Okay, very welcome to TeliaSonera's first quarter 2012 results presentation. My name is Thomas Jansson. I'm the Head of External Communication for TeliaSonera. I'll be the host today. I especially like to welcome those, you in the room as well, but also those joining us via webcast and via teleconference. Warmly welcome. The program is quite familiar, I think, to most of you. We will start with a presentation from our President and CEO, Lars Nyberg, followed by our Chief Financial Officer, Per-Arne Blomquist. After that, we will have time for questions. We have time after that for further talks and chats with our IR colleagues and other colleagues that are present here today. I would like to make a little special promotion for those of you in the room. Starting last quarter, we actually tried to show a bit of what we do and our own services.
This quarter, we're showing our video conferencing solution. Once we're done with the show, I hope you all take the opportunity to see and feel and experience a little bit of the latest in video conferencing, which is a very important area for us. It's our colleagues from our Business Services part presenting that. Please take a few minutes and see what we do in that area once we're done with the presentation. With that, I will leave the floor to Lars. Lars, please.
Take it.
Good morning, everyone. Welcome. The growth rate looks impressive, or at least satisfying. I think the quality of the 2.9% growth has some question marks, or at least some remarks are valid. I'll make them in a minute. This is actually the first time in over three years that we are declining the EBITDA margin. We have improved that margin for 13 quarters. This is the first quarter where we're declining. It's totally driven by gross margin declines in all three business areas for different reasons. On a high level, I can say it's basically a mix issue. Earnings per share is down by €14. Twelve of those are coming from our associates. Those of you who have followed us for years know that in the mid-2000s, we had lots of help from associates for many years.
If you look at the contribution from associates, this is Megafon and Turkcell, of course, since 2008, their contribution to our earnings per share has reduced by 35%, which has been compensated by increases in earnings per share from our business that we manage ourselves. I sincerely hope that we will be able, for instance, to resolve the deadlock in Turkcell soon so we can start focusing on the performance of that business.
I've talked about the growth rate at 2.9%. It's solid in Eurasia, although Kazakhstan had a lower growth rate than normal because of price competition, which also was affecting the gross margin in Kazakhstan. The growth rate in Eurasia is solid, 13%. The revenues in broadband look to be flat, but we should remember that the part of the growth in international carrier makes it look flat. Otherwise, it would be down 2.5%.
International carrier has a low gross margin or low EBITDA margin, so it doesn't really help. In mobility service, yes, there was growth in mobility service, but it was mainly driven by equipment. You all know that equipment does not generate good gross margins. Yes, I'm pleased with 2.9%, but it's not really the 2.9% that we are used to. Here you can see the gross margin decline, which I described to you before. We continue to be diligent in managing our cost base. Despite the 2.9% growth rate, we had a decline of OPEX by 2.1%. This is, of course, the environment we are active in. We've talked about the need to change our business model many times. I will share some numbers with you, continue to share some numbers with you to indicate, I think, my conclusion is that we are managing this process pretty well.
We are going from minute-based charging to tiered pricing, from voice to data. That's basically the environment we operate in. This is, for me, a very important chart or information. When we talk about growth, we typically talk about total growth of the company, but it has different components. If growth comes from equipment, it's less valuable to us. What is really important is what happens to billable traffic revenues. Within that concept of billable traffic revenues, we need to look very carefully on what happens to voice and messages on the one hand, and what is happening to data on the other hand. Especially the relationship between growth in volume of traffic, data traffic, compared to growth of revenue from data traffic. I think this picture shows that we used the same numbers when we presented the fourth quarter.
You might remember we gave you the numbers per month for Sweden then, how the growth of volume correlated to the growth of revenues. Now we do it for the whole group, and you can see that the revenue on voice is down 3%, the revenue on messages is down 3%, and mobile data is up 28% and equals out. The 28% of growth in mobile data generates a growth of traffic in our network of 70%. I said last time that if we have the growth of traffic to be double than the growth of revenue, then that model we can live with. We can make money in that model. It's when you grow 70 and you only get 5% revenue, then we have a problem. We had that situation with these numbers for the whole of last year. We have it in the first quarter.
It gives me confidence that we are managing this business transition so far. We have strong development in broadband. The name of the game in broadband is to replace PSTN customers with triple play customers, particularly fiber customers. We have slowed down the rollout a little bit in Sweden. We've been public about it. We weren't happy with our internal processes and how we delivered or not delivered the service to our customers. Despite that, we have these numbers. I sincerely hope and expect that we will restart the rollout of fiber in Sweden because that is the long-term solution for broadband to provide triple play to fixed locations like offices and homes. This was the growth rate from Eurasia, solid as always. Interesting is to see the Kcell, Kazakhstan, growing only 3%. I think we should write that on the account of price competition from Tele2.
