Good morning. Welcome to this press conference for our third quarter results. I'm Cecilia Edström, Head of Group Communications. Andreas Ekström, our Head of IR, will moderate this conference as usual. I'd like to go through some practicalities before we start, because we have a lot of attention today. You're all very welcome, and we will try to cater to as many questions as possible. In the interest of keeping the time, Lars Nyberg will start by analyzing the quarter. Per-Arne Blomquist will follow with a run-through of the numbers. There will be about half an hour after the presentation to put questions. Because there's such a huge interest, I would kindly ask you to limit your questions to one at a time. We will take questions both from here in the room and over the web.
When you do get a nod from Andreas that you can put your question, please state your name and the organization that you are representing. After the press conference, we have scheduled a number of interviews. Because of the intense demand for interviews, we will not be able to cater for any more which haven't put up their requests already. We will take interviews for those who have scheduled them beforehand. With that, I would now like to hand over to Lars Nyberg for an analysis of the quarter. Could I kindly ask everybody to sit down or take pictures from the back so that we don't disturb the web conference? Welcome.
Good morning. Thank you and welcome. I like to deal straight away with the issues that have generated considerable media attention lately. The allegations directed at TeliaSonera about our operation in Uzbekistan are very serious. Let me state clearly, there is zero tolerance of corruption and bribery at TeliaSonera. This is extremely important to me personally and something we pay attention to every single day. I have said it before and I will repeat it. TeliaSonera did not bribe anyone. TeliaSonera did not participate in money laundering. Five years ago, we invested in a license in Uzbekistan to provide telecom services. Why did we do that? A key reason was to create growth and generate value for our shareholders. Not just that. At TeliaSonera, we believe that telecommunication is a force of good.
Anyone who has watched the extraordinary developments during the Arab Spring must be aware of this. It's an undeniable fact that modern telecommunications speed up a country's long journey towards democracy. It's also undeniable that telecommunications helps eradicate human rights abuses. We believe that our presence in Central Asia contributes to the advancement of democracy and human rights in the long term. I will not make any further comments or answer any questions regarding Uzbekistan. There are two ongoing investigations, one initiated by the board and another one by the prosecutor. We now have to wait for their conclusion. In the meantime, we will cooperate with them and answer all their questions. I would now like to talk about some other recent allegations in Swedish media surrounding our operations in Nepal. I want to make it absolutely clear that the story in last week was wrong. Actually wrong.
claims that TeliaSonera acquired its operation in Nepal from Niraj Govinda Shrestha or a company controlled by him. We did not. Mr. Shrestha was a shareholder and chairman of the board of Spice Nepal until April 2006, at which time he sold the holding, left the board, and departed the company. TeliaSonera acquired its controlling stake in Spice Nepal or Ncell, as we now call it, in October 2008. That is two years after Mr. Shrestha left the company. Now that I clarified this, I'd like to tell a completely different story, a much more important story. Nepal is a great example of what telecommunication can do to help a country to develop. I have been to Nepal six times in the last four years. When I go there, I have two objectives: to meet our employees and to meet the politicians.
We took the decision to invest in Nepal, we took a major risk politically. The country was in a period of major political change, aiming to build a true democracy after a seven-year period of civil war. Nepal is one of the poorest countries in the world, with a population of about 30 million people. The country lacks basic infrastructure for electricity, leading to power cuts of up to 16 hours a day. At the same time, there is substantial potential in the country in form of hydroelectric power waiting to be utilized. In order to develop its resources, the country desperately needs expertise and foreign investment. This will not happen without the reliable telecommunication network. That's where we come in. Since TeliaSonera acquired Ncell, mobile coverage in Nepal has increased from 40% to 90% of the population.
Don't forget, it's a country with very big mountains, so technically it's difficult. At the same time, more than 60% of the Nepalese are now using a mobile phone every day. It also turned out to be a great investment for us. We generate an annual return on capital of 30%. For us, it's not just about business. Every year, hundreds of thousands of Nepalese leave the country in pursue of a better life elsewhere. Too many find themselves victim of human trafficking or appalling working conditions. TeliaSonera is creating opportunities for these people at home in Nepal. Ncell is now directly providing jobs for 1,500 people, creating job opportunities for tens of thousands more through sales channels, construction sites, et cetera. We are regarded as one of, if not the most attractive employer in the country. Why?
We allow collective bargaining in a country known for frequent strikes. I don't think we have strikes at Ncell for years. We provide extensive training of our employees where basic schooling is insufficient. We have introduced our group-wide performance management system by setting targets, evaluating performance, identifying personal development needs, and plans for all employees in Nepal. In addition to developing our own business and staff, we also want to contribute to Nepal in a broader sense. Nearly half of the children have no access to primary schooling. Therefore, we made education supporting children a priority. We invest in projects that reconstruct primary and secondary schools and providing learning materials and access to internet in remote and poor areas. This year, more than 11,000 children will be supported by Ncell. Similar examples can be found in every country where we invest.
