Earnings Call: Q1 2015

Apr 21, 2015

Ladies and gentlemen, and welcome to Tele2's Q1 Presentation for the Quarter. With me today, I have, of course, Mats Kjellhorn, our President and CEO and our CFO, Elson Kurfi. I also would like to take the opportunity to present also our new Head of IR, Luis Schedler, which is also joining on the call. We're going to go through the presentation in a little bit of a new format and open up for a little bit more time for Q and A, which we know that you appreciate as well. I would like to take the opportunity to welcome everyone that has joined us through tel2.com and the link that is available on our corporate webpage as well. But with that, I would like to hand over to Mats Grandru to take us through the quarter. Please, Mats. Thank you very much, Lars, and good morning, everyone. It's a pleasure to present to you the Q1 of 2015 results. So if we move right away into the first slide, as you know, we have defined our 4 how to wins. And the highlights based on those 4 in the quarter, if you look at Value of champion is, of course, that the monetization of data continues in Sweden. It's following the launch of Tele2.0. We can also see a substantial increase in data consumption across our footprint, but driven from Sweden, and that is driving HUSPU update. On technology choices is on track or transparent in corporate reporting, something that we're obviously very, very proud of. So moving then on to next slide, monetization of data is continuing, and we can see end user service revenue is up 10%, EBITDA is up 10%, and the average data usage per subscribers is up now roughly 40%. Last quarter, Q4 'fourteen, that was up 30%. So we can see that, yes, data is continued to grow, adjusted. This is the 15th consecutive quarter we are showing end user service revenue growth. So it's not an unusual effect. This is becoming more and more of a common and regular thing, repeating thing in the world of Tele2. If you look at our footprint, we can see that we have a stellar growth, I would argue, in many of the countries. Yes, we have had a good tailwind from ForEx, but still it is a solid performance, I would argue. The Baltics up 7% end user mobile end user service revenue. Kazakhstan up 46% percent,000,000,000,000,000,000,000,000 Germany Day up 18% on total and mobile up 20% end user on mobile up 5%. I would maybe argue that big buckets have given a better value and encourage people to use more data. And we have also seen a nice pop lift that I will come back to on the following slide. But I would also like to highlight a good strong business to business quarter where we have grown with 3% driven by a large enterprise. We have managed to get some more big prestigious brand names that are using our service and also some more prestigious brand names. Upgrades increasing. Top ups are still good even though they have slightly reduced, not so much, but a little bit. We see from 1st from last quarter of last year, it was an average 2 top ups. This quarter, it's an average of 1.8 top ups per individual that are hitting the roof. So it is coming down a little bit to no surprise. ASP is up to 15%. Last quarter, it was up 13%. So we're seeing a sequential uplift on that. And the intake mix is also encouraging. People that are new people coming to us, new customers coming to us, 30% are opting for a bigger bucket than 5 gig. So they're opting for 20, 50 or 100 gigabytes of data. 70% are still opting for 5 or 0.5 gigabytes of data on the cost base segment. But it is a significant uplift and people are trading upwards exactly as we have anticipated. Moving on to Baltics. I would say very stable performance, up 7% on sales, EBITDA up 11% and end user service revenue is up 7%. I would say that we are now 4 gs is covering the Baltics. And we are seeing an increased focus and increased optimism, I would say, from the 3 CEOs that we have in the Baltic states. The 4 gs activity and the learnings that we can take from Sweden and take that over to the Baltics is something that we're looking forward to. So more on the Baltics to come. Moving on to Netherlands. Good customer intake, 21,000 net adds. We are sales are up 6%, which is very good. EBITDA is down, pretty much as expected. Alisson will go through that in greater detail. What I do think is important is the next slide where we now are at the 70% or so population coverage. So the network build up is very much on its way, very much on track. And we remain committed that we will have a nationwide outdoor population coverage by the end of this year or beginning of next year. Moving then rapidly over to Kazakhstan. 36% sales up, flat on EBITDA. What I think is important is the right hand graph where you see that we added in the quarter 429,000 net adds, which is a record quarter. That's one thing. But maybe more importantly is that we see the customers that we are able to that are joining us are staying with us, and they are using our network. And that's the purple graph there, percentage subscribers who stopped using services 1 month after acquisition, that is now down below 15% and has a very, very nice trend. So we're not just getting hot air customers. We're actually getting customers that are paying and using our service. And that is something that we're very happy and proud of. So with those words, I would like to hand over to Alison. Good morning, everyone. So let me take you through the numbers. Total sales were up 6% to $6,510,000,000 driven by strength in mobile end user service revenue, equipment revenues and tailwind from FX. Mobile end user service revenue up 10% to $3,180,000,000 driven by the broad based growth that Mats just mentioned. And EBITDA up 5% due predominantly to strength in Sweden and again FX benefit and CapEx up by SEK 1,000,000,000 at SEK 0.94 billion, mainly driven by our MNO rollout in the Netherlands. Looking at mobile end user service revenue trends and the service revenue trends in a bit more detail, you can see here that it is very much broad based. This is Page 14, very much driven by Sweden and Kazakhstan, but nice to see that all of our markets are contributing to that 10% top line growth. Admittedly, there's tailwinds from FX in there, but even stripping out FX, our mobile engine service revenue was up just over 6%, so very much in line with our mid single digit guidance for the year. Looking at EBITDA on Page 15, growth of 5%, mainly driven by Sweden and some nice solid growth in percent, mainly driven by Sweden and some nice solid growth in Baltic and Central