We also saw a significant decrease in the gross margin in Kazakhstan. On the other hand, Aftersell is back, growing 11%. Of course, Nepal is going like a train. 13% growth rate in Eurasia. We have no reason, we think, to change the guidance of 1% to 2% growth and to remain on the same EBITDA margin as we had last year.
Per-Arne?
I will continue to elaborate a bit on what Lars has already said, the development of our gross margin especially. We have, as you can see, continued to deliver on what we call the OPEX side. I would say, healthy development when it comes to the top line growth and the OPEX decline. What was new, as Lars mentioned, is that we see sort of a gross margin compression for the first time at this magnitude. Despite the fact that we're actually saving on the OPEX side with 2.1%, our EBITDA margin is actually going down with 1.5%. I don't think that we have revealed this kind of numbers before, but I think it's good to do that to understand what is actually happening in the business today. You can see that all the three different business areas have a decline of roughly 3% in gross margin.
At the same time, they're also actually saving in mobility and also broadband on the OPEX side. You can see that Eurasia has a healthy balance when it comes to the top line growth and also the growth of the addressable cost base. Basically, I would say that if you take mobility services, the decline of 2.8% is explained by the equipment sales, the 2.5%. So 2.5% out of the 2.8% is actually equipment sales. If we take the broadband services, it's very much so that we have an impact from the shift from classic to IP, and that would extend roughly 2.5% for 2.7% of the decline of 3.6%. At the same time, international carrier is also impacting with 5%. That is sort of the major drivers. If you also take Eurasia, you can see that they're going down with roughly 3%.
The biggest impact is, as Lars mentioned, Kazakhstan, where we see a price compression and also the effects of Interconnect. Mobility has continued to deliver, I would say, a very, very good development with a fantastic growth in Sweden. They grow more than 5% in this first quarter. They had an EBITDA margin of 45.2%, which is an increase compared to previous years. At the same time, adding on 72,000 in net ads, even as we have had the price for here in Sweden. Denmark and Norway continue to be under pressure between 7% and 9% on the top line, declining. We have pressure on the voice prices. We have also pressure on the wholesale business in Norway. Baltic has not really rebound yet. We have a mixed picture in the Baltics where we are growing 2% in Estonia. At the same time, we are declining in Lithuania.
Spain continues to grow with 111,000 in net ads, which means 25% on top line growth, but with a very small margin for the time being. If you take the equipment within mobility, I would say that out of the $150 million that you see in a decline on gross margin, $120 million is actually coming from the equipment sales. Broadband services, I would say, a mixed picture. We, at the first glance, the 0.3% in decline is much better than we have seen before. At the same time, it is driven by international carrier, which is growing close to 14%. For you who actually have followed us a bit, you can see that we are now revealing the numbers for international carrier for the first time. You could also see that their EBITDA margin is pretty low, 4.2%. You would probably ask me if that's good enough.
Of course, it's not good enough. That's why we're working with the Profit Improvement Program within international carrier. We have added on another 30,000 fiber customers in the business areas. We continue to control, I would say, the cost in a good way. The issue is, as Lars also said, that we have to push on the cost side to make sure that the shift from the classic business into the IP business also creates a margin in the same level as we have in the classic business. Positive thing is that we're actually defending, to some extent, also increasing our market shares within broadband. We have today more than 1.2 million TV customers. We're over 530,000 in Sweden. We have more than 550,000 fiber customers in the whole Nordic areas, where half of this is in Sweden.
The investment that we have done is, I would say, yielding in the right way. When it comes to the fiber, especially you who live in the Swedish area know that we have been a bit slow on the rollout. We are making quite a lot of efforts right now to make sure that we have the right processes when we continue to roll out the fiber later on this year. We have made somewhat a halt on the new sales. We tried to make sure that we could deliver on the sales we have done before. Lars mentioned Eurasia, so I won't dwell on that. More than that, they keep the margin on the EBITDA level, given that we have a strong base of growing company. Not only Kazakhstan is growing, but also the other entities.
I think it's fantastic to see Nepal, where we today have a growth rate in the first quarter of 64%. If you take the 12-month rolling, we're talking about more than 80%. They have an EBITDA margin of 58%. They have actually reached the return on operating, or they have over-substituted the rate of average cost of capital with their return on operating capital, which I think is a good sign on a good investment. Lars mentioned the services. This time, we are hit by roughly SEK 600 million in the result negatively, going down from SEK 1.6 billion to SEK 1 billion. That, of course, affects our EPS, which I will come back to later on. Here you can see that SEK 30 million is explained by the associates. We also have a hit on the net financial result. We have increased our net debt.