This is what it means when TeliaSonera invest in a poor country. I hope this helps you understand that the picture being painted of TeliaSonera in media today is not the company I lead and work for. It's a very different company that I work for, and a company that I'm very proud of. Recent events have highlighted not only our largest shareholder, but also our customers, employees, and other shareholders have very high expectation of us. They're absolutely right to do so, and we will meet their expectations. I will spend some time on the reason why we are here to talk then about the third quarter. I think the third quarter came in roughly as we had expected, as the analyst had expected. We are a flat revenue. We are down a bit on the EBITDA. Earnings per share is SEK 1 less than last year.
No big surprise, I think. This is the issue. We have an issue of not enough growth, and this is not a TeliaSonera issue. This is an industry issue. We continue to see growth in Eurasia, what we call the growth engine of our company. Broadband continues to have declines, not bigger or smaller than before. The big change is mobility. This is not a surprise. This is something we have seen coming for a couple of quarters. This has to do with the fact that voice is declining and the industry is not capable so far of monetizing on the extraordinary explosion of data traffic in our networks. We have a change situation in mobility. Mobility has for two decades enjoyed annual impressive growth rates. My prediction, which I said already two quarters ago, is that those growth rates will disappear.
We will see a flat kind of industry for at least a couple of years till we are able, in a better way, to monetize on the growth of the data traffic. The demand is there, people love our services, and they use more and more. That's not the issue. The issue is how quickly can we change the business model? This shows billed revenue, including and excluding Spain. Billed revenue is voice, SMS, and data. That's our business. Selling phones, equipment is not our business. We don't make any money. Here's where we make the money. Again, monetizing on the explosion of the data traffic is the challenge for the industry. I felt that TeliaSonera was not making enough progress, both on the cost side and on this issue of changing the business model.
Therefore, I decided some time ago to change the leadership and put the best person I have worked with to see if he can help us change the picture. I have been critical of our customer service over the years, and I now see Malin, who is running the Broadband Services, being successful, making real progress in our customer support organization. This is a reduction of unwanted calls. Unwanted calls is a call that the customer has all the right to make, but if we would have done it correctly, he or she wouldn't have made the call. It's mainly driven by actually investing a lot of money in this organization initially. We have increased the number of employees in the customer support organization in Sweden by 400 people. We have reduced the calls by 600,000.
As we now get our processes better, I think long-term, we will even be able to save money in this customer organization. The first priority is to have a better experience for our customers, and second is, what does it cost us? Yes, Eurasia is our growth engine, 12% in the quarter. We have now surpassed 40 million subscribers in this part of the world. Cost. We did announce some measures on the cost side. When the industry has no growth, and our industry seems to have no growth in the coming couple of years, and your costs go up by 3% a year, your salary cost goes up or whatever, you have to do something. You have to reduce costs. I think we have shown over the past five years, skills in being able to manage costs.
As you can see on this picture, the growth of sales has always been higher than the growth of the cost. Per-Arne will show you that in the third quarter, we don't have that relationship in the third quarter. We started already actually a couple of months ago, before the summer, thinking about, are we really doing the things in the right way in this company? We have changed a lot in the past five years. Where we have changed the least actually is in the network management, in the product management. In those areas, we have changed the least. And I think we need to really think through how big portfolios of products are we going to have? How complicated networks are we going to have?
Do we need to have all those things that we have today, things that are important for the customer? I am convinced we are spending money that actually are not that important for the customer. So this is not a top-down, I want 2,000 people. That's not the issue. We have worked in eight work streams, and we have identified a number of areas we think we can improve. Based on that, Per-Arne and I have said, we think over two years, we can save SEK 2 billion. That's the most important for me first. Then I knew you would ask me what does it mean in number of employees. So instead of waiting for your question, we decided to give you an estimate. This is an estimate across the whole group.
This is not Sweden or Finland, this is the whole group, and we have 29,000 people in the group, so it's about 7%. We don't know exactly where, we don't know exactly when, except that it has to happen during next year and the year after. We are working since, I said, a couple of months, and we will continue to do that work. As we know, we will get into the normal procedures with our labor unions and discussions, and we will inform you in the appropriate timeframe. This is what I talked about. Sorry, I missed that one. We have the same outlook as we had last quarter. I think I'll leave it there to Per-Arne.
Thank you, Lars. As Lars said, we had a weaker quarter, the third quarter, as we have seen in the 2 previous quarters. Flattish top line and also increased cost. If you look at the first 9 months, we have a somewhat better balance. Top line is increasing with 1%, the same time costs are flattish. Given that we have had a margin compression, gross margin compression, our EBITDA margin is actually going down. You could see we are going down from 36% to 34.8%. That also hits our earnings per share, somewhat down, cash flow is strong. Also, if we take away the proceeds that we have got from MegaFon, we are actually increasing our cash flow, which I think is a strength in this environment right now. Lars highlighted the issues we have with the top-line reduction, especially within mobility.
