All right. Good morning, all, and welcome to the presentation of TeliaSonera's third quarter results. I'm Jesper Billgren, Head of Investor Relations. With me today to present, I have our CEO, Johan Dennelind, and our CFO, Per-Arne Blomquist. After those presentations, we'll also have a Q&A session. The intention is to close the event within one hour, just to let you know that. If there is anyone from the press that would like to have individual interviews, please contact Salomon Bekele or Iréne Krohn after this presentation. With that, I would like to hand over to Johan.
Thank you. Am I on? Yes. Thank you, Jesper, and good morning, all of you. Pleased to be here presenting my first quarterly results for TeliaSonera. Not my first quarterly report, but my first for TeliaSonera. Also pleased to have Per-Arne with me, who's handing over a robust TeliaSonera. I was going to give you a quick overview of the quarter, but I'm also going to take the opportunity to give you a couple of observations that I've made during my initial days as CEO of the company. But first, the traditional summary, where we are reporting a relatively okay quarter, I put it. But it's a mixed bag, and I'll come back to what I mean with that. First of all, revenues are flat in organic, with pretty strong margins and an even stronger cash flow for the quarter, over SEK 7 billion.
We see some positive trends when it comes to the build revenues in Mobility. We will get back to that, both me and Per-Arne. We see the effects coming through now of the efficiency measures and the restructuring programs, a strong contributor for the margins in the quarter. We're talking a bit about our upgrade of the internet experience across our group, where we're investing heavily in both fiber and 4G, also 3G, of course, where we don't have 4G yet. This is a core part of our future. Needless to say, there is strong focus on governance and sustainability, where I personally have taken a strong involvement from day one. We shall share some views with you later. Then on a general side, on the observations, I'll give you some plus and minuses from what I've seen so far.
I won't get into too much details and the numbers, but bear with me for a couple of slides just to give you a brief overview. As I said, our net sales are flat in local, but as you have seen, the net sales is down when you take into consideration the full effect of currency and disposals as well. But the margins, as you see, 37.1%, which is very solid, supported, of course, by the restructuring programs ongoing, but also by the margin expansion in Eurasia. Our free cash flow this quarter looks very strong, and it is, but it's also dependent on a few items. One, of course, the dividend from MegaFon of almost SEK 2 billion net, but also some big movements on the working capital side, which we'll get back to in details with Per-Arne. Overall, a relatively okay quarter.
If you look deeper into some of the business areas before we move on, the mobility side, we do have also in local currency, a negative growth, where on the other hand, the margins are expanding. There is a correlation, of course, a little bit here with the interconnect effects, which is pressure on top line, but also strengthening some of the margins. On the CapEx, we are in the third quarter delivering a slightly higher CapEx to sales ratio than last quarter. We're also catching up a little bit on our investment programs, which were a bit behind in the first two quarters. Per-Arne will guide you on the full CapEx later on, but it's ongoing here now. Moving to some of the key developments underneath the numbers in mobility. This slide is very important because it gives you a couple of key points.
One key point to the left is where we have launched our new data-centric models in Denmark, Sweden, and Norway. We're actually starting to see a positive growth on build revenues. Digging even deeper into that, you will see that actually it is a key component of the growth in build for these markets, and especially glad to see Denmark, of course, coming out positively year-on-year. You can also take a look at the bottom there on the left, where some of the markets are still struggling with build revenues, both, of course, economic development in the markets, but also the way we are putting out our offerings and competing in the local markets.
To the right, an important ratio that we have been talking about through the previous quarters is a measure, it's a proxy, how well we are able to capture and monetize the data growth. We are now at a ratio of about 50%. Out of the data growth in the upper 60s, we're able to get about 33, 34% revenue growth out of data. That we want to narrow further in the next few quarters, hopefully. Moving into broadband services, we clearly see the revenue pressure either way you look at it, in local, organic, or in reported. We still are in the shift of industry shift, and technology shift, and consumer behavior shift. I'd like to stress that the underlying demand for fiber in our key markets is very strong.
Needless to say, fixed is increasingly important in our mobile lifestyle and in the mobile world. Still fairly okay margins on the broadband side, even if they're declining in the quarter. CapEx to sales. We're investing heavily now, moving into the next few quarters to try to catch up on some of the things that we haven't delivered on in the past quarters, especially related to Swedish CapEx, which I'll get back to. Our growth engine is still growing. 11% growth in local currency in Eurasia, mainly driven by Nepal, Uzbekistan, and also Kazakhstan, where Kcell yesterday reported their third quarter as listed entity, and has a strong set of numbers. We are glad to see that data is becoming a core part of the growth.
I think about a third of the growth in Eurasia is now driven by data, and it accounts for over 10% of total service revenue. Data increasingly important, and also, of course, leading to the upgrade of our CapEx, mainly driven by the three countries that I mentioned earlier. This is positive. Quick look, countries. We slice it slightly differently into country, where Sweden is delivering strong margins, improvements in mobility Sweden, and defending fairly well in the broadband side in Sweden, on the margin to the right. Overall, the Swedish market is quite strong for us and yet very competitive.