We have some extra costs also from the Kcell transaction that is sitting here, partly then offset by taxes. We are down from SEK 1.04 billion down to SEK 900 million. We continue to invest in this quarter. We do not have so much of the spectrum as we had last year, so the underlying investment trend is actually higher in Q1 2012 compared to Q1 2011. We strongly believe that it's needed to invest in the different areas. You can say that we have a broad similar investment pattern in the different business areas between 25% up to 40%. We strongly believe that this is the right way to go when it comes to future business. We have a somewhat lower free cash flow, partly explained by higher cash CapEx and also change in operating capital.
We have, as last year, less of accounts payments, which is higher this year. That also explains the SEK 500 million all down turned into free cash flow. The Kcell transaction has increased our net debt from 65% up to 74%. We have today roughly a net debt to EBITDA of 2x. Given that we will work with the IPO for Kcell units here, I expect at some point in time the net debt to EBITDA to also go down below the 2x. We have our debt maturity schedule, which I think looks pretty nice. We do not have any year that would set us under pressure when it comes to repayments. If you look at 2013, 2014, and 2015, we're talking about roughly SEK 22 billion to SEK 23 billion in repayment needs.
That is, for me, a good reason to believe that we will be able to also take down the net debt to EBITDA in the coming years. Summarizing this quarter, we have an improved organic revenue growth supported by equipment sales and international carrier business. I think we defend our core revenues in mobility, as Lars said. We have a positive customer trend in broadband. We continue to see double-digit revenue growth in Eurasia. We see a difference this time in the quarter with a declining gross margin. We continue to work with the addressable cost base, and we will for sure continue to work very hard on improving the gross margin as well. We continue also to review our assets. As you could see, we have increased our ownership in Ansel. We have exited from Cambodia, and we are also having discussions about the ownership of governance of Megafon.
Better.
All right. Thank you very much, Per-Arne, and thank you, Lars, for that. With that, we're ready to move into the Q&A. I ask the operator to please open the line for questions while I move one slide forward to the Q&A slide. I think with that, we're ready for questions, also from the line.
Thank you. As a reminder, if you wish to ask a question, it's...
Start in the room, yes, please. A normal reminder, it would be great if you state who you represent and who you are. Thank you.
Yes. Good morning. Stefan Gauffin at Nordea, and I have three questions. The first one relates to the ongoing discussions in Megafon. I just want to ask you to add some flavor to how those discussions are going. If you are optimistic regarding solving this conflict during 2012, the second question is that historically, you have been very fast in changing the guidance on top line growth when it has moved outside of your guided range. Now you deliver close to 3% organic growth, and you have a guidance of 1% to 2%. Why don't you change the guidance? Which area are you, in that case, believing that the growth will deteriorate? The third reason relates to international carrier, where you made the comment that you're not pleased with the margin in that business. What is a margin that you would be satisfied with?
Okay, let me start. You'll get the expected answer on your first question. The conversation with the three parties is ongoing, and nothing is finalized. Therefore, I have no comment to make. You can ask it again, and you'll get the same answer. On the other one, you are right, but I think what Per-Arne and I and the colleagues in the group management have realized is that there is a difference between growth and growth. We better be sure that we get the right growth. Yes, the 2.9% includes growth in international carrier, very low margin, includes equipment, negative gross margin. It's not worth that much to me. That's why I used this picture when I showed you how to build traffic revenue, because that's where the growth must come from if it's going to mean something to us.
Yes, maybe the number could be higher than 1.2%, but I'm not sure the quality of that above 1.2% is worth it. That's why we didn't bother to change it.
If you take the real numbers, the 1.3% for the growth is from equipment sales. That's why we are a bit cautious.
I actually think over time, we will start talking only about growth in billable traffic revenues, because that will drive our bottom line. Now, on international carrier, the kind of EBITDA margin I would like to see them never get rich.
All right. Thank you.
Okay, we continue over here.
Good morning. Sören Schaal from Swedbank. What's your analysis of the Swedish mobile market in Q1 and going forward into Q2? Obviously, you gain subscribers in the quarter and Telia actually lost some subscribers. I understand that we bounced back in Telia in Q2. Your performance is really, really strong. What's your view on the market? My second question is, when you now separate international carrier, what's your view on that business? We all know that there's a lot of invested capital behind that, $5 billion in revenue and low margin. What's the vision? What can happen with this business in a five-year perspective?