Today, the group has, I would say, a rather stable top-line growth in Eurasia with 12%, very rather stable when it comes to broadband, -2% or -3%, we have seen the decline within. As Lars said, this is an industry phenomenon, we have enjoyed a pretty good ride compared to the rest of the industry in Europe during the last quarters. It's not all entities that are doing bad within mobility. We could see that Spain is growing, what we call the billed revenues, with 16%. Billed revenues include voice, messaging, and data. Spain has also taken in more than 250,000 customers, or subscribers, rather say, in the third quarter. Most of these are post-paid, and they're actually growing their business. Sweden, still growing, I will come back to more details around their billed revenue. Meanwhile, other entities are going down with 8%.
Given that they have a pretty high growth on the data side, that means that they have severe compression on the voice side. I would consider that in some markets, we are looking at 5%-10% in downturn on voice. Sweden, that sort of sticks out in this more mature markets, has increased the billed revenue with 1%. It doesn't mean that everything is turning upwards. We have now seen the last 3 quarters of the voice is going down with 3%, 4%, it cannot be offset by the volume growth from data. It's actually increasing with 11% in Sweden, that turns out to be 1% in billed revenue. That is lower than the last quarter where we had an increase in with 2%.
We have also seen interconnection reductions, there's more to come, I would say, in the first quarter next year, that also hits the top line for mobility. It's more neutral for the group. When it comes to broadband, we see that our IP-based services are actually increasing compared to the traditional side. 52% is today IP-based, 48% is traditional. The downturn in PSTN, the old telephony, is more or less at the same pace as before, down with 13% compared to 12% in the previous quarters. At the same time, we're actually adding new customers within VoIP, within TV, also within the fixed broadband. We have today 560,000 TV customers in Sweden and around 1.3 million in our whole region. We also continue to roll out fiber, which is a base for future IP-based services, we have today 536 connected customers in Sweden.
I hope after the problems we have had with the rollout of fiber, that we have now a new setup that could also speed up the rollout of fiber, which is the future of the carrier over the data. Eurasia, as I said, growing 12%. I think I'm satisfied with having the better balance today, where we have four different countries contributing to our growth. Ucell, close to 60%, very much connected to the fact that MTS has a problem, and we have taken over their customers. Kcell continue to grow in a good way, and they have added on roughly 500,000 customers in the last quarter. Azercell, Ucell is also growing. I think it's a good structure because if you look here, the biggest entity, Beeline, is actually going down with 1%, and still we are delivering growth on top line.
Looking more at the different parts of results. We talked about gross margin before. We have seen a gross margin compression. It has stabilized in the third quarter, also similar to the second quarter. Pressure in mobility, given that we are taking on the build revenue, it hits our gross margin severely. It's compensated by better gross margin in Eurasia, especially when it comes to Nepal and also Azerbaijan. The cost base that I have also talked about and touched upon is actually going up upwards. We have been pretty good during the last years to take down the cost. We now see that the addressable cost base, the OpEx, is going up slightly. It's connected to, I would say, a bit unfortunate mix right now within the different business areas.
Eurasia had decided to spend more on the cost side at the latter part of this year, which they have started to do. If you look at Eurasia from a non-month perspective, they have a pretty good balance. 12% growth top line, 8% cost, but the phasing is somewhat different. Given now that broadband is not taking out cost as quick as they should have done, and also that mobility services are actually increasing cost, we need to do something around the cost side. You could also see that on the margin development. We are down to 35.8% in the quarter, and we see margin compression in actually all different business areas. Mobility is going down from 32.1%-29.3%. Broadband from 34.1%-33.3%, and Eurasia from 51% and up to 50.3%.
That is the reason why we now have announced a cost reduction program where we need to take out cost to restore and defend our margins. Coming into the end of this presentation, our associates companies are contributing more this quarter, SEK 250 million more, based on better underlying business, both in Turkcell and also in Russia. We have no negative one-offs from Turkcell this year as we have last year. Meanwhile, the contribution from MegaFon is somewhat lower. First of all, we have sold out roughly 10% of the company, but they are also affected by a higher leverage in the company given the new structure that they have. The contribution all for the time being lower. Overall, I think we should be satisfied with the associates. Earnings per share, rather flattish. The weaker operational performance in our own operations are partly compensated by associated companies.
FX and net financial transactions are compensated by taxes and also minorities. We have the biggest change which is in the working capital, which is on the next page. Sorry. I'll get to that later on. CapEx is in line with, I would say, last year, somewhat lower than last year, SEK 200 million lower. We continue to invest. We have less of a spectrum this quarter, but we continue to roll out and try to cover more of the country and also roll out the fiber. I said before that the fiber is important, and we continue to invest heavily here in Sweden. Now I'm back to the cash flow. I thought I'd talk about the working capital. As you can see, cash flow is roughly at SEK 4 billion, which I think is a stable cash flow.
We had downturns on EBITDA, as you saw in the beginning. The main part here is the working capital. We had effects from Norway, where we had to pay some of our vendors a bit early due to changes in the systems, and we have also had some sales in Spain that has affected us. Stable cash flow also in this quarter. Net debt-to-EBITDA. There's a lot of questions around this, where we have got question, what should we do with the proceeds from IPO in both MegaFon and potentially also in Kcell. We have said that de-leveraging is the first priority to keep the net debt-to-EBITDA within our level of 1.5-2. That is the main focus we have right now. Finally, stable earnings per share in this quarter. We have revenues at the same level as last year.