Europe. But we're particularly proud of the results in Sweden as a result of our continued ability to monetize data growth in an ever increasingly data hungry market. Netherlands, as expected, declined as a result of our increased investments and our MNO rollout and by the impact of increasing NRE costs in a market where data consumption continues to increase. Fixed also declined in the quarter as a result of a higher share of off net services and customer demand higher speeds that we cannot provide on net. So about 2 thirds of that hit was mobile and a third was fixed decline. Below EBITDA, we also recognized SEK 1,700,000,000 in capital grains from the sale of Norway. Moving on to CapEx, Page 16. CapEx increased by almost a third by $230,000,000 in the quarter, very much driven by our Dutch MNO rollout and also to support geographic coverage and capacity investments in Kazakhstan. Which leads me to free cash flow, including the impact of CapEx in the quarter, the same period $500,000 negative in cash. That's reversed to almost a neutral situation in the same period this year, very much driven by a working capital cycle that paid a lot of our bills in January last year, but actually paid the bills in December this year. You're also seeing an outflow of around $1,000,000 due to financing, which is related to loan swaps and hedging of the Norwegian sale proceeds. This, of course, excludes the cash from the sale of Norway, which was €4,900,000,000 in the end on a cash free basis. That therefore leads us on to our debt position and ratio, which obviously looks very healthy today as we continue to sit on the sale proceeds from Norway, but will be distributed alongside our ordinary dividend in May, taking our leverage back up to 1.7, which is right in the middle of our new range, 1.5 to 2. Just before I close, I just want to remind you the Challenger program was launched in December. It is very much ramping up with now over 20 initiatives, live initiatives that are work in progress. And we will be coming back to you in July with more specifics around how those benefits and the costs will split between OpEx, CapEx and amongst our markets. But there are a number of initiatives that makes us remain confident in the ability to realize the benefits of that program. So on that note, I think I will now pass back to Matt. Yes. Thank you, Alison. Just to summarize this quarter then, data, we are continuing to monetize it, And we're very we're committed we remain committed that our strategy that we have in place is the right one. We are getting ready for 4 gs launch in Netherlands and the Baltics. And we're also executing on the Challenger program. So this is a mix of what we have done in the quarter and also what we're going to focus on going forward. So the Q1 of 2015, I think, showed good progress towards our goals of sustainable, profitable growth via data monetization. So with those words, I would like to hand over to you, Lars, and maybe for some questions. Thank you very much, Magnus and Andersson. That concludes our formal presentation, and we would like to open up for Q and A. So operator, could you give the instructions on how to ask questions, please? And we have a first question from Ms. Lena Osterberg from Carnegie Mellon. Please go ahead. Yes, good morning. A few questions here. I was wondering if you could say a little bit more about the marketing spend in Sweden in the quarter because you had very good margins and still it seems your marketing spend was at quite high level. So I was wondering if you could say something compared to normal seasonality. Do you believe you were above or below trend? And what do you think we could see in terms of margins for the rest of the year? And also I was wondering if you could explain a little bit more in detail the handset sales that you're doing now to other retailers in the market, how long do you expect that to continue? Is there sort of a time within a time period that you do this? Or how long will that continue? What are the margins on that sale? And then also on the Dutch business, if you could say a little bit more about how many of the phones that you have now in the Dutch subscriber base that are Voalte enabled? And how fast do you think you can Thanks, Emma. Three good questions. Thanks, Ilham. Three good questions. I'm going to repeat them. I know this might be a little bit annoying, but I'm still going to do it. So, Alan, for you, Mark, you spent in Sweden on how that looked like in the quarter and also handset sales to other retailers, how long that is going to continue for type of sales to Brightpoint and similar companies. And then in the Netherlands, when it comes to bolt in enhancements or 4 generic enhancements, how large that is, that's for you, Mads. But would you like to start, Allison? Yes, absolutely. So sales and marketing spend in the quarter Sweden was about 14% of revenue, Lena. Normally, our average spend over the course of the year is between 16% to 17%. But as a result of decoupling and our desire to get out of subsidies, you should expect that our marketing spend will trend down to below the historical average of 16% to 17%. So at 14%, it was slightly lower in the quarter than a normal year. But our average year will go down as a result of lower subsidies. In terms of future margins, our margins were strong in Sweden above 30%. That is the level that we would like to see Sweden as sustainably. The law would be the odd quarter, we might not go below like we saw in the Q4. We were heavily marketing Tele2.0 and the launch of the new iPhone. But certainly, we are aiming for above 30% margin sustainably in Sweden. In terms of handset sales to other retailers, it perhaps will go down over time, but we're seeing no impact this year, maybe about 1% decline over time, that's what the team is doing that I'm telling them. But due to the nature of the contract that we have with Apple, I would expect our Apple sales to definitely hold up. I should say that just to build on Alison's answer there that the margin that we're making on the handset is more or less 0, so to speak, when we are selling them to a 3rd parties. Can I ask you why you continue to do this then if it's a 0 margin? Well, it's not 0, but it's very close to 0. It's and the main reason Well, that's the market. You know, the consumers still want to go to shops and try out phones. And so until consumer behavior changes, we very much want to offer a service that allows consumers to not just get a great subscription, but to choose the phones that