If I start with the last one, it's no secret that we put new management in there. When we put new management in anywhere, they should have a reasonable period of time to see what we can do with the business. Of course, we are reviewing this business, not sort of urgently, but you know I made a comment on purpose that it is a very low-margin business. It's over capacity. There are some real issues in the marketplace. What are we going to do? We haven't made up our mind. It is a discussion ongoing.
I would say that the first step is for them to reach their AC. That's the first foundation that we see how far we can come there. I mean, we have a fantastic volume development anyway. If you look at all the traffic that is coming through in the system, there is a need for carriers somewhere. The question is, how much can you earn on this business?
On the other hand, we have had that hope for 10 years now, right? We've written off quite a bit of money. You know, I'm sure we'll come back to you when we have made up our mind what to do with it. Yes, the market for mobile in Sweden, it's a very healthy market in a way. The billable revenue for voice is not declining anywhere near like some other markets in Central Europe. Absolute thing. The adoption of mobile data is faster in this market than in many other markets. We experienced something in the first quarter that I haven't experienced since I started here. We had an outright price war started by 3, followed by Tele2 and Telenor, and we stayed out of it. I think that was good.
I hope that everybody realizes that it doesn't benefit anybody except maybe some people who can buy a cheap subscription for a short period of time. We are the leader in this market. I think as a leader in the market, you have a special responsibility, and I think we took that responsibility. In the end, it's all about quality in networks, and it's about customer service. We're working very hard on trying to improve our customer service to become world-class. I think that in combination with our brand position, and actually, I will give credit to the management as well. We have had good management in the Swedish mobile operation for quite a number of years. I think that is the answer why we are performing so well in Sweden.
All right. Thank you, Lars. We have a very high number of questions from the line right now. I would ask the operator at this point to please open the line for questions, and we'll take the first question from the conference line. Go ahead, please.
Thank you. Your first question comes from the line of Morris Patrick from Barclays. Please go ahead.
Hi there. Maurice here. Quick question. On the gross margin and OPEX to sales slide that you provided, very helpful disclosure. I know you won't want to give that for every single quarter throughout 2011, but it'd be helpful if you give a sense of how that has been developing over the past few quarters. Thanks.
I think that the decline in gross margin partly started in Q4, but you normally have a lower Q4 gross margin due to a lot of hardware sales. I will say that the first two quarters was pretty stable, and then you start to see the decline in the fourth quarter, which normally rebounds in the first quarter. It didn't that this year.
Okay. Thank you, Per-Arne. We'll continue with questions from the lines. The next question, please.
Thank you. Your next question comes from the line of Andrew Lee. Please go ahead.
Thanks. Morning everyone. A follow-up question on Swedish mobile and then one on Spain, please. As the previous question stated, it was a strong performance this quarter, but I note that Tele2 has raised its revenue growth guidance in Swedish mobile and lowered margin guidance, suggesting that they expect the market to remain pretty aggressive in terms of price promotions. Obviously, difficult to forecast, but I wonder if you could talk about how you expect the market environment to pan out through the year in terms of extra price promotions. Secondly, on Spain, the margin pressure you've seen, has this reduced since the removal of handset subsidies by TEF and Vodafone in March? Apologies, I know you get this question every quarter, but could you give us an update on your views on long-term ownership of Spain following this quarter? Thank you.
Yeah, I heard that Tele2 increased their guidance for growth in Sweden and reduced the margin. I would guess that it's maybe an effect of the price war. Of course, they sold a lot of subscriptions and sold a lot of phones in that period at very low margin, no margin at all, I would guess. I'm just guessing that's the result of the price war.
If they're going to book that in the second quarter, that would be the effect.
On Spain, yes, I think it's a very interesting development with Telefónica announcing the elimination of subsidies on hardware. Vodafone has followed. Orange says they won't. We have followed partly. If it holds, it would clearly help us to improve the margins. I have no comment on the asset in itself right now. Nothing has changed. I want to see these guys deliver the results they have promised us this year.
Thank you.
Okay. Thank you, Lars. We'll continue with the line. Please go ahead with the next question.
Thank you. Your next question comes from a line of Peter Nielsen. Please go ahead.
Thanks very much. A couple of questions, please. First one, Lars, at the Q4 results and the outlook for this year, you obviously talked about, as you've done this morning, the need for improving your whole process in terms of rolling out fiber in Sweden. You also left yourself some room in terms of spending some money on this. I assume that your expectations in this regard have not changed over the past three months, if I sort of gather correctly from your comments. That would be my first question. Secondly, just a question related to Turkcell and the process there. Is it your view that the process in Turkcell, I'm not talking about the court case, but the process of moving towards electing three independent board members, etc., is that process moving along to your satisfaction, so to speak? Thirdly, a question for Per-Arne, please.