We need to restore the balance between sales and OpEx. We have had a strong subscriber intake, both in Eurasia, but also within mobility services, and we continue to work with our assets. MegaFon, now, intention to float, way to go, and we're preparing also for the IPO within Kcell.
Thank you, Per-Arne. I will also invite Lars back to the podium. My name is Andreas Ekström, Head of Investor Relations. I will guide you through this Q&A session. A lot of people here, of course, and a good number of people dialing in over the phone or listening via the web, so we will try to answer all your questions. If we don't have time with everyone, me and my team will stand by and answer your questions after the press conference. The same thing goes for my colleagues in the press team. We will start with a few questions here on the floor. Please state your name and where you're coming from. A familiar face in the first row. Andreas.
Good morning. Andreas Olsson, SEB Enskilda. Two questions. First, if you can share some thoughts on how to break this trend within mobility services and how to monetize on data. Secondly, for Per-Arne, on the net debt-to-EBITDA side, it is not easy to get hold of money these days, but the bond market is quite favorable. Can you elaborate a little bit on why you should be in the range 1.5 to 2 times EBITDA on the net debt?
Let me start. I think it is a conceptual acceptance that I think we have some difficulties with inside our own company. We have been for 100 years providing voice services. Voice service is the best thing since sliced bread. Actually, voice services is becoming always cheaper and cheaper. You could even go as far as go to a flat fee for voice services. That is exactly what is happening in the U.S. with Verizon and AT&T. Comes the issue, if you have an explosion of data traffic in your network, and you come from flat fee, at least we do not have flat fees, but there is got to be a higher correlation between if you use double as much capacity in our network, you have to pay at least a little bit more. I think the buckets are too big. I think there are too few buckets.
I think the top-up function, the ability to buy more capacity is not ready. There is a lot of things that have to happen. I am pretty sure that we are going to succeed. I think the whole industry will succeed.
Per-Arne?
Yes, when it comes to the range 1.5 to 2, I think that one of the reasons why we have been able to access the market is that we have had a very high rating. We have one of the highest rating within the telecom industry. If you do not need the money, it is easier actually to access the money. I think that for us, it has been a good thing to have this range. We are one of the lowest leverage companies when it comes to telecom in Europe right now. I think we will keep like this, because that will help us to get access to the bond market. It is also very true that you never know. Now it is a very open market. It could also close.
I've also seen the bond market where it has been closed for a while, and we have decided not to put ourselves under pressure at any point in time when it comes to accessing the money market.
Thank you, Andreas. A lot of people, a few questions from the floor. That means that we leave over to the conference call. Operator, please, can we have the first question?
Thank you. Your first question comes from the line of Laurie Fitzjohn. Please go ahead.
Thank you. It's Laurie Fitzjohn, Citigroup. One question just on the EBITDA guidance. The guidance now implies similar margin in Q4 as you delivered in Q3. Historically, Q4 has been a seasonally lower quarter. I just wanted to recheck, is there a reason for different seasonality, or are we looking at more a full-year margin just below the 35% guidance? Thank you.
Yeah, we will probably be slightly below the 35, we have also said we should be around the 35, whether it's 35.6 or 34.6, 34.7, we will see. Eventually, we are talking very, very small numbers on the whole year basis. We're talking about SEK 36 billion in EBITDA. It's a difference of perhaps SEK 100 million, SEK 200 million.
Thank you.
Thank you, Laurie. Operator, can we have the next question, please?
Your next question comes from the line of Andrew Lee. Please go ahead.
Morning, everyone. Thanks for taking my question. It's on Swedish mobile growth, which has steadily declined over the last few quarters from 5% growth current quarter, go to flat this quarter. Some of it's been consumer competition. More recently, it's been corporate. Given your comments on mobile on the call today, and the significant outperformance of Swedish mobile over the last few years in a market that's not so different than others in Europe, should we expect a period of top-line declines in Swedish mobile over the next year or so? Thank you.
Let me start. Maybe you want to add something. Yeah, I think it's the corporate segment that we are seeing the most headwind in to start with. I think what we have seen in growth rates for the past five years in Swedish mobile has been exceptional. I have been saying many times that this cannot go on like this, and finally I was right. I think the growth coming in the future will be based on or dependent on our ability to change the business model, as I talked about a couple of minutes ago. I think the traffic today in our network, probably like 90% of the traffic is data traffic, and only 10% is voice. Our ability to monetize on that traffic growth, you saw one of the pictures I showed you was 89% growth of the traffic.
Our ability as an industry to monetize on that growth is going to determine whether we get growth or not.
Just adding on to this, I mean, I have enjoyed sort of specific ride here in Sweden where we had a transition from fixed voice into mobile voice for a while, and that has sort of supported the data growth in Sweden, where voice has been actually increasing given the last, I would say, 10, 15 quarters. Today, it's actually declining. What Carl-Henric saying here, that means that it gets more and more important that they monetize the data side to get up the growth again. That will decide how successful we will be.