We recently this week launched new data pricing models in Sweden called Komplett, which is the next step of the previous proposition Dela, where we're now also including individuals, not just families, to be able to enjoy the bucket pricing where you have free text, free SMS, and free voice, and then you pay for various buckets of data. That's what we mean when we talk about data-centric models. A quick look at Finland, where the picture is not as bright. We have a very committed team in Finland that are working on the turnaround in some of the key numbers. There are some positive signs underneath this pretty gloomy picture, where the revenues are down both on mobility and fixed, but where the margins are strengthening on the mobility side and decreasing on the broadband side.
The positive signs we're seeing is on the consumer segments, where we see some stabilization in the competitive dynamics, but also our ability to capture our fair share or more of the respective segments. That is all I'm going to say about the numbers at this stage. We'll get more into the details with Puranen. I'm going to now shift gear a bit and get into a bit of my observations, and a bit of wrap up. I'm going to start with our sustainability and governance agenda. Needless to say, this is, as I mentioned, part of my initial priorities. I've met with the majority of our 10 largest shareholders, and a common theme is clearly that we need to demonstrate that we can act responsibly and sustainably in the long run, and that the burden of proof is on us.
There's a high interest and demand for us to talk about what we're actually doing here. That's one reason why I bring it up in this forum. Otherwise, it is a lot of work that we're doing internally. My view on this, when it comes to the three dimensions that will enable and secure ethical decision-making throughout, of course, we have the compliance to the legal frameworks where we act, and that goes without saying, but it needs to be mentioned. We have the adherence to the ethical standards and values across our markets and in our countries, which is more seen as guidelines. An example of that is the UN Global Compact, the OECD instructions and guidelines for multinationals, it's the international labor organization guidelines, et cetera. Those are also things that we need to relate to and comply to and adhere to.
Of course, I think more importantly than the two above is how we build our culture and the values around ethical framework. There's a lot of good things ongoing, but we need to take a holistic approach, and be able to measure this and talk about it in a structured way. I've already established a compliance function reporting to me from September 1st, led by Michaela Ahlberg. Basically, you know what the compliance function is supposed to do. They're supposed to make sure we do what we say, in short. That is now being rolled out across the company. Example is the code of ethics and conduct that we're rolling out to all our employees, which has not been done before, which is ongoing, and now we're leveraging that even more.
We also established a CEO office, which is headed by the previous acting CFO, Christian Luiga, where we also have a strong involvement in the review of the ongoing transactions in Eurasia, where we're not just participating and making sure we do that proper, but we also learn from the things that we find in this area and strengthen our framework around the two first point and also the third point in building the right values and culture in the company. Lastly on this slide, is to establish measurable KPIs. Well, all KPIs should be measurable, and report them in these kind of forums and to the key stakeholders that we have. This will become the proof points that I talked about initially. The burden of proof is on us to show you that we are running our business in a sustainable way.
Let me move to some observations. I've not been here too long, but I've traveled quite a bit and met quite a lot of people. I've been to six of our countries. I have to say that we have a very robust platform and foundation to move into the future. We have 70 million over own customers, 170 something in our group with the associates. We have 550,000 shareholders. We have 27,000 engaged and motivated employees with a broad experience and a good mix. Of course, we need to make sure that the mix comes together and we get the most out of all the people in the group. We have mobile and fixed, and we have TV to various degrees. You could say that in each of those areas, we are somewhere leading the development in the industry.
For instance, in Sweden, we are actually number 2 in the TV market. We see this as a strong platform moving into the future. Just when we're on the map, of course, Turkcell and MegaFon are associates to us, very important associates, contributing a lot to our financials. Clearly, we are acting as a responsible owner here, and we will continue to do so and upgrade the focus on these areas. The market cap of these two is probably around SEK 65 billion, SEK 67 billion, somewhere, for our part of the equity in these companies. Of course, the net income is impacted of the performance of these companies. We need to monitor and follow and act as well as we can in our role as a major shareholder, not majority, but a major shareholder in these two important good companies.
When I look at some of the things where I think we need to do even better. As I mentioned to a few of you already, we are losing a bit of competitiveness, i.e. market share in too many of our markets, and it's well picked up by the analysts. We need to understand why we're losing competitiveness, and we need to start addressing that with force, and that's ongoing. In that analysis and finding the answers to those questions, we also need to take a closer look from customers. How do we actually understand our customers? Do we understand our customers? We can be better in that aspect. We need to find a way of reducing the complexity in the group, both in terms of operating model, but also in terms of our legacies.
This is a big area where we're now spending quite a bit of time to get under the skin of the complexity. Underneath this, we need to have a culture that relies on good values, not just ethically, but also in terms of driving the business forward in an innovative way, where I think we have quite a bit of work to do to revive our innovation spirit that is so well known for Telia and Sonera, and also the combined Telia and Sonera. These are areas where we will focus on the program journey ahead, which is also something that is reporting straight into me in the CEO office coordinating this program. I will quickly summarize, and then I will hand over to Per-Arne. We have, as I mentioned, strengthened margins, stable revenues, and strong cash flow.
We're not growing, and we don't see the growth trends well enough or clear enough in our key areas. We will make sure we also get the focus on how to start growing. It is a tough environment both economically. Our industry, as you know, is in a big change, and we need to make sure that we change with it or lead the change in some aspects of our industry. That's very easy to say and very tough to do, but we have to try, and we have to try harder. Our data-centric pricing models are clearly getting some traction in the markets where we have launched. Now we need to learn from them. We need to implement them in more markets.