At the Q4 results as well, Per-Arne, you did mention your expectations of an improved free cash flow for TeliaSonera in 2012 versus 2011. We obviously haven't seen it in Q1, but is it still your expectation that we will have an improved cash flow for the full year? Thank you.
The answer on the first question, yes, you're correct. I have the same opinion. Then Turkcell, and not the court cases, but the process to comply with the CMB, the Capital Markets Board, I would say it's going very slow or too slow. I think not everybody agrees that we should have independent. The whole issue is that we should increase the number of independent directors. If we do that, the deadlock will be resolved, which is something we would like to see, so we can start focusing on the performance of Turkcell. Because of that, it's going slow. There is a deadline, end of June, I believe it is. I hope they'll meet it. That's, of course, the responsibility of the board of Turkcell.
When it comes to the cash flow, pretty good, yes, I still expect the cash flow to improve during this year.
Very good. Thank you.
Okay. Thank you. We continue with the line. Next question, please.
Thank you. Your next question comes from a line of Terence Tsui of Morgan Stanley. Please go ahead.
Thank you very much. I've got two questions, please. Firstly, on Denmark, the margin obviously remains fairly weak at 11%. Do you think we're any closer to seeing consolidation in the Danish market? What are your thoughts on whether this could be allowed by the regulator? Secondly, just to follow up on Spain and the elimination of handset subsidies, are you noticing any material change in the share of net adds now that we've seen a slightly different strategy by operators when it comes to handset subsidies in the market? Thank you.
The Danish market, I think we announced a network cooperation with Telenor. I think that's a step in the right direction. On consolidation of the market, I think it's a bigger issue in the whole of Europe. We have more than 125 operators in Europe. You compare that with the United States, similar purchase market or similar purchasing power. They have five or four or six or whatever you have you calculated. I think there are too many operators in Europe. I think Brussels will have to take a stand on this because Brussels is pushing very hard for major investments in the telecom infrastructure in Europe, which are required and necessary and good for EU. Some would have to fund it. If you have four operators in a market with 5 million people and only one player basically makes money, that's not a sustainable model long term.
Certainly not if you want to see substantial investment in infrastructure.
Okay. When it comes to Spain, I think it's too early to say whether we have seen any impact from that because that came out a couple of weeks ago. We must see what actually happens in Q2 before we really dare to say anything.
Okay. Thank you. Thank you, Lars and Per-Arne. We'll move back to the room. Do we have more questions from the floor here? Yes, first row, please.
Yes. I guess you were on SVM, Hilda. Just a question on the gross margin. Do you have any plans how to improve the gross margin? Can you tell us a little bit about that?
First of all, it's a mixed issue. Second, it's a cost issue. I don't think we said it, but part of the reason why the gross margin is down is also a bit slow with the cost reduction in BTS, but also in MTF, mobile technologies, and broadband. This multi-market operation, particularly in mobility, has to deal with cost savings. That's the whole purpose of them. In broadband, the challenge is you have a certain cost structure for the traditional classic business, which goes down in revenue. Then the cost has to come down, and it's not coming down fast enough. At the same time, you have growth in IP, which is a good thing, but the cost can't come up as fast as the revenue comes up because then you don't get scale. That's the challenge.
Those are the two areas that we are going to focus on to see if we can claw back some of this gross margin loss that we had.
Okay, we continue here. Yeah.
Lena Stubbe Kannegi. I had a question on Turkcell and Megafon combined. Because when you announced the proposed transaction from the beginning, you were saying that you needed Turkcell to complete before you saw a solution on Megafon. Now it seems, my interpretation at least, is that you can do Megafon without Turkcell being solved. Is that correct?
I think you're interpreting it a little bit too far, I think. What we said with Altemor when we made the deal is that we would like to resolve Turkey and Russia. We together would put our ownership into a holding company on top of all. That company was never operational. It was a holding company. We've always had the intention of maintaining Turkcell as an independent company and Megafon as an independent company. When you say combining the companies, we were never trying to combine the company, just combining the ownership.
Yes, but every quarter you've been saying, let's focus on Turkey first.
I have spent, I think Turkey is the most urgent to resolve because it's really affecting the performance of the company. Of course, we have to spend time on Megafon as well. I think the challenge was bigger in Turkcell and in Megafon, or maybe it was more of a deadlock in Megafon.
It is not a prerequisite to solve Turkey first before.
No, I'll take any of them, preferably both.
All right. Thank you. I think we'll move back to the line for a second. We take the next question from the line, please.
Thank you. Your next question comes from a line of Barry Zeitoune of Berenberg. Please go ahead.
