25% of those.
That's clear. Thank you.
Our next question comes from Usman Ghazi of Berenberg. Please go ahead.
Hello. Thank you for taking my questions. I have three questions, please. Can I just ask, firstly, why this EUR 3 million-EUR 4 million or SEK 32 million roughly was included in adjusted EBITDA in the morning? It just kind of gave a misleading picture of what was achieved versus consensus. The second question was on the mobile market. I was wondering, could you indicate what revenue declines you're seeing in the SME segment? You said that overall service revenues were down, and consumer was up around 3%. What was the SME decline, please? Related to that, when you talk about midterm to grow mobile service revenues in Sweden by 2%-3%, what happens to the SME market in that assumption? Thank you.
Thank you, Usman. The first question, if you could explain why the EUR 4 million was not included as a one-off instead of in EBITDA. The second question is on the mobile market, if you could indicate the revenue decline in SME. The third is on the midterm target of the 2%-3%, what the underlying assumption is on the SME as well.
On the first question, it would have been wrong to put it below EBITDA because it is real underlying performance benefit from interventions that we took in that business. For example, the sale of bad debt, which our companies do all the time, and that goes into EBITDA. For example, renegotiating new contracts with people, that goes into EBITDA. That was treated in exactly the right way. I think we've explained that on the calls earlier. Some of the elements are fundamental interventions that were taken as a result of choosing to milk out that business and restructuring in line with our Challenger Program objectives. In terms of Sweden mobile market, we don't give a revenue split in the different segments. Consumer mobile was up 3%, as I mentioned, and we were overall around flattish. B2B was down a bit.
Over the midterm, yes, we still believe this is a market that can achieve 2%-3% on mobile end-user service revenue. That reflects both growth in consumer and growth in B2B.
Thank you very much.
Thank you. As there are no further questions at this time, I'd like to hand the call back to the host for any additional or closing remarks.
Okay. Thank you very much for calling in. We will release our results for the second quarter 2016 on July 21st. By that, I just wish you all a very nice day. Thank you very much.
Thank you, ladies and gentlemen. That will conclude today's conference call. Thank you for your participation.