I'm also glad to see that we are being followed by many of our competitors where they are launched, and that's a good sign that we are doing the right things. I think we spoke about the sustainability side. We are embedding sustainability into the way we're working. The journey ahead looks very promising and very exciting, but we need to make sure that we strengthen our competitiveness where we operate and where we compete. Otherwise, we will not create long-term sustainable profits. Thank you very much. Per-Arne, could you please take us through the numbers in more detail?
Thank you very much. I will try to avoid to repeat too much of what Johan has said and focus more on the 9 months and also the trends that we have seen during the last couple of quarters. If you look at the 9 months, I would say that it's an okay result given the environment that we are living in and also given sort of the situation that the company has been in for a while. If I start from the bottom, I could even say it's good. Cash flow is good. Strong cash flow. We are defending our earnings per share, more or less. We are improving the margins, and we're even increasing our EBITDA in local organic terms.
I think the issue that Johan has correctly pointed out is the top line, where we are flattish, where we're also moving ahead that you might wish as a big company. Oops. If you then look at the third quarter, we have had certain movements, but it's still more or less more of the same, rather flattish. Somewhat down in Eurasia, as we said before, due to Uzbekistan. We are somewhat better in broadband, but it's mainly connected to international carrier, and we are somewhat down in mobility, but that's also connected to Spain. But they are pretty small movements. We have also to remember that we have seen this trend for quite a while, and that's why we actually initiated the cost program close to a year ago.
We saw that the gap and the spread between the cost side and the top-line development started to narrow, and that was the reason why we then initiated the cost-cutting program a year ago. You could see that we have a better spread between these two areas, but the issue, I would say, is the top line. I think we have pretty good control of the cost side, but the issue is the top line. One of the issues is the interconnect. If we deduct the interconnect changes, we are not down 3% in mobility. We are actually up close to 1%, and that will disappear over time. What will not disappear is the billed revenue. Once again, we are working very hard with the billed revenue as such. Sometimes I feel that this industry feel too much pity for themselves.
We are talking about that it's down on voice, it's down on messaging, etc. Yes, we know that. At the same time, mobile data is growing with 65%, 66%. It's very few industries that has this kind of growth, and it's our duty to make sure that we can price this, and that will help us to come back into growth. That's why we spend so much time on new pricing models, why we talk so much about it, why we try to do things to improve over time. The cost side that we have started to address has also given us an opportunity to actually increase the margins. As you can see here, we had a pretty weak 2012, where margins were deteriorating.
We have now turned that, margins has gone up for the last three quarters, we are now coming closer, or even above 35% on 12 months rolling. I think that you would probably ask later on, can you do more? Can you have a higher margin? Well, it's difficult. I think just to defend 35 or 35.5% is very tough. It's an achievement as such. We will try to protect the margin, but to increase it furthermore and expand it furthermore might be a bit tough. If you look at the different areas, we see different trends. I'm very happy to say that broadband has been working very hard with the cost-cutting initiatives and now yielding result. I've said to you many times that you will see the effects from broadband in the second half of 2013, that actually starts to happen right now.
I think they are down with roughly 6% in the cost in this quarter, down 2% after nine months. Mobility are slightly different. They are down with 7%, but in the quarter, just down with 5%. We have to guard this, that they are now sort of picking up again to make sure that we could reach our cost targets. Eurasia have a good cost control, have initiated quite a lot of initiatives, it's actually an achievement as such to have declining costs when they're living in the kind of environment that they do with pretty high inflation. This has also affected the margin overall. If you take mobility services, they have for the first year now started to, on a regular basis, increase their margins. Today, five out of eight business areas are improving. In the quarter, six are improving.
We have all the Nordic countries actually improving their margins within mobility. When it comes to broadband, it's still a challenge. What we see in the third quarter is that broadband Sweden is decreased in the gap compared to last year. They are not up to the same margins as last year, but they are closing the gap given the cost initiatives that they have started to work with. In Eurasia, very good and sound margin. Five out of seven of the entities are above 50%. The cost initiatives that we have started should yield a net saving of SEK 2 billion, where the aim is to come down at SEK 25 billion, excluding Spain in 2014. We have gone down now to roughly SEK 26.1 from the SEK 27. We'll see what happens in the fourth quarter.
Difficult to judge because it's partly depending on how much sales we'll have in the different campaigns. It might be SEK 26, it might be SEK 25.9 or whatever, but that's a rounded number will be the end result for this year. What is important for us is also the pace, on the cost pace, especially on salary level that we have in the next year, that will help us to come down to the SEK 25 during 2014. We continue to invest. We have been a bit behind during the first, we'll say six months. We are now speeding up. Reason for being a bit behind has been, first, we claimed that the weather was a bit too cold.
That was partly a reason, but we have also been much more thorough in the, I would say, the investigation on what we should invest in, and we have created some kind of delays ourselves, which I think is very sound, not just to have the autopilot investing in things that we do not need. We will try to catch up. I don't see any reason for us not to try to do that. Whether we will come up exactly to the 14% remains to be seen, but this is anyway our ambition for this year. You can see now that we have a different level of investments in the different business areas. Mobility, roughly around 10%, broadband roughly around 15%, and Eurasia roughly around 20%.