they want to buy. Okay. But maybe I misunderstood it because I thought that you were also you had so high volumes that you could sell through to other suppliers as well in the market that were not sort of related to your customers, but then I maybe misunderstood the whole thing. Yes, we do. But the reason we have that is because of the ability for us to fulfill the Apple contract and be able to not hold on to excess inventory. So a part of that is to ensure that we have an efficient working capital cycle in managing handset sales. Okay. So it's related to volume commitments that you have with Apple? Yes. Okay. Thanks. And then we have Matt. Yes. The Netherlands piece there. Out of the 850 old customers, roughly 35% of that customer base is on 4 gs handsets. And I guess there, Liana, I would say that the majority of those are Voalte enabled. And if not today, with an over the air software upgrade, Thank Thank you. Thank you, Lena. Operator, can we have the next question, please? We have the next question from Mr. Georgios Lelodiken from Citi. Please go ahead, sir. Hi, guys. Congratulations for the results. I had two questions based on what Thierry had just said in their call just before you asked. Firstly, they said Kayser has launched some new tariffs in Kazakhstan. And I just wanted a comment from you whether you think they are rational or they may be disruptive for the market. And then the second one is regarding the KPI market So I was wondering whether you are seeing perhaps some weakness in the K plus you are reporting in that particular segment and how you expect that to trend towards the rest of the year? Thank you. Yes. I think that both questions is for Matt Yes. I think that both questions is from us actually when it comes to the market development in Kazakhstan. Yes. That's a good question. Our main competitor in Kazakhstan is Alltel, which unfortunately today are on an unlimited everything. And that is not a sustainable path, we believe. K Cell is reducing their prices as well, but it's on a completely different level. So our main competitor is actually Autel. So the Kcell activity, recent activity, we don't think is going to influence us that much. On the business to business side in Sweden, I think one needs to remember that the sales cycles in the business to business environment are very long. As I explained, we grew our business to business side in Sweden with 3% end user service revenue. We have added some very prestigious names that we'll port in throughout the year. So I we see a positive trend on our business to business segment in Sweden for sure. I don't think one should take too much quarter by quarter. 1 needs to view the business segment over a longer period of time. Yes. And I think that actually we are quite pleased with the development in the Swedish business division. Yes, absolutely. And if you look at the trends over a longer time, the team is actually performing better and better all the time. So that's looking very promising. Yes. And I think it's certainly helped by the fact that we have a clear market position nowadays with Tele2, which is different from that of Konvik. And that is part of the success. And then we have a very good network and very dedicated team as well. If I could follow-up on that, I mean, I understand you have good momentum because of the market share gains you had last year. What I'm trying to understand is, if you've seen any change in the fight back of Telia perhaps Telenor in recent months that could change that as we trend towards the end of this year, beginning of the next? No. I think that they are very, very good competitors, very skilled as well. So we see no trend, no change in the behavior. All right. Thanks. Okay. Thank you, Georgios. Could we have the next question please, operator? We have the next question from Mr. Henrik Herbst from Credit Suisse. Please go ahead, sir. Yes, thanks very much. I had a couple of questions. Firstly, on your new data plans in Sweden, that seem to be working quite well. Just in terms of the usage pattern, when customers so you're having pretty strong take up of the 20 gig and bigger data bundles. I'm just wondering when customers take those plans, do you see kind of a step up in data usage? Or do they kind of continue on the same? It actually stimulated a lot of the low end customers to upgrade like the 0.5 gig subs, etcetera? And then secondly, a question on your margins, which obviously were quite strong in Sweden. Are there any difference in terms of how you account for handset sales and the cost of handsets, I guess, under the new installment plans versus the way you used to sell smartphones? That's that. Yes. Good questions around Sweden, Henrik. So with Mats, would you like to have a stab at the first one and then some following on the second or Yes. So on the data plan, very relevant question. As I said, 30 percent of new intakes are opting for 20, 50 or 100 gig, 70% are taking 5 and 0.5. Percent. The biggest seller is obviously the 5 gig. We Swedes, we tend to try to be in the middle and be log on, as we say. So we tend to be on the 5 gig. Also another data point for you. In Q4 of last year, the average consumption of smartphones was 2 gigs, 2.0 gigabytes of data per month. This quarter, we're up 10% to 2.2 gigabytes of data per month. So just in 1 quarter, we see an increase of 10%, very encouraging. If you take the 30%, to the ones that use 20, 50 and 100, the vast majority of that is in the 20 gigs and much less in 50 and even lesser in the 100 gig. I hope that answers your question. And on the handset question. So our handset accounting has not changed. We have always fully recognized upfront the handset revenues, the cost of the handset and therefore the subsidy. And that is was in our expansion costs and hence one of the reasons for sales and marketing costs having gone down this quarter versus the same period last year and why we believe that our sales and marketing as a percent of revenue will reduce over time. The shift as a result of decoupling basically meant we took the cost of the handset up to the consumer, but we reduced the cost of the subscription so that they didn't see a dramatic increase in pricing. So, on average, they pay around SEK0.50 per month more for their phone, but they paid SEK0.25 less a month for their underlying subscription. And because we no longer have the sub today, we basically get SEK0.25 per month benefit. But that is all recognized upfront because we don't have to write down that subsidy when they take the phone