Hi, good morning. It's Barry Zeitoune from Berenberg. I know you can't talk about the Megafon talks, but on the basis that you see yourself being a majority holder in assets as key rather than a minority holder, and on the basis of, you know, that we might expect something to happen in Megafon, would you favor a full exit over a partial exit of the asset? My second question is on Finland. You've lost share in Finland for a number of quarters now, and it seems to be a consistent theme that you're consistently losing share in Finland. Typically in markets when, you know, an operator loses share for a sustained period of time, there then comes the issue of a back book issue that needs addressing and the ability to recover competitive positioning.
Are you concerned that you might need to be more competitive on pricing in Finland to start to recover some market share? My third question is more of a general one. You're cutting your subsidies in Spain, obviously not to the same extent as Telefónica and some of the other operators. Also in Denmark, we've seen a cut in subsidies. Do you see the cut in subsidies as symptomatic of, I suppose, a market that is going through intense competition? Can you see any potential cut in subsidies in any of your other markets? Do you think this is a general trend in the industry that we're going to see subsidies cut in general throughout markets and more transparent pricing off the back of that? Thank you.
If I start with the last question, I think historically, the operators have always wanted to cut the subsidies of all the hardware, and they never succeeded, basically. If you ask the suppliers, they predict that it will never happen. We have a new board member at TeliaSonera, Olli-Pekka Kallasvuo, the former CEO of Nokia, and we talked about this yesterday in the board meeting, and he said it will never stay. He is a bit colored by his background. I hope it will reduce because it is a pain for the operator to have negative gross margins on the hardware. We should not forget that typically the behavior of a customer is to go into a shop and buy a phone. I choose a phone, and I need a subscription too. As long as that works that way, I think it's going to be difficult.
Hopefully, we can add more value, particularly via our customer service, what I call the world-class customer service, that people actually say, "I want to be a customer of Telia, and I want to have this subscription, and then I want this phone." I think the discussion would change somewhat. On Finland, I don't know if you noticed or saw the announcement that we have appointed Robert Andersson for CEO of Sonera. It's a bit of a change of our organization because we have a business area organization. There are basically two markets where we suffer from not having one leader, potentially, because we are both in mobility and in broadband and business-to-business and business-to-consumer. That is the Swedish market and the Finnish market. In Sweden, that's resolved because I think I act as the Country Manager of Sweden when it's required. We haven't had that solution in Finland.
I think we've suffered from this. After agonizing over it, because I prefer to have a very clear, simple organization, we decided we will appoint Robert as CEO of Sonera in a matrix, also joining us in the group management. I think that will make the drive in the organization much more efficient because I don't think our problem is in the marketplace. I think it's more of an internal problem than an external problem. I'm pretty optimistic that we will give Elisa a run for the money. I don't think price is the solution.
Okay. Thanks. The question on Megafon, would you favor a full exit over a partial exit?
I have no comment.
Fair enough. Thank you.
All right. Thank you. Thank you, Lars. We'll continue with questions from the line. Next question, please.
Thank you. Your next question comes from the line of Laurie Fitzjohn from Citi. Please ask your question.
Thank you. Key questions. On Norway, I understand part of the weakness is because of Tele2 migrating some of the traffic onto its own network. Are you able to say how near Tele2 is to its minimum commitment? If there's further downside going forward, migrating more traffic, or are they now at this level until the MVNO contract comes to an end? Secondly, on how it's done, you've highlighted this as an issue. Growth falling from 10% to 3%. Should we expect growth maybe to slip into negative numbers through the rest of this year as Tele2 continues to impact pricing? Thank you.
Let me start with Kazakhstan. I don't think that we should expect this for the rest of the year. I certainly hope we shouldn't expect this for the rest of the year. I actually believe it won't continue like this. They still grow in the marketplace. I think we see some signs of sobering up. I'm reasonably optimistic. On the other hand, I'm very happy that we have some other markets. If you go historically back, we've had problems in Azerbaijan for three years, low growth. We were compensated for that in Kazakhstan and in Nepal. Then we had problems in Georgia. We compensate that by Uzbekistan. There's always somebody who is sort of slow for different kinds of reasons. Luckily, we've always been able to compensate it and have solid double-digit growth in the region.
When it comes to Norway, I mean, you're right. Part of the return is connected to the hotel, but it's also price pressure in the market. Yes, Tele2 is still in our network, but I don't want to comment upon a total to the minimum agreement. They are still in our network, yes.
Great, thank you.
Okay, we'll take one more from the line, and then we'll move back to the room. Question from the line, please.
Thank you. Your next question comes from the line of Andrew Parnes from UBS. Please go ahead.