I would say over time, we would expect Eurasia to come down below the 20%, it doesn't mean that we will invest less, but they're also growing at a pretty high pace. I think these markets will be more mature, and they have to come down below the 20%, perhaps even during the coming year. Cash flow strong. I don't know if you remember last year I was a bit upset about Norway, where we had implemented a new ERP system, and we have prepaid all the supplier invoices, which meant that a lot of cash flow out. That was roughly SEK 450 million. Now that sort of hits back in a positive way, and also that we have payments earlier this year, roughly another SEK 500 million. SEK 1 billion of the working capital is facing issues.
Even if you deduct that, we have a strong underlying cash flow, and I think that is good. Good to see that dividends coming from MegaFon is now coming through, and that of course leads to an improved net debt situation. Going down from SEK 66 billion to SEK 57 billion during the quarter. Automatically then also our net debt to EBITDA will improve, and it has improved. We are now down to 1.58. That will, of course, raise the questions about dividends, and as I usually say, we stick to our dividend policy, and we will come back with the dividends later on in Q4. To look at only this is not the only thing that we look at when we talk about dividends. It's the ratio here. Yes, we are at the lower end of our preferred ratio.
We're also looking at the future funding needs, future investment needs, and future potential cash flow. This is just a part of that discussion about dividends. When it comes to the outlook, it remains unchanged. Flattish on net sales. We will improve the EBITDA margin and CapEx to sales ratio around 14%. Johan, that's time.
Good, thank you. It's time to open up for some questions. I think we start here with the audience and see if there is anyone. If we can have some microphones. Let's start here.
Okay, thank you. It's Erik Pers, Danske Markets. Two questions, please. Broadband ARPU, very strong in the quarter in Sweden. Could you help us understand the drivers and the effects from each driver, please? Secondly, we've created a new group function called Strategy and M&A, as you write in the CEO words in the beginning of the report. Could you help us explain the significance of that and what is expected from it? Thank you.
Let me start with the second one. Then I'll leave it to-
I take the other one again.
Per or Jesper to take the second one. The new function, strategy, business development, M&A and innovation is a central function. As I mentioned in my initial words, I think we need to find a way of making sure that innovation becomes a core part of our agenda everywhere in the company. We also need to take a holistic view on our strategy connected to our investments and M&A activities. That's why we're combining that in one unit. On the ARPU question?
Yeah. On that one, it's a little bit inflated when you look at the ARPU number, since it includes also the installation fees on the fiber. That's the main explanation. If you look at the underlying development, it's still positive on the broadband ARPU, but not as much as you see on the numbers.
The positive thing with that is that we have speeded up the implementation of the fiber. We had all-time high in the week at the beginning of October. That will continue, hopefully, to improve.
Good. Anything else?
Andreas with SEB. Two questions. The increasing competitiveness. Can you explain a little bit more how you think you're going to handle that issue? Potentially also if there's going to be a cost related to that. Secondly, how easy is it to implement data-centric models in the countries where you haven't done that yet?
I think there's a good question on the competitiveness. The observation I have is, and also the facts that we have, is that we have lost ground relatively in too many markets in our units. I think we counted it to 14 out of 20 business units in the last four or five years have lost market share relatively in the respective markets. That, of course, is not sustainable in the long term. When we talk about finding growth, I think we have growth where we are. If we do things right, and if we get the right propositions to the consumers, then we start winning in the respective markets. That's the general side.
Specifically what that means, of course, I don't have the answers to that, but I know the questions to ask, and we have initiated a program that we now structurally work with in order to find the answers. That I have, at least we will make sure that we understand why, and then we'll see how we address it. Of course, growth comes with cost, but it needs to be a balance.
If you look at the initiatives we have taken in the three Nordic countries, it has not to say implicated higher costs. It's just a changing model. Even though we have been the number 2 and number 3 player in Denmark and Norway, the other player has actually followed. The question is that if you do the right thing, it's perhaps not that difficult, but you need to have some guts to it.
Competitiveness is not only around our data pricing models. It goes across our markets. It is not just the Nordics. It is actually everywhere we operate, more or less. To your second question, when it comes to data-centric models, where we have implemented, as Per-Arne also mentioned, we see positive traction, and we also see competitors following. Where and when we will launch in other markets, we will get back to, but I think the general theme behind it is that people have an increasing need for internet and consuming internet more and more and in different ways and are prepared to pay for it in different ways. Of course, the commodity part of people and consumers now tell us that the old way of calling and SMSing is becoming less relevant, and therefore data is more relevant. There is a mix and a shift.
The dynamics is different in every market, therefore we don't have a general answer for every market, and I think that goes with our operating model also, that the local entities are responsible for the implementation.
Yeah.
Lena Österberg, Carnegie. One strategic question, then one financial also. I was wondering a little bit on product innovation in emerging markets. If we look at other competitors, they've been very innovative, launching new products in terms of mobile payments and other things, Telia has lagged a little bit behind. What do you see that you can do in those areas to drive revenues further? Then one question on cash flows. As you had the positive change this quarter, usually it's in the fourth quarter that you get cash flow back. What should we expect in terms of working capital for Q4?