from us. But no change in our accounting. Does that does that explain the question? Can you repeat again, Henrik? Yes. That's great. Thank you very much. Thanks Henrik. Operator, can we have the next question, please? And we'll take the next question from Ms. Johan Alquist from SEB. Please go ahead, Madam. Thank you. Yes, Johan Alquist from SEB. Just two questions, if I may. First of all, related to Swedish mobile again. I know that you lost quite many prepaid clients in the quarter gained a few postpaid. And just wondering the dynamics behind this. Are you seeing that the part of the prepaid lease is going to your own postpaid? Or are you basically losing out to Hallum as we see Telia is doing? And what you see going forward, the expectations on the subscriber intake going forward? And then on Holland, just if you can mention the losses were a bit higher than we expected in the quarter. And you believe you will be able to meet the SEK 300,000,000 for the full year 2015? Thank you. Thank you very much, Johan. I think that the first question is for Max when it comes to mobile and Dynamics. And then when it comes to the losses in Dutch mobile, I think Allison could also have a stab at that one. Mats, so would you like to comment? Yes. No, no, you're absolutely right. We had on the prepaid segment a loss of 30 odd 1,000 customers on post postpaid, it was flat or gained some. And there is sure a churn between our Comvik prepaid to Tele2 Telenetwo postpaid as well as to Conveik postpaid. We are actually focusing more today on our postpaid segment. We believe that having a longer term relationship with our customer is beneficial. It creates a better lifetime value. And what we have seen is that 12% roughly of Tele2 postpaid churn moved to Comvik postpaid. And Comvik postpaid captured roughly 5% of Konvik prepaid churn. So you have a 5% churn from Comvik prepaid to Comvik postpaid and then another 12% from Tele2 postpaid to Comvik postpaid. So there are movements between the different brand names. What is really important for us is to grow or at least not shrink on the postpaid side. That is important for us. Prepaid is a little bit come and go. We have an as we have in the Baltic states as well where we have a 60,000 negative intake where actually customers are reducing the number of subscriptions. They're actually taking instead of having 2 SIM cards, they nowadays have only 1. So the penetration per se is going down, and we can see that in the Baltics. And I'm pretty sure we have that effect here in Sweden as well that you become more and more reliant on one SIM card. And therefore, the prepaid numbers sort of just disappears, if you like. The subscriber doesn't disappear, but the subscription disappears. The only thing that should be said, Johan, and you know this dynamic, of course, is that we are market leader within the prepaid services in Sweden. So that's the as Marc is saying, the whole prepaid market is declining. Of course, we are getting our fair share of that decline. So and as customers are migrating to postpaid, we do catch some of them, but some of them we lose, of course, as well as they are moving to other brands. But I think it's more a phenomenon of the prepaid market than we actually are market leader there, and that's what we are Absolutely right, Lofchin. I also think that you have a much more fiercer price campaign in the prepaid segment with the sub brands, Afton, Hejboppen, Hallown and Wimbla. And that is sort of a battle in its own right, if you would like. And I think we have succeeded in making sure that we split the Tele2 brand and keep that intact and keep that as a very prestigious brand name and then let Konvig be in the dogfight within brackets with other sub brands. And as Akhlaar said, the prepaid market is slowly but surely losing interest. And I promise you, Jan, that in a year's time or maybe 2 years' time, we're not going to talk about prepaid and postpaid because it's just a sort of a billing mechanism. It becomes less and less interesting. Having a long term relationship with customers, that is what we want to have. A long term billing relationship, that is what we want to have. And therefore, postpaid is more important. And I actually think that Swedish team is playing it very nicely as well because if you look at the tenants, as we're saying, it's up 15% on the Tele2 side. Of course, it's trending down slightly on the Comvik side, but that's what you get. You get, you take the price fighter, Comvik. It's a modern price fighter, but you're moving customers to a more value oriented segment through 32, and you get the ARPU uplift, which is a very nice way of playing 2 brands. And then if we go to the Netherlands, Alison. On the Netherlands, yes, the way to start reducing those losses in the Netherlands and start to get the profit is obviously to start data offload into a customer base that has 4 gs enabled handset. We're very much on track with our plans on the MNO rollout and on our plans to increase the 4 gs enabled handsets in our base. So in terms of data offload in 4 gs enabled whilst consumption continues to increase in the market, and whilst consumption continues to increase in the market and pricing pressure in the low end of the market, then the losses could go higher than $300,000,000 in the short term until we're able to significantly offload onto 4 gs enabled handsets. I hope that helps. Johanna? Yes, In the Netherlands, it seems at the moment you're spending very little on the brand and marketing and informing Dutch consumers that the near future you'll be a fully fledged data operator and MNO. Could you provide some color on what the strategy and marketing will be ahead of the 1Q 16 nationwide launch, so to speak, and when you start to attempt winning subscribers from the other operators? The second question on Kazakhstan. Will you utilize the reduced MTRs to offer more and more off net minutes? Or will you happy to take some of the benefit to EBITDA? Thank you. Yes. Thanks, Dan. It was a little bit of a bad line there, but I believe that we are talking about how we view market expenditures in the Netherlands, say, in France with expansion launch and how that's going to develop. And then when it comes to interconnect in Kazakhstan and how we're going to utilize that, the benefit that we gained from that. But I guess, Mats, Netherlands and then Carlos on Kazakhstan. Yes. I can start then with the marketing spend in Netherlands. And as you right have picked up, 2015 is a balancing year for us in Netherlands. We