Yeah. Hi, guys. I've got two questions. The first one is actually a follow-up on Norway. I was just wondering, looking at the margin in Norway, down about 4% year on year, I was wondering if you could give us an idea of what portion of that has come from the price pressure, again, maybe that's rolled over from Q4. The other part of it, which is the pricing, the margin pressure from the wholesale agreement with the loss of the wholesale revenue from Tele2. The second question was just on a sort of the growth outlook. You've got it to 1% to 2% organic growth this year. It was sort of 2% to 3% last year. I just wonder, where do you see sort of the long-term growth in this business?
In particular, which business units do you think will now sort of accelerate in growth or topline growth in order to, if you do expect to have sort of growth accelerating from this point? Thank you.
I'll take the last question. That's a very interesting question. Where is the growth going to come from medium-longer term in this industry? If you start with the broadband business, when will the IP, triple play growth compensate for the reduction in classic? That's the key issue. I have said many times that we are convinced that the only way to provide telecommunication services to fixed locations like homes and offices is via the fixed network. A fixed network that can provide 100 megabits per second or a gigabit per second, which means fiber. Once you get this fiber, it's a fantastic experience. I'm convinced that there will be a day when they cross over and we'll start seeing growth in broadband again. When it happens, it's a bit difficult to say.
In mobility, the growth voice will continue to come down in revenue because the price of voice will continue to be reduced. That must be compensated by both volume and price increases of data. Our ambition is to maintain the ARP. If you are paying me SEK 300 per month for our services, and we call it voice and data, I just want you to continue to pay SEK 300 and not go down to SEK 100 because that we can't take. This is the business model change that the whole industry is experiencing. In that process, which is a tricky process, I could see things go pretty wrong, and we will see declines in the revenue. I could also see things go pretty well, and we'll see increases in revenue because the demand for data is unlimited. People are consuming as much as we can produce in our networks.
It's really a tricky, from the management standpoint, it's a tricky process to manage and make sure that we don't make a mistake. Of course, Eurasia, I think, will continue to grow for many years because they're a couple of years, five years maybe behind the more developed markets. They have the whole data growth coming in the coming years.
When it comes to Norway, it's pretty complex. However, we'll talk about the margins. You have three parts. You have the equipment that we mentioned before, we have the pressure on voice, and we have the wholesale. If I should try to simplify it, they are pretty equal in the impact on the gross margin.
Okay. Thank you.
All right. Thank you. Do we have questions in the room? We'll continue with the line. Please go ahead.
Thank you. Your next question comes from the line of Ulrich Rathe of Jefferies. Please go ahead.
Thank you very much. Two questions from my side, please. The first one is, again, with regards to Swedish mobile. I was just wondering, Lars, how you interpret the March sort of spurt in competitive activity. Is this a signal maybe for structural pricing risk? Maybe prices have sort of remained a bit too high. You highlighted earlier the good voice trends in Sweden, which are a bit of an outlier in Europe. Is it maybe just a tactical move, maybe one player just trying to grab share for some internal reason? That would be my first question. The second question is with regards to Kazakhstan. I was wondering whether what you are observing currently was anticipated pretty much in this way when you decided to increase your stake or whether it really sort of came from left field. Thank you.
The last question on increasing the stake in Kcell is in line with the strategy that we announced years ago that our prime objective in merger and acquisition was to increase our ownership in current activities. I mean, I've been using this explanation that in Kcell, particularly Kcell, we had 100% of the work, but we owned 51% of the shares via Fintoo, which we owned two-thirds or something like that. We were actually like 38% of the reward while having 100% of the work. We wanted to increase to a higher number, and that's exactly what we have done now. Now we have 100% of the work, and we have much more than 50% of the reward. It has nothing to do with the price or the entrance even of Tele2.
We've been trying to make that deal for about three years before we finally were able to do it.
Swedish mobile market.
What was the question on Swedish mobile market? I don't know. I could be wrong, but I'm not so sure that to lower the prices the way 3 did is so smart. First of all, some of their customers who bought that subscription three weeks earlier must be pretty upset. You get a lot of customers that you guarantee for two years to pay a fee that you make no money on. What's going to happen after those two years? Are these customers just going to accept that the price goes up by 50%, or are they going to go and look for another bargain somewhere? I don't know how successful that strategy is. I don't think that what happened is a sign of continuous price wars in this market. As I said, I could be wrong.
Okay. Thank you. Thank you, Lars. We continue with a couple more questions on the line. We'll continue. Please go ahead.
Thank you. Your next question comes from the line of Jacob Bluestone of Credit Suisse. Please go ahead.