Let me start. It's a good observation that we, in some markets, have not been launching innovative new products in new areas. We are, in some areas, very innovative around our core business today. As I mentioned, data is growing heavily in Eurasia now, so that way, I think we're relevant. When it comes to new propositions in adjacencies like financial services, we're aware that there are great opportunities in emerging markets. I've seen them in my previous roles, I know there is great demand for it in many of these markets. We'll see if we can be relevant in that space going forward.
Well, when it comes to working capital, it's very difficult to judge. Given that we have had some timing issues in our Q3, it was sort of in the favor. It might be that we will see more slightly negative working capital in the fourth quarter. That's my guess right now.
All right. Let's continue on this row.
Auli Mauno, Kauppalehti, a journalist. Well, first of all, I was wondering about Tero Kivisaari. What is he doing now, and how long is he going to stay with you, if he still is here? The other question is about knowing your customers. Actually, which way you don't know them yet, and what are you going to do to find out what they actually want from you? The third question is about consolidation in the Nordic countries. Do you have any chances in participating?
Let me start from the bottom. Consolidation, of course, we are observing what's going on. My clear message is that we are where we are, and we need to make sure that we can operate where we are in an efficient way and in a competitive way. When it comes to the consumer and customer insight, I think it's a general known fact that we as an industry broadly are not world-class on customer experience and also customer insight. That goes for TeliaSonera as well. I have a lot of ideas what to do better, but this needs to be done in a structured way which is relevant for TeliaSonera in the respective markets. I think you can ask yourselves if we are a world-class insight company, understanding your needs, understanding what you want, and what offers we're giving you at the given moment.
I think that's where our focus is, to make sure that we understand what you want and what you need when. When it comes to Tero, he is right now having a break, and we're talking about what he should do going forward.
All right. Maybe we should open up some questions from the conference call. Operator, please go ahead.
Thank you. Ladies and gentlemen, if you'd like to ask a question over the phone, please press star one. Your first question comes from Terence Tsui. Please ask your question.
Yeah, thank you. Good morning, everyone. I've just got two questions on Eurasia, actually. Firstly, on Kazakhstan, there's been some proposals to have much sharper reductions of mobile termination rates. I understand that's going through an appeal process in the Supreme Court. Just wondered if you can give us any updates on timing around that. Then secondly, on Turkcell, again, around timing, just any news out regarding the lawsuits at the New York Court of Appeals concerning that $932 million that you're due. Just any updates on that would be great. Thank you.
Okay. Let's start with the Turkcell issue. No, we have no news. I think we lost the big momentum. We thought we had a timeline where we thought we were waiting for, I think it was the 22nd or 27th of September in the Privy Council. Given that we had a hearing in New York, they actually stopped the clock more or less. Now we are waiting to hear from them. I've heard different rumors of timing, it's very difficult to know when. I've stopped to guess, actually. I don't know if it comes up anything new the last couple of hours, we'll see. We can just wait. When it comes to the termination rate in Kazakhstan, it is a discussion, and we will see what happens. It's up in the quarter. We will see.
I don't know if we have any timing on that right now. That will happen when it happens.
Good. Thank you.
Thank you, Terence. Next question, please.
Your next question comes from Nick Lyall. Please ask your question.
Morning. It's Nick at UBS. Could I ask two, please? Again, on your strengthening competitiveness, have you done any work so far on the quality of networks? Again, more pointedly, do you think you need to spend CapEx maybe to raise capacity on networks as you focus more and more on data? Secondly, I'm just interested in your thoughts initially on Spain as well. The numbers are weak. Granted, there's an MTR cut that's very aggressive in Spain, but the margin's still single-digit as well, and you've cut a lot of cost out. What's the future for Spain? Is this sort of performance sustainable? Thanks.
Morning, Nick. I think I'll start with Spain. We see that we have still good potential in Spain. As you know, we recently announced a partnership with Telefónica, with regards to offering a converged proposition, which I think is important in the Spanish market, where some of the key competitors are offering that. We also know that the market is increasingly competitive when it comes to the MVNO players. Therefore, we need to make sure that we commit to the company and drive this forward, which we're doing. Spain is part of the family. When it comes to the competitiveness, clearly a key part of competing well in our industry is to have a strong network, and we have that as a core part of our strategy today to have the best network experience.
The shift is, of course, that we need to invest heavily in the internet experience, as I mentioned, and we're doing that. A lot of the CapEx now are shifting towards the improved internet experience, both in the mobile lifestyle, but also delivering that through our fixed networks. That will be core going forward. We're just reiterating our appetite to invest in the internet experience.
We could also say that we have taken an active decision here in Sweden to have the same coverage on 4G as we have on 2G, which means that we will have a geographical coverage of about 90%, and no one can beat that. The good thing with that is that it doesn't necessarily mean that CapEx will explode, because we could use up to 70%-80% of the installed base when it comes to towers, et cetera. I think that's important.
Yeah.
That's great. Thank you.
Okay.
Thank you. Your next question comes from Peter Nielsen. Please ask your question.
Thank you very much. Just two quick questions, please. Firstly, you talk about, particularly in the mobile business, improved gross margins in the Nordic mobile businesses. Is it possible to elaborate a bit on what's driving these better gross margins? Obviously, we've seen some new price packages, some MTR reductions, et cetera. Any sort of elaboration on this would be appreciated. Plus, just return to Per-Arne's comments about Turkcell. Obviously, you're in a holding position. There has been a change in the board structure at Turkcell. Is that something you have any comments on or thoughts on from Telia's own perspective? Thank you.