do want to have new customers, but we don't want them to consume too much data. And that is, of course, very difficult. The data is exploding in Netherlands as it is elsewhere. And we are sort of being hit by that short term, but in the longer term, it is good for us. So we are today at roughly 70% population coverage, And we intend to be with once we're ready with the network, we will increase the marketing spend. And that is, so I'd say, for us to know and you to find out. And in terms of Kazakhstan, it is our intention to take the MTR cuts to the bottom line. But obviously, there's a lot going on in that market at the moment in terms of price competitiveness and we are expecting devaluation as well. But it's very much our intention to take the benefit of that so that we can start to improve and build EBITDA in that market. And I think that's fair, Alex, and to say that we are anticipating a devaluation in May. Yes, we are. So Stan, I hope that helps you a little bit. [SPEAKER TROND ODEGARD WESTLIE:] That's wonderful. Sorry for the poor line. Bye. No problem at all. It is U. K. After all, I guess. But it's Okay. Sorry about that. Operator, we have the next question. And we have the next question from Mr. Maurice Patrick from Barclays. Please go ahead, sir. Yes. Hi, guys. Yes, Maurice from Barclays. So a question around operating leverage. I know you said you wanted to maintain margins above 30% in Swedish business. But with revenues underlying service revenues growing 4%, 5%, subsidies coming down as you go towards the no subsidy model. Why shouldn't we expect margins well above 30% if you continue that rate of revenue growth? Are there any sort of cost moving parts that we don't understand there? Thank you. Thanks, Morris. When it comes to operating leverage in the Swedish business model, I guess, Arsen, if you'd like to have a start on? No, we don't guide on market margin expectations. But of course, we want to see our Swedish margins to go up to the mid-thirty percent range over time, but we don't guide at that level of detail. No. And just a quick follow-up. In terms of the data usage, I mean, you talked about a 10% increase in 1 quarter. What exactly are people using that they weren't using before? Well, that's a great question. I think they're using just more of everything. Streamed media is up. Previous quarters, YouTube was our big spender. That is now and then you have the other stream media such as Netflix and HBO and Via Play down in the single digit percentage point. That is moving up as well now. So it's a lot of video, a lot of social media and collaboration. It's a lot of music as well. It's just people using more of everything. You should when you come to Sweden and you should go at 7:30 in the morning and commute on the subway or a bus, Everyone is now looking at their phone, not reading a book anymore. It's a huge shift in the behavior. And then if I may, with our big buckets, we intend to make sure that people continue to be on the cellular network, that they need to feel comfortable that they are not sort of exhausting their limits, but actually continue on the cellular network, which in many, many times are superior to that of the Wi Fi network. Got it. Thank you so much, Andreas. Thanks, Moritz. Operator, can we have next question please? We have the next question from Mr. Thomas Heit from Handelsbanken. Please go ahead, sir. Thank you. Thomas Heath here with Handelsbanken. A few questions, if I may. Firstly, on handsets in Sweden. Even if you kept the accounting the same, wouldn't you still agree that historically you've booked more of the months and that subscribers taken on before autumn 2014 will have more profitability in the end of their contract rather than in the beginning and that you hence have some double counting going on now. That was question number 1. On beyond that, on Kazakhstan, the MTR cut, how much are you benefiting from that? Is it sort of all taken away by fierce competition? Would have perhaps expected a little more there in Q1? And then lastly on the Netherlands, you attribute the EBITDA loss to MVNO cost. Should we read this as a big increase in data usage of your existing base or has churn increased because net adds is still around 20,000 and couldn't really explain the data usage rising so much just in 1 quarter to explain the EBITDA deviation? Thank you. Thanks so much, all the questions. So So it's hand accounting 101. Yes, it's a question for you, Alisson. And then with regards to CapEx on NPL impact, well, actually, yes, well, Alastair, I think if you feel good to take that one. And then the last one, of course, only no costs related to the effect. Paula, happy to come into your end, Allison, on this one. Yes, I guess I can try. Yes, so as I said, the accounting hasn't changed, but you're absolutely right. The customer is more profitable at the beginning now because we don't take the upfront cost of the subsidy. So in the past, in month 1, we would take the subsidy cost as a cost of expansion in that 1st month. And then in months 2 to 24, you move that subsidy cost in the P and L of that customer. Now, we don't take that cost of that subsidy upfront and therefore the possibility of that customer is more sustainable and more normal, relying end user service revenue down by around $0.25 a month. The revenue we get in an underlying is slightly less because we're paying less subsidies. Overall, that customer brings in more to us over the lifetime of the contract. That's very helpful. Thank you. Yes. In Kazakhstan, how are we benefiting? We're benefiting from maintaining our price leadership position in the market as a result of all the moves we've made. In the short term, what that does mean, however, is we're investing more in expansion costs. We're investing more in our network because we're getting much more demand from customers. We're having to roll out our network more rapidly and increase the capacity of that network. So that's why you're not seeing a real benefit from EBITDA just yet because there's a cost as a result of all those customers coming in point in time. But we're building enough scale now which should allow us to get through leverage over time. And we also want to ensure that that market will become more rational over time as well. We are not happy at the pricing in that market today. And certainly, if there's any signs and to start changing our current position, we will be very, very keen to start being much more rational. Then finally in the Netherlands, yes, you're right, it's not