Thank you. Sorry, just a quick follow-up. Sorry, Andreas. Are you going to need to invest to try and capture the benefits of data in the Nordics and specifically Sweden? We had Telenor state that they're going to require 15% CapEx to sales by 2015. Are we going to see you need to do that to change the model, as you put it?
No, I don't think so. If you look at the mobile business today, it's 10% and even below that on CapEx to sales. In that, I have included also the 4G rollout. I think it's a question of being much more efficient and make sure you take the right business decision where you would like to invest rather than automatically go up to the 15%.
Thank you.
I just wanted to remind you, Andrew, and for all the other analysts out there, that there is another interconnect rate cut on the 1st of January in the Swedish market. Don't forget about that.
We had also
1st of July.
1st of July, of course, yeah.
Thank you, Andrew Lee from Goldman Sachs. Next question, operator.
Your next question comes from the line of Maurice Patrick. Please go ahead.
Hi, guys. Maurice from Barclays. On cost-cutting, I'm sure it's too early to give hard details of your plans there, but you have said in the past that your cost-cutting had been top-down. In the future, it had been more bottom-up in terms of driving costs with a cultural shift. Has that changed, or how are you thinking about that? Thank you.
That's my question. This has changed. As I said initially, we started a couple of months ago, analyzing how does the mobile technology organization work as those people who manage the whole mobile infrastructure and also the broadband infrastructure. There are thousands of people working there. We have gone through the product portfolio. We have in history at TeliaSonera, and I think it's true for other operators too, we don't weed out our product quickly enough. We hang on to every product for years and maybe even 10 and 15 years. Every product that we have in our catalog drives costs, significant costs, whether it's platform or people, whatever it is. We started, we have hired some talented product managers about a year and a half ago with exactly this purpose, to get a better management of our product portfolio.
At the same time, I'm saying I don't think we have a product portfolio at TeliaSonera that is as good as it should be. We are the biggest player in this market, in many other markets. We should have a portfolio second to none, and we don't, unfortunately. We spend tons of money on it, and we still don't have it. There is something that can be improved significantly. If the business is going to be flat for three years or two years or whatever, and our cost goes up to 3% every year, we'll have to save money somewhere. This time is not the top-down. This time, we're going to make some fundamental changes in how we run the business. As I said, we have made many fundamental changes in this company.
The areas where we have made very, have at least success in changing is the core of the company. How do we manage the network, how do we invest in the networks, how do we maintain the networks, and how do we manage the portfolio? That is two of the areas of the eight that we talk about. I feel convinced that we can change the way we operate and therefore reduce cost.
Got it. Thank you.
Thank you. Thank you, Maurice. I see that we have a question here. We will return back shortly to the conference call, but in the meantime, a question from the gentleman on the second row.
Hans Eriksson, Dagens Nyheter. When will you know how many jobs that will be cut here in Sweden? What parts of the Swedish organization are you looking at in this process?
We look at the whole organization, and of course, not only in Sweden, we look at the whole group. As soon as possible, Hans, is my answer, because I understand that when you announce something like this, you create uncertainty, and that's the last thing you want. At the same time, we have to be transparent when we do this work. We have to tell the people because we are now involved hundreds of people in these discussions on how we operate in this company. A couple of months is my guess it will take at least.
Thank you, Hans. You can give the microphone to Pia next to you.
Hello, this is Pia Gripenberg from Dagens Nyheter. You said that TeliaSonera is spending money on the things that not necessarily asked by the customer. Can you be more specific? What will you not do in the future?
Well, let me give you an example, Pia. Let's assume we have a product that is eight years old, and we have eight customers on it. Maybe we should think about could we offer those eight customers another product, so we could cut that whole platform and the whole development. That's an example what I'm talking about. We haven't had that discussion, I don't think it's unique to TeliaSonera. I think it is a typical telecom kind of thing, because we're all coming from the incumbent days. We have enjoyed growth for 20 years. I have worked in industries where we have no growth normally, and I can tell you it's a big difference to manage an organization with no growth compared to one with 8% growth. With 8% growth, you can make lots of mistakes, and you will see nothing of it.
You make a mistake at 0% growth, every mistake will show up. We need to change the way we do things here in Telia. Not because we are bad. Our industry is changing. Voice is not growing, the industry has not so far been able to monetize the data explosion, which is a fantastic thing. I would be much more worried if customers said, "I don't want your service, Telia. I don't want to use your service." People love our services.
Maybe we also need to redirect our investment to newer products and take away the old ones that are taking up money that we could spend on more forward-leaning products today. We are spending too much on the old mature market, I would say.
Yes.
Thank you, Pia. We go back to the conference call. Operator, please.
Your next question comes from the line of Jacob Luz Stone. Please go ahead.
Hi there. Just a question on Finland. You've obviously put a new management team in place there, I was just wondering if you could maybe give us a little bit of an update on how the turnaround is going with the business. Thanks.
Well, we have Robert there now as the head of Sonera. The problem is that we didn't have a head of Sonera in Finland, and we have the same kind of setup as we have in Sweden, both a strong broadband and a mobility business. In most other countries, we only have mobility. It was apparent that we needed a leader in Finland for the Sonera organization. I think the reception has been extremely positive. We have even some facts that can prove that, convince ourselves that Robert has started very well. Of course, he has also the challenge that we have to reduce cost. Finland is not excluded from this activity. Robert will have to both brake and put the pedal to the metal, because we have lost market share in Finland for a number of years now, and that got to stop.