Thanks, Peter. I'll leave it to Per-Arne to comment on the first one. On Turkcell, what we have said, and reiterate that, we want to be part of the board and have our representation. We're a large owner. We also realize that the CMB has chosen to appoint independent directors, which we have nominated, and we will follow that closely.
When it comes to the gross margin, Peter, it's basically two things. First of all, the MTR cuts, which hits us on the top line, it also improved the margins as such. That is helping, and also the important handsets. I know when we look at the cost as such, it also was a question mark whether we had too few net adds that also that too sort of took down the cost. It's MTRs, handsets and the gross margin, and it's actually salaries, IT, and part marketing and subsidies on the OpEx side that helps us.
Okay, thank you.
Thank you very much. Your next question comes from Jakob Bluestone. Please ask your question.
Hi there. You talked a bit about trying to address some of the underperforming assets. Would you be willing to exit some of those assets, or is the priority more about sort of engineering an organic turnaround? Secondly, just following on from Nick's questions about stepping up or investing to deliver the growth that you are looking to achieve. You talked most about CapEx. Could we see a step-up in OpEx, higher marketing costs or something to revamp some of the brands? Thanks.
Yeah. I think the internet experience, again, will require investments. When it comes to growing in our respective markets, I think, as I mentioned, we are where we are, and we got to make sure that we find growth where we are. I think it is possible to find growth where we are if we step up our competitive activities and excel towards the customer and in our proposition. That is the generic answer at this point of time. When it comes to guidance, we are not changing our guidance. When it comes to growing in the future, of course, it will require investment both on the OpEx and the CapEx side, it needs to be carried out responsibly, of course.
Thank you.
There was a question on the underperforming assets.
As I mentioned also there, we are where we are, and I want to make sure that we can compete where we are. That is part of our family today.
Cheers.
Should we go back to the floor? Do we have the mics?
Yeah.
A follow-up question on Spain. It is Stefan Gauffin, Nordea. You have had a quite weak subscriber intake, and now service revenue growth is negative. Bill revenues are low single digit. You have a new cooperation with Telefónica. Could you give some indication on how that will improve OpEx going forward and help margin expansion in that market?
Well, I think we have a new agreement with them for two years, that is, we will not go into the details, I think it is favorable to what we have had before. What we also give here is an opportunity to have a bundled offering, which has been extremely popular during sort of the last two quarters. We have to be able to compete with that. We are doing that right now. We have sold off our towers as well, which means that we have sort of improved the cash situation. I think that overall, we have done quite a lot of things that will help us to
Be better in Spain. On the other hand, we have had a tremendous competition from the MVNOs, which actually started after the first quarter on price pressure, and we have been suffering from that.
Now you're talking about improving competitiveness.
Will you also see a step up in margins from this new agreement with Telefónica?
Yeah, hopefully, because we are doing that because it should be better. Improvement hopefully means that we can also improve margins, which I think we need to do with Spain, given that we are operating on a pretty low level right now.
Okay. Thank you.
Okay, Sven. Sven, next one.
Yes, good morning. Sven Sköld from Swedbank. Looking at the mobile subscriber base and well, in general, in the Nordic region, it seems to be relatively flat, not only in this quarter, but over the whole year. Well, do you think we are in a phase now, where a number of [inaudible] are no longer increasing in the same pace as we have seen the last few years? Second, just a detailed question. I noticed that the churn rate was up in Sweden quite a lot.
Quite a lot. 18% has been 15, 16, 17, now 18.
It's the highest number in a number of years.
18 is very low still.
Okay. It is anyway higher than the previous quarter.
Yeah.
I thought this was a really calm market in Q3, so I was a bit surprised.
Yeah.
Well, I think Per-Arne answered the second question straight away. Maybe you want to elaborate.
Let's take that onwards.
Okay. On the first one, I think that we will see continued penetration on the SIM side, because the number of devices are increasing by the day. Our role is to make sure that we get SIMs into more of these devices, and one way to do that is to launch what we just launched, the Komplett in Sweden, where we offer that opportunity to more devices in the families and beyond. I think you can't see a stop on number of SIMs at this point in time.
Coming back to your question, I don't see that this a big shift. It's still on a very low level. Of course, it's tougher competition. It's a very mature market, and we are now trying to develop that with the new offerings. We will see what happens going forward. I'm not so concerned about that. We have other markets where we have tougher competition and higher churn rates.
Good. Should we go and move back to the conference call and see if there are any further questions?
Your next question comes from Barry Zeitoune. Please ask your question.
Hi, good morning. I've got three questions. On the first one, I'm just going to try and press you on Spain again, actually. Given that we've got a deal going on in Germany at the moment, given that Yoigo was for sale in the recent past, obviously you need to manage the business as if you're going to be keeping it. However, would you be open to selling it if you believe that the EC takes a more favorable view to in-market consolidation? My second question is on the trends that we're seeing in mobility, and specifically the build revenue trends. It seems to be coming from the markets where you changed your pricing to the bucket pricing, where you're offering unlimited voice and SMS as standard. Is that likely to push you to change the pricing model in your other markets in that direction?