just increasing roaming costs. Yes, day care usage has continued to increase in the Dutch market as we've seen in all of our markets and roaming costs are up quarter on quarter. But we are ramping up the rollout now, so we have more operational costs in the market than we had before. And as I said previously, our fixed business, the margins are in decline there as well because we have more going off net. Very clear. Thank you for those. Very good answers. Thanks. So operator, can we have the next question, please? And we take the next question from Mr. Ulrik Rat from Jefferies. Please go ahead sir. Thanks very much. Just on Swedish mobile margin, I think the last question the last answer really clarified it. But just to be absolutely clear, you were asked earlier whether there were any sort of one offs. I think with regards to device sales, there are no other changes or no other one offs in this particular quarter. The reason why I suppose everybody's asking why I'm asking is because it's very hard to explain this margin just with operating leverage even after taking the devices out. So the question is really what's going on in the underlying cost structure beyond the things you have explained. Is this really all now that we have to take into account what you have explained so far? When it comes to one offs there or no one offs in this particular quarter, is there any other explanatory effects that we need to up? I don't think there are actually. The 100 and more than half of that was reduced expansion costs and because it was a very heavy promotional period in Q1 2014, but the other half of that is reduced subsidies. And so our move to decoupling is working for us at the moment. And then the rest of the benefit is underlying end user service revenue flowing through to gross margin on the bottom line. So that is the real driver for Sweden. Perfect. Thank you very much. Thank you, Ulrich. And operator, can we have the next question, please? We have the next question from Mr. Kevyl Kiroja from Deutsche Bank. Please go ahead sir. Thank you. I've just got two questions on the Netherlands please. Firstly, can you give us an update on how you feel about the Dutch wireless pricing in the market overall? And Allison, you obviously mentioned the low end pricing is now quite low and you've seen KPN increasing the size of the data bundles. Do you still think there's an opportunity to take pricing down in the market? And secondly, do you feel you need to wait to get full nationwide coverage before increasing the size of your data bundles in the Dutch market? Thank you, Kjell. It's regarding the Netherlands and the pricing environment and timing of our own Marc? Yes. No, yes, we have also seen larger buckets from the incumbents, if I may say, both Voda and Tmall and JPN, obviously. Remember, we are entering into the market with no legacy. So our cost base is completely different from that of those 3. We still are firmly believe in our business case. And all aspects is pointing that this would be a great journey for us. It's actually pretty good from the perspective that data is growing and these 3 operators are educating within the brackets of the market. It's pretty much similar to what we have done in other markets where we are not the first, but we are a very strong and decisive follower into the market. We can learn from others that are the mistakes, and they are also, in a way, educating the consumer. So that's the good thing with it. Data usage, as I said, in the Netherlands, in the Dutch market, is short term an issue for us, longer term good obviously. Now will we launch earlier or not? I think that's something for our internal sort of discussion to have. We have said repeatedly that we will have a nationwide coverage by end of this year, beginning of next. And we are today at 70%. And we are, as we speak, migrating the 35% or so of the just shy of 900,000 customers over to our network. And that is going to take some time. It's going to take several months to migrate them over. So that's not a quick fix. Why are we so extra cautious here? Well, it is we feel that we only have one silver bullet here. We cannot get it wrong initially. We need to get this right. In Croatia, just as an example, 10 years ago when we launched our network, we did that with inferior quality. And it has literally not taken up to now, but it took us good 6, 7, 8 years to get over that negative 2015 will be a balancing act to get customers on board but not push too much. So it is sort of a little bit of a halfway waiting game until we have the network and everything ready to do the full launch. I'm sorry that I'm a little bit vague, but I'm sure you can appreciate that it's sort of a state secret on exactly what we're going to do. Sure. That's right, Kjer. Thank you. Thanks, Kjerd. Operator, we have another question, please. And we have next question from Mr. Terence Tsui from Morgan Stanley. Please go ahead, sir. Yes. Good morning, everyone. I've got a couple of questions, please. Just firstly on Sweden again. You mentioned obviously the strong data monetization, but maybe you can talk a little bit about the network. I noticed the capital still remains low at around 5% of sales. How sustainable do you think that is? And then secondly, just on some of the smaller businesses elsewhere in Europe. I think, Mats, you mentioned maybe a month or 2 ago about Germany. Maybe you can clarify the comments about the long term future for the German business. And I think in the past, you've also mentioned Austria as potentially non core as well. So thank you. Thanks, Terence. I think the question was around Sweden and the top line growth, the 5.5%. And it was just about the sustainability of the low CapEx vessels comment on that one. Would you like to start, Allison? Yes. No. Basically, as we said last year and the same trend in the Q1 this year, the Swedish CapEx is very low at the mid single digit range and should be in the high single digit range. And that will go up to that level during the course of this year as we continue to ramp up our investment behind geographic coverage. We're currently about 77% and we're aiming to get to 90% and obviously just for data consumption as well. So, no, it is a very low level of CapEx in Sweden, and we've been seeing that for the last year that I've been here. It will go up to the mid- to high single digits over the course of this year and the future. Yes. Hello, Terence. I think on Germany and Austria then, I mean, we view countries where we have our own