Okay, thanks.
Thank you.
That's great.
Thank you, Jacob. Next question from the conference call, operator, please.
Your next question comes from the line of Ulrich Rathe. Please go ahead.
Yeah, thanks very much. My first question is on Swedish fixed. I understand in the third quarter, you had unusually high cost because you worked through the fiber backlog. I was wondering to what extent that is through now, to what extent really that relatively high implied margin in the fourth quarter that Laurie was talking about really may be explained by that, or whether it's too small effect to really see it. The other question I have is on Swedish mobile. Again, back to this issue of some more competition in the corporate segment. I was wondering, can you give us some indication of how the price levels in the corporate segment look relative to the consumer segment in Sweden at this point?
Do you think there's sort of an unusually high price point there that might give Tele2 and Three the opportunity to attack more aggressively there, or is it just a different issue? Thank you.
Well, I can take the second question. I think prices in the corporate segment has been under pressure for a number of quarters, particularly voice prices, but also data prices. I think that's one reason. The other reason is, I think many of our corporate clients are concerned about their own business and are very careful. It's a combination of high price competition on particularly voice, but also data. I think a cautiousness in the segment to invest.
Regarding the margin in broadband, yes, we have worked on the backlog. That's correct, and I think that will help in the fourth quarter. We have also increased the cost for customer care, which has hit in the third quarter. Might be slightly lower. Of course, it's a challenge to keep up the margin that we need to have in the fourth quarter, and we have initiated some initiatives to make sure that we could reach that. It's not a walk in the park.
Thank you.
Thank you, Ulrich. Next question, operator, please.
Your next question comes from Peter Nielsen. Please go ahead.
Thank you very much. Two questions, please. First one, Lars. You talked about network management and some efficiencies to potentially be gained here. Last year at the Capital Markets Day, you outlined a plan for a move towards one common network management center. Just how far have you come in that process, and do you see some savings being realized here or efficiencies? Do you potentially see further network sharing, of course, as you are in line with your comments on perhaps improving efficiencies in your network management side of the business? The second quick question relating to Turkcell, please. We're awaiting the U.K. Privy Council Court ruling. Our latest update was a decision is expected by December, January. Is that, as far as you know, still the time horizon we're looking at? Thank you.
Yes, it is. December, January. I think on the multi-market operation, I think it's going slower than I had hoped, and actually it's going slower than we planned. That's also a reason why I made some changes in the mobility management, because We are getting under pressure, and we have seen this coming for at least a year. We need to speed up, both on cost in general, but particularly on cost of goods sold, which is driven very much by our network, whether they are in Sweden or they are in other countries.
I want to come to the network in Denmark. We have already said that the first, I would say, two years will not give us so much lower OpEx. It will be lower on the CapEx side, but it takes time to dismantle some of the networks. That will be seen later.
Okay. Thank you.
Thank you, Peter. No questions from the floor. We have a question from the gentleman in the back. Thank you.
Thank you. Kari Lumikero. I work for MTV3 Finland as correspondent here in Stockholm. There has already been a furious reaction in Helsinki concerning your plans to get rid of people. The question is, why do you have to, again, kick out people although the company is profitable? Secondly, can you say something about the details concerning Finland?
As I said, we cannot say or talk about details in any country. You see, when you have an industry that is growing every year for two decades, life is pretty good. If the industry stops growing and the salary goes up 3% every year, you go save that money elsewhere then. I think it's not an issue of TeliaSonera. This is an industry challenge, that the industry doesn't see the growth coming any longer, for a couple of years, at least. Then that's the reaction, or this is the result you get, unfortunately.
I think we have a question from Mikael here.
Yeah. Hi, Mikael Törnvall at Dagens Industri. Just to understand, when you're talking about getting more money from data, you can obviously not grow by getting more customers because everyone already has at least one SIM card. Do you expect to grow market share, or do you expect to create growth from actually getting more money from each customer? Then how much, approximately, so basically how much more should we expect our phone bill to increase?
I think your phone bill will go down or has been going down for years now. I expect actually the voice part, Mikael, on the bill will continue to go down. Actually, I think we will have a flat fee for voice, like they have in the U.S. The issue is, how much do you pay for data? If next year you use double the amount of data you used this year, are you going to pay anything more for that, or is that for free? The logic is you have to pay something extra if you use twice as much data next year as compared to this year. That is what I mean when I say I have to monetize the growth in data. The growth is there. The demand is there.
I've been saying so many times, the appetite for band is unlimited, and I believe it is. The question is, as you use more, are you going to pay a bit more? I think we have to.
how much is bit?
Well, I'd be happy if I could just maintain the ARPU. ARPU is coming down. Average revenue per user is coming down. If you just continue, Mikael, to pay what you paid last year, I'd be happy.
Clear answer. We leave it back to the conference call operator, please.
Your next question comes from Erik Pettersson. Please go ahead.