It is something you're planning on doing soon? My final question is really just on Per-Arne's comments on margins, and that it will be difficult to get above the current level of margins. Given that we're seeing, this is the second quarter of improved build revenue trends, we're seeing improvement in the cost base. It looks like another SEK 1 billion improvement next year versus this year. Why are you not a bit more bullish on margins? What's going against that makes you more cautious? Sorry. Thank you.
Morning, Barry. I'll cover the first and the second, I'll let you take the third one. With regards to Spain again, just to reiterate what I said, it was for sale. Right now it is part of our family, and we're now focusing on creating value in Spain by examples that we mentioned, partnership with Telefónica, both on the converged side, but also on the network side. I'm looking forward to, first of all, go to Spain to meet the operations. I haven't been there. To develop this further. On the data-centric models, I also reiterate what I said before. This is something that each market will have to take a look at, and judge and implement according to the local dynamics and the local competition.
What we have seen, where we have launched them is very positive, I think the customers are responding very well to the propositions that we're putting out. I think it's just confirming our views on the changing behaviors in our industry, which is also confirmed by some of our competitors joining the bandwagon. Per-Arne?
What I've tried to say is that we are operating on a very high level right now, and if you compare ourselves to other peers in the market with a similar structure, we are perhaps top. We will continue to take down the cost, but I don't think that we should try to push up the margin at any price. If it means that we need to invest for future growth, we must be able to do that as well. Therefore, it's not self-evident that we should try to push it up another percent unit. We have to balance this, and that's what Per said, that instead of just waiting that everything should continue to go up, just to continue to be at that level is challenge enough. Then we will make sure that we can balance both the cost efficiency and the growth potentials.
Okay. Wonderful. Basically you see the cost savings are likely to be invested in improving your competitiveness in markets where you might be losing market share.
Just a quick comment on that. When I talk about competitiveness, it's of course not just revenue market share, it's also our EBITDA market share and our profitability in the respective markets. What I'm saying, it's a balanced approach on competitiveness, where we need to make sure that we are long-term producing profits.
Also comment upon this, when you talk about less cost, sometimes it could mean also more. If we take an example, we have now consolidated the marketing operations in Sweden and have one organization for whole Sweden. That means that they are more coordinated, and I think that they can take out more or less money today. That is also not always automatically so that less cost will be worse. This is also a question of how efficient you are in your operations.
Yeah. Okay, wonderful. Thank you very much.
Okay.
Thank you very much. Your next question comes from Ulrich Rathe. Please ask your question.
Thanks very much. I have two questions, please. One is on Eurasia. On the margin level there, generally speaking, I do remember Tero talking at a couple of markets today about the 50% level, or above 50% not being sustainable now. You're reporting, what, 53.9% this quarter. I'm just wondering, what is your view on sustainable margins in Eurasia, sort of in the near and then in the medium term, i.e., how long can it stay that high if Tero's comments from then are still valid? My second question is on the cost-cutting. There was sort of a perception that your cost-cutting benefits would be a bit back-end loaded even in the second half, i.e., really coming through only the fourth quarter. I'm now observing the relatively good margin in the fixed business as well in the third quarter, which sort of opens two scenarios.
I suppose one is that really, these perceptions were simply wrong and the cost cuts have come through as planned in the third quarter, or that indeed there's a lot of upside coming through in the fourth quarter as these delayed cuts actually take hold. Could you sort of just shed a bit of light on that question, on the timing of this compared to your original plans? Thank you.
Okay. I'll take the first, Per-Arne will take the second. Yes, looking at the margins for this quarter, they look exceptionally strong. Remember, they are driven by a couple of very high-margin operations like Nepal and Uzbekistan, where we actually also expect different dynamics in the competition over the next year or so. I don't think those margins are sustainable, and that will also then adjust the overall margin picture for Eurasia.
Well, when it comes to the cost, I think you tend to forget that we are talking about the SEK 2 billion program, and we are now taking down SEK 1 billion. Of course, we need to have a certain run rate into the next year. If we have taken out, as we have done, 1,400 people, we will see more and more effects of that. What we have said was that, especially in broadband, they will be back and loaded and have the second half of the year effects. Of course, I'm very happy to see that it has started, and I hope to see more in the fourth quarter. Otherwise we won't reach the SEK 2.5 billion. It's as simple as that.
Let's see if there are any more questions here on the floor. Yeah, Thomas.
Thank you. Thomas Heath with Handelsbanken. 3 questions, if I may. Firstly, you're talking in Eurasia about more growth coming from mobile data. One would think that that also comes with smartphone growth and perhaps smartphone subsidies. Could you say something about what you think around that and how that's developing, if we were to expect margin pressure from more smartphones as these markets develop? Secondly, on Norway, NetCom has had some very aggressive offers during the quarter, sort of stepping away from the norm of try and contain or charge for data. Is that a slip-up by a local marketing manager, or is there something more strategic there?
Thirdly, on the group structure as a whole, the CEO predecessor talked a little bit about the complications of having mobility broadband as units rather than country-based operations, but said, "This is the business as it looks, and let's not change it just to change it." What's your impression of this organization, rather than running things on a country basis, which might seem easier? Thank you.