network, where we have a good position maybe at a little bit more core than the countries where we don't have that. And I think you can sort of see that Austria, we have a number 2 solid position on the business to business segment. We have our own fixed lines, fixed installments towards our business to business customers, and we're also launching MVNO. We have done similar things in Germany, but it is not on our own network. So from that perspective, Austria is a little bit more core, Germany might be a little bit less core. Great. Thank you. Thanks, Nern. Operator, can we have the next question please? And we have the next question from Mr. Barry Zeitung from Berenberg. Please go ahead, sir. Hi, good morning. Just a few questions. The first just on Swedish mobile revenue growth. Clearly, still going very strong, but the comp is going to get a lot harder as we move through the year. So I'm just wondering whether you think you can maintain the current 5%, 5.5% rate or whether we should expect the rate to slow as we go through the year? 2nd question is just on the Dutch market. I'm wondering whether you have any plans for a store footprint for the Dutch mobile business. I saw the Phone House was divesting, I think, 50 stores of its 160 total. So I just wondered whether there was any intention to maybe buy some stores to complement your rollout? And then final question, I was just wondering whether your 10% market share target of 1 year post commercial launch is still valid for the Netherlands. Thank you. Thanks, Barry. Sweden and the revenue profile of the Swedish mobile ops for Allison. And then when it comes to distribution network for the Netherlands, you must and once again when it comes to I think, Parekh, you were also asking around the potential launch in the Netherlands. Very strong at 5.4%. In our overall guidance for the year of mid single digits for the group, we were assuming that Sweden would be in the 3% to 5% range for the year. Okay. And on the in Netherlands, the shops, stores, we're looking at various different ways of reaching out to our customers. Acquiring Scholz could be 1. Online is maybe our preferred option or a combination of both. And the 10% market share a year after launch, we still stand committed to that. I mean we have today a market share of roughly 5%, between 5% 6%. So I don't think it's going to be possible to get 10%. But it all depends on how the market develops obviously. But we do need to get scale once we have launched the network here. Just in terms of your preference for online as a means of I can check while we're Yes. So let's, Baer, we'll come back to you on that question, so we get it right, okay? I think distribution challenge could be Oh yes, I'll answer that. Okay. But we'll get back to you on that one, Barry. Thank you. Thank you. Operator, next question please. And we'll take the next question from Mr. James Britton from Nomura. Please go ahead sir. Thanks and good morning. I've got two questions also on Sweden. So I think Apple has pushed up their prices in Scandinavia. And Tia said there's more than they expect the other handset vendors to follow. So do you think this trend of higher handset costs will actually help push people more towards the SIM only pricing model where you guys are very competitive? And secondly, I think Mats made mention of some people opting now for 4 gs over WiFi at home. So could you just elaborate more on this? Is this due to faster speeds or low latency? What's driving that change in customer habits? Thanks. When it comes to the first question, we talked about higher handset cost that's driving more SIM only behavior, if I got you right there as well. But and James, and then you are also asking around the drivers behind voice over Wi Fi. So, yes, Apple did take up the pricing recently, and we moved that into the marketplace immediately. So we were not prepared to take any impact ourselves. Obviously, handset pricing in the marketplace because that very much we want our whole concept of value champion and Tele2.0 was to educate the consumer on the value of the connectivity that we provide and disconnect it from the confusion of the cost of the handset. So we would be big supporters of increased handset pricing and more transparency on the cost of underlying Absolutely. And on a side note, we wouldn't be surprised either, James, if you would see people using their handsets longer time but upgrade it through new software. So it becomes more of like a PC, if you would like. They all look pretty much the same these days. On the my comment on cellular over Wi Fi, I think the big buckets we launched in this quarter is a response to our consumers demanding or using more data. And as we have seen, when people have to either top up or trade up in a bigger bucket, there is a risk of churn. So what we are trying to do here is to accommodate people using more data to have enough bucket size so they feel comfortable of using the cellular network wherever they are. Sweden is so different from that of U. K, where the first thing you ask is, so what's the Wi Fi and password? In Sweden, we don't. So we just continue on our cellular network. And latency and speed is traditionally better on cellular network 4 gs in Sweden than that of Wi Fi. Wi Fi, you typically get truncated at 20, maybe 25 megabits per second. On the cellular network, you get up to maybe 80 or so with very, very low latency. So speed is for sure something that is important and latency as well. But maybe the most important is this ubiquitous coverage. You can be on the cellular network regardless of if you're in the basement elevator or if you are in your flat. Said that though, we know that only 20% to 30% of consumption is used on outside on cellular network. And still, there's a vast majority of data being pushed through on the Wi Fi network. We see actually an opportunity here to capture some of that. James, just so you know, you know our favorite product is that it's actually a Wi Fi router with 4 gs back hub, which is the combination of your question, I guess. You get the both. But even in that, we should say that in Wi Fi, I have one of those and I think in the U. S. Well, Lars, that you get typically 20, 25 megabits per second on the Wi Fi. But if you switch your handset to the cellular network, you then get all of a sudden 60 or 80 megabits per second. So the Wi Fi router in itself is not able to do more than the 20, 25 megabits per second. Yes. Thank you, James. Any follow-up? Yes. Can I ask one follow-up on the first