Thank you. I have two questions. Firstly, on Swedish Mobile, it seems that with the iPhone 5, you have with your Halebop brand taking a more or less price-leading position in the market. I know your competitors and also the distributors are quite surprised by this. Could you explain a little bit what the strategy is? Is it temporary, or will you revert back to a sort of inline price position there later? Secondly, Kazakhstan, you had a very good net intake, and Tele2 has had also very good net intake for a couple of quarters. It seems like penetration is going through the roof, more or less. Is there a lot of multiple SIMs now in the market? What are you reading through the market situation there? Will there be a backlash on subscriptions? Thank you.
Let me start with the first question, more of a principle statement. I'm not aware of price points in Halebop, unfortunately. The brand Telia is the leader in this market, and therefore we have a special responsibility. When we had a price war in the spring, we did not participate because we are the leader. That's my principle position. I don't know if Andreas knows some more details about the iPhone Halebop price levels.
There are a lot of speculations about price war and who is blaming who and leading that price war. I think that I did a screening a month ago or something, and the difference between the highest price and the lowest price on the fighting brands was about EUR 1, I don't think it's a major difference between the brands. On Kazakhstan and the subscription, Per-Arne, do you want to take that?
Yes, I think, Peth, you're probably right. We are now seeing, given the new entrants into the market, that they are really good customer penetration up here, and this is, I would say, is the fact that we have multi-SIM cards in this market. Also getting more and more data phones, et cetera. I think it does increase, but it's not giving us so much revenue, actually. It's more that we are actually increasing the number of subscribers. We will see how long this will last.
Thank you.
Thank you, Erik. Next question, please.
Your next question comes from Lena Österberg. Please go ahead.
Yes, I just have one question. I'm wondering a little bit, you're saying that your priority is to take down leverage when it comes to the cash that you're getting from MegaFon and Kcell.
If we just take that cash and add it on to your current net debt, you would be at 1.5, and that's before even having the Q4 cash flow and the cash flow you will get in Q1 before you start to pay out your dividends. Therefore, I'm curious on why you can't say anything more on any potential extraordinary dividend or share buyback.
I think we'll stick to what we said. Let's see that we have the money in the bank account before we start to talk about this, and then we will see. I think if we go back, Lena, and look at our previous track record, if we have excess cash, we have returned to the shareholders.
You don't aim to go below the 1.5 times, right?
No. We keep the range. If we should go below that, then there should be a different reason, then we will tell you why, in that case.
Okay. Thank you.
Thank you. Next question from the conference call. We have a few minutes still.
Your next question comes from Barry Zeitoune. Please go ahead.
Hi. Good morning, gentlemen. It's Barry Zeitoune from Berenberg. I've just got a couple of questions. It's clear that you're trying to reinvigorate your EBITDA growth by cutting costs, but I was wondering, have you given any thought to reinvigorating the top line growth and whether you would consider any external M&A in doing that? My second question is on Swedish Mobile and the developments in the corporate segment. My understanding is that the corporate segment makes up about half your Swedish Mobile business. In Denmark, we've seen declines starting in the public sector, then feeding through more into the private sector. I was just wondering really, on that curve where you are you starting to see declines now in the public sector? Should we expect further decline in the private sector to follow?
Would you say you're quite far along that curve already? Thank you.
Well, it's right that you see the same sign in Sweden some time ago that the public sector started declining and the price pressure is the highest in the public sector. I don't think there's any other parallel with Denmark. Our position in Denmark is very different from our position in Sweden. We are the number three player. The only market we are not number one or number two. Here we are clearly the number one player. I think the parallel with Denmark is very dangerous to draw.
I would also say that we are seeing price pressure in the private sector as well, not only the public.
It started in the public.
It started, but then it spilled over to the private sector as well.
What's the first question on the M&A?
You can't grow your top line only with M&A. You have to do something with the price model. I think it won't be helped by M&A activities. We need to do something with our models when it comes to data pricing.
Would you not consider more of an emerging market exposure within your current mix? Because it's clear that Eurasia is providing excellent growth while the European parts of the business are lagging. Are there ways that you would consider increasing your exposure further east to boost top line growth on an underlying basis?
I have said since I started here, and as late as yesterday, the board confirmed that Eurasia is a very important part of our business. In five years that I've been here, we made one decision to move into one country. It's not an easy task to, one, find a market, find an opportunity, and then now be convinced that you can do business there in an ethical, acceptable way. It's not easy. I've been open about one opportunity, and I want to underline, and I'm using it as an example. I'm not about to announce that we're going to go into Burma or Myanmar, depending which naming you prefer. It is an opportunity. It's a virgin country. The political situation has changed quite dramatically in the last 12 to 18 months. Two years ago, would have been impossible.
Today, maybe still impossible, but we are looking at it. It will take us a year to come to the conclusion, and then it will take another two years of building up a network in a country like that. We went into Nepal four years ago, and we have invested heavily over four years and been extremely successful, much more successful than we had in our business case. You can't assume that it goes that fast as it did in Nepal. To have a 30% return on capital after four years is nearly unbelievable.
Okay. Thanks very much, gentlemen.