Thank you very much. Let's see if I remember all the questions. I'll start from the last one. It's easiest to remember. I think that's the correct observation that I also heard and during my first initial time, that it's not making life easier to deliver on the consumer behavior that is much more integrated than we are organized. Having said that, it's not just about organization, it's about how we work, the processes, et cetera. Remembering what I talked about on the slides earlier, the complexity part is something we are addressing in the program that I also mentioned about the journey ahead. Norway proposition, it was a launch for a campaign of, I think it was 20 years in the country.
20, yeah.
We're happy about the 20 years. We're not as happy necessarily about the proposition and the messages it sent to our strategic agenda. The consumers like it. It's only 20 days, and it's been removed as we speak. I don't think that is going to be a very frequent proposition in our respective markets, to put it that way.
That was a diplomatic answer.
Yeah, I'm quite diplomatic today.
Yeah.
When it comes to the Eurasia smartphone penetration, yes, it's a very low level today, and it's predominantly a prepaid market. Regardless of that, in spite of that, we're seeing strong data growth. Internet is finding its way into the hands of the people in these countries. We'll see how that moves forward, because we know that a key part of driving data is the device. We also now have the opportunity to design the propositions with the right level of subsidies to make sure that we don't create the same dependency that we have around subsidy in some of our other markets. Here we have the opportunity to learn from mature markets into the more developing areas. We'll see if we get it right now we're quite excited about the data and the internet opportunities in these countries.
Good. Should we move back to the conference call? Do we have any final questions there?
Your next question comes from Andrew Lee. Please ask your question.
Good morning. A couple of questions for Johan. I wonder if you could give us your thoughts on your Nordic operations underperformance. They've done well this quarter, but over the past year or two, they've been relatively weak. Why do you think this was, and what can you do to improve it going forward? I wondered if you could comment on the importance of Denmark to your pan-Nordic ambitions. Do you think this is a market that you could help to consolidate, either through acquisition or your access? Thank you.
Yeah. On the Denmark side, our customers want us to be in Denmark. We want to be in Denmark. We are now seeing positive trends in Danish operations, which Per-Arne highlighted. Let's build on that and see if we can get to sustainable levels also on the margins and profitability. On the overall Nordic level, I think we have some really strong-performing assets in the Nordic aspect. We also have some weaker areas. We're now digging deeper, as I said, into trying to find the answers to why we're not able to compete efficiently in some of the segments. The segments mostly exposed, as you have seen, is on the fixed and on the B2B side, where we have seen strong price pressure and erosion through very intense competition. It has also forced us to rethink the way we work, and we're now stepping up our offerings.
Sverker, who's leading the B2B initiatives, have a great team and making great progress there now.
Yeah.
Right. Next question, please.
Thank you. Your next question comes from Maurice Patrick. Please ask your question.
Hi, guys. Just a quick one, just as a follow-up on the data-centric pricing that you've obviously spoken about across all the markets, where you put it that bill revenue has gone up. Are there any particular themes that you can sort of dive into? I mean, are there certain segments that it's been appealing to? Is there some upspend, some downspend ? Is usage for these guys generally going up? If there's some sort of more color around how these things are trending, it would be great.
Yeah, I will leave that to Per-Arne because I actually don't know the details. I can just say one thing about the Swedish proposition that was just launched. It was based on insights on the first Dela product that didn't penetrate deeply and broadly enough, it got us to a market situation where we now can take the next step, and we're also including not just families, but also individuals. That's the kind of a segment shift in the way we put it out in the Swedish market. The rest, I need to sum up.
To be even more detailed about the Swedish one, we had two high price points. I mean, we have changed that to attract more customers. If you had sort of a high-priced price plan before, it was not attractive enough. That we have learned. Also learned that we need to have it for individuals, as you well said. I think basically, it's a question of price points and also the buckets. What I've seen now, the usage has gone up. It's still pretty low when, I will say, on average, if you take at least Sweden, we're talking about half a gig in usage in average. I think this will increase dramatically. I usually say when I use my phone here and while watching TV for an hour, it's one hour, one gig.
You could see yourself how much I think the volume will increase going forward.
Okay, guys. Thank you.
Thank you. Your next question comes from Laurie Fitzjohn. Please ask your question.
Thank you. One question. Johan, you mentioned that fixed is an increasingly important part of your mobile operation. In the past, Telia's strategy has not put that much weight on the benefit of fixed and mobile together, as shown by selling the Norwegian fixed asset a while ago. I'm just wondering, what are your initial thoughts on this strategic question? Thanks.
Well, thank you. I'm not going to comment on the Nordic disposal. Going forward, I think that fixed has a crucial part to play in our value chain when we are delivering on your mobile lifestyle. The high quality, high speed internet needs fixed in the value chain somewhere. Sometimes not all the way out to the consumer and the customer. Sometimes we do with fiber all the way. I think also confirmed by some of the trends that we're seeing in Europe on the consolidation. We also see that fixed will be very important in our future in our core markets. You could ask, do we need fiber everywhere? Do we need fixed in our mobile-only operations? An example of that is Spain, where we now at least make sure that we can offer a converged offering in fixed and mobile.
What that leads to in the respective markets, we will have to come back to. Generally speaking, fixed and fiber are very important components of our future.
Thanks. Thank you.
Okay.
Thank you. We have no further questions at this time. Please continue.
That's perfect because that's exactly one hour. Many thanks. Conclude.
Okay. Thank you.