question? Sure. So since you pushed through the higher handset price points, I mean, is it too early to really see whether there's been any change in the sales mix and whether more customers are coming to you just for SIM only? I think in the past you've given us the SIM only mix at around 20% in Sweden. Has that stable or is that starting to go up, do you think? Too early to tell. And what we're seeing is some of the handset providers are actually starting to subsidize the phone as itself. And so we've had quite a promotional period with some of our handset manufacturers, obviously not Apple. So that is also distorting the market. So I would say just too early to tell. Okay, great. Thank you. Thank you. But it's a very good question, little one that James said, because it is, from our perspective, a big change in the rhetoric of our salespeople. We are now not selling someone else's product. We're selling our own service. And that will take some time. And that's why we are a little bit cautious of being too bombastic when it comes to predictions going forward. But it's a huge change. It's a bigger change than one of them maybe initially can anticipate. The rhetoric, the way that we are now educating the market, moving away from subsidy for selling our own product, which is a service instead of someone else's product. That's a huge difference. Great stuff. Thanks. Operator, can we have next question please? We'll take the next question from Mr. Nick Lyle from Societe Generale. Please go ahead sir. Yeah. Good morning everybody. Just one on the Dutch business please on the fixed business Lars if I could. Your Internet subs, I think, were down 9,000 this quarter. So firstly, is there anything happening in terms of promotions or just a greater threat in the on broadband, fixed broadband in the Dutch market? Or even are you on broadband fixed broadband in the Dutch market? Or even are you moving away from a quad play solution maybe to a mobile only solution with a new network? Thanks. Thanks, Nick. Good question. Fixed line or fixed broadband in the Netherlands, which is actually to be perfectly clear, it's more around our consumer fixed broadband and our view on that one. We're making some strides there, I think. Yes, we are. But you're right, in the quarter, we've had actually 2 outages that have pushed us back a little bit. I think that's what you see the effect of. But we are still committed. We're focusing a lot on it. So we are not giving up on our fixed installed base. And we are also in good discussions with one of the incumbents on being able to offer something interesting. But I would like to stop there and then maybe come back once we have more tangible results on that. But for sure, we are not giving up our fixed base by no means. We still want to have this as a core play opportunity if it becomes something really important to be part of. I'm sorry for being very vague, but you will understand more in a couple of weeks' time hopefully. No, no problem. And also can I just ask as well, Lars, what I'm on? On the if T hypothetically, if T Mobile Netherlands were sold, are you fully protected in terms of network rollout? There's no chance of disruption to the speed of the network rollout or something like that happening? No, we have yes, we are, we'll call it, fully protected or we have that in our agreement today to be able to continue to work with any potential. Also for Bari, just coming back to the online sales in the Netherlands, it's actually as high as 70 percent, roughly 70%, seven-zero, which is online sales. That's always a good thing. That should be, for example, compared to Sweden, which is also doing very good work, but it's at 25%. So we are much more dependent on online sales in the Netherlands. And that's why online is a big stream of the Challenger program? Yes. Operator, I think we're getting to where we need to stop, but we can have yet another question, please. Thank you. And we have a final question from Mr. Peter Nielsen from Kepler Cheuvreux. Please go ahead sir. Thank you. Yes, just one on Swedish corporate market. You're enjoying good momentum here as you've done for some quarters. Previously you mainly talked about the SME and the SOHU business and your new client side. Is it possible to talk a bit about the source of this at competitive edge? I mean, what's driving your group performance? Is it because you're simply coming from a low base and you've hired more sales people as you have? Or is there anything else sort of on the technical side which you can talk to us about please? And also just if I can it's a pretty poor sound quality coming through here. So if I can just ask if you could repeat what Alison said at an earlier question? The performance in the large enterprise segment and the reasons for that and then also when it comes to marketing expenses in Sweden once again. Sweden, we should start with the more we will start with loss enterprise this month. Yes. It's coming up, I understand. Yes. It's nothing that happens overnight. This is something that we have worked on continuously for the past two and a half years. And now we're starting to see momentum coming away. It's hard and persistent work. Yes. Because I mean the sales cycle is, as we talked about before, it's quite long. Yielding result. I don't think that there is that big of a difference in the solution itself or the technology that we can provide, except the fantastic 4 gs network. But our competitors have similarly good network. It's more the way that we approach, I think, good, hard work. It's nothing no quick wins here. And then on the margin spend. So over the last 8 quarters, Sweden sales and marketing has trended between 14% 17% of revenue. Last year was 16% to 17%. In this quarter, it was 14%. And as a result of lower subsidies, we should be seeing lower sales and marketing in the future anyway. For example, the lower subsidies reduced the sales and marketing spend by around 1.5 percentage points in the quarter. Thank you. I hope that helps, BK. Yes, very good. So that actually concludes our presentation for the Q1 report. I'm sorry if anyone has not been able to answer get their questions answered. But of course, we are here to support you if you have any follow ups later on today. We look forward, of course, to keep in touch with you during Q2. And I'm also very pleased that I'm handing over just a second to Louis Cheddar as well as the new Head of IR that's going to do a phenomenal job as well. But if we don't talk to you until we report the Q2, which is the