Thanks, Barry. Was there a question from call here? Yeah.
Call to the Just Denmark is apparently still a struggle, and there it is falling despite cost cuts. Just curious to hear what your considerations are strategically.
Well, there are many. No, emotionally, Denmark's important to us. It's part of the whole market. On the other hand, the results are unbearable. We got to improve the results. Now, one way is to share. That's why we shared the network with Telenor . It's the one way to get the cost down, or at least to get the results to improve. I think we have to accept that we will never have the results in Denmark that we have in Sweden, particularly not in Sweden, but also not in Finland or in Norway. Can we live with that? Yes, but we can't live with these results. Now we have no return, and that is unacceptable. Now, I know what the next question is going to be. Yes, it is on the radar screen as a possibility.
It would be stupid to say we never think about it. Of course, we think about all the alternatives, but I'm not willing to give up yet.
The divestment or an acquisition?
You can do different things. You can do different things. You can either sell or buy or merge or whatever. There are different alternatives, and we will see. I'm not willing to give up yet.
Thank you, Carl. We have two more questions on the conference call. Let's finish them off before closing here. Operator.
Thank you. Your next question comes from Sasu Ristimäki. Please go ahead.
Yeah. Two questions on the cost savings, please. Firstly, the initial or obvious savings measures that comes to mind generally reflect or relate to the legacy fixed line network, whereas the structural revenue problem that you highlight is very much mobile-ish commitment. Do you see any kind of problem with that, or how does this translate into markets where you only have mobile operations? Secondly, can you just shed a bit of light on your thinking of OpEx versus CapEx in terms of do you see an attractive offset of reducing operating expenditure by maybe spending a little bit more on investments in some part of the business than some?
Well, let me start with the first one. I think because of the market situation for broadband over the past three, four years, they have worked more on their cost side than mobility has. Mobility has enjoyed two decades of growth, and taken out relatively little cost over the years I've been here. Both of them will have to participate in this because broadband has a much more complicated product portfolio and technical infrastructure. Much more complicated than mobility. Therefore, broadband is an important contributor if we're going to be successful in reducing cost. Mobility hasn't historically reduced much cost, and therefore they have also an important role to play to achieve these SEK 2 billion over two years.
If I understood, your last question was whether we were prepared to redirect and reduce CapEx. Should I understand?
More on the idea of will you be prepared to actually increase CapEx to achieve OpEx reductions as a consequence?
Sometimes you need to do that, overall we can't afford ourselves to go up very much on the CapEx. I mean, that's a cash flow issue, and I think it's more a question of giving the right priorities and redirect it into areas where we'll benefit from the investments, rather than we just pouring in money on old stuff.
Okay. Thank you.
Thank you, Sasu Ristimäki. The last question, please. Operator.
Your next question comes from Akhil Dattani. Please go ahead.
Yeah. Hi, good morning. It's Akhil Dattani from JP Morgan. Just two questions, please. Firstly, on Spain. I just wondered if you could maybe just provide a bit of color on how you're thinking about that business going forward. Just in the context of your points earlier on the difficulty generating growth at the group level at the moment. I guess at the moment, Spain is performing pretty well. So how do you think about the merits of keeping that operation, continue to trying to grow it versus potentially seeking a disposal next year? Then secondly, on working capital. I think in the last quarter, you were highlighting the attempts you're making to try and improve the working capital outflows that you've been incurring the last couple of years.
I appreciate Q3 has got some very specific one-off issues. I just wondered if you could give a broad update on your thoughts on working capital going forward, and how confident you are you can stabilize that number into next year. Thank you.
Lars, let's start with Yoigo.
Well, I thought it was pretty well known that we have the intention of divesting Yoigo. They are performing reasonably well. Yes, good for them, good for the buyer. We made up our mind.
When it comes to working capital, yes, I'm pretty confident that we will work with it in much better way than we did before because we didn't even look at it. Now we know what it is, and we know that it has an impact on certain price models. Of course, if you change prepaid to post, but it will affect us and also if you're funding phones for 24 months and you're paying it in 30 days. I think I feel pretty confident that we could steer that in a much better way than we have done before. This time we had sort of one-offs in Norway that I'm not very pleased with what the Norwegian was. Okay. Thank you, Lars.
Sorry, just one quickly on the working capital. Can you just clarify the point you made? You said that you've changed some of the ways that you deal with it. I guess I'm just trying to understand structurally why you would have sustainable negative working capital, just so I can understand what's changing and what's going to support the improvement into next year. Thanks.
No, because I mean, to be very frank, we didn't even looked at it, we have increased our working capital with SEK 5 billion in the last four years, not really looking at why we have done it. Now we are looking at that as a part of new pricing models et cetera, we look at the effects from a cash flow perspective also when we're creating new pricing offerings. It might not be that we will have no higher working capital, but at least we have controlled it much. We take obvious decision around it, we're allowed to say. Excellent. Akhil, call me later, we can talk an hour about working capital. In the meantime, we close this press conference. Thanks for coming. I have my colleague, Thomas Johansen there, that will take care of the media.
He's jumping up and down, thank you very much for coming.