Hi there. I've got two, hopefully, fairly quick questions. Firstly, last quarter, you gave some pretty interesting stats where you were talking about the development of your roaming volumes and revenues. I think you said your roaming volumes had tripled and your roaming revenues had sort of fallen about a quarter on the back of the price changes that you'd made. I'd just be interested, are you, you know, would you be able to maybe give us an update on how roaming volumes and revenues have continued to develop into the beginning of this year and on the back of the price changes that you made last year? Secondly, just in terms of the negative capital, negative working capital movement that you had this quarter, is that something which will be reversed out later during the year? Thanks.
On the first one, I don't actually have the same numbers, so I'm sure we can provide them to you after the call. I do have, I remember a press release we went out with a couple of days ago about traffic during Easter holidays. The traffic, and it was five, six countries mentioned in Europe, and the traffic was up like 300%, down to 200% up in those countries. I think the theory on which we based this decision is that our customers want to serve the net also when they are outside of their home country. The prices that we had were so high, or the prices that the industry had and still has, unfortunately, were so high that people turned off the roaming deliberately not to cause bill shocks and didn't surf.
Now, when they realized that the price is reasonable and is controllable, then they do use their surfing homes also when they visit European countries.
When it comes to working capital, yes, I would say that they will probably even out during the year because it is connected to timing issues around accounts payable.
Okay.
That's great. Thank you.
Thank you.
Thank you. Do we have any more questions in the room at this point? Okay, we'll continue with the last two questions on the line. Please go ahead.
Thank you. Your next question comes from the line of James Britton from Numis. Please go ahead.
Thanks. Good morning. I've got two questions, please. Firstly, on Kcell, can you just tell us where you're going to list Kcell? Have you received any assurances on regulation following the full privatization? Secondly, on Sweden, where are you on increasing investment in customer care in this market? I think that's part of the strategy for this year. Have you started these investments, or are they still yet to unfold?
On the customer care, I think we are hiring more people. In that sense, we are investing. I think there are other issues that are even more important for having the effect that we want to have. That is to look at the training of the first-line management, the location of the first-line management, and the task of the first-line management. It's really an overhaul of the whole customer care organization from top to bottom and creating career paths for those colleagues that work in customer care, that they feel that this is a longer-term career job to be in customer care. It's not just an issue of hiring 300 more people. We have to hire more people. We are in the process of hiring more people.
I would love to see those people stay a couple of years in this job or in these jobs and not just stay for six months and then go somewhere else within TeliaSonera. It's really revamping the whole customer care organization. That's what we are busy with.
We have decided to list Kcell as the topic change, and we are looking for a jurisdiction. That will be decided in a couple of weeks' time. I do not have an answer right now.
What about the discussions on regulation? Have you had any guarantees that the regulatory situation is going to be quite stable as opposed to the government's setting up?
You mean in?
In Kazakhstan, I guess the key debate is around termination rates.
Okay, I think it has nothing to do with these.
No, no, no.
No, I think it's slightly put on hold right now when it comes to the termination rates. That has been a very intense discussion, but it's slightly put on hold.
All right. Thank you.
Thank you.
Last couple of questions on the line. Please go ahead.
Thank you. Your next question comes from Peter Nielsen of Telia Company AB. Please go ahead.
Yeah. Just interested, Lars, you're talking about also in your introductory in the results that you intend to start charging for mobile VoIP services. The question is just, have you any indications or expectations that you might run into some regulatory problems in this regard?
I don't know. Maybe, or maybe not. We're coming back to this issue of changing the business model. The end state will be that the voice, whether it is VoIP or traditional, will be significantly cheaper or a lower portion of the total cost per month, while data will be a bigger cost. I think charging for mobile VoIP for a period of time during this transition is one of the solutions. As we have announced, we intend to do it in Spain shortly. We'll see how it works out.
All right. We take last question.
Last question.
Question from the line, please.
Thank you. Our next question comes from Sasu Winnatsky of Bank of America. Please go ahead.
Yeah. Thanks. You actually preempted my question somewhat in that you mentioned in the report you're going to charge for VoIP services now in Sweden and Spain. Could you just elaborate on whether you're talking about your own branded VoIP service or OTT services? How do you expect to combine this with the overall charging for voice services to the clients?
I think we are talking about mobile VoIP application and only that because it's voice, which is a very significant part of our revenue. 80% of our revenue is charged under the heading voice services, while 80% of the traffic in our network is data traffic. That's the challenge for the whole industry. We need to reduce prices in voice, and we need to increase prices for data. As I said, I think the charging separately for mobile VoIP is a transition tool for us to, while we transition from the situation we have today to a totally different situation where we, as I said, charge much less for voice and more for data.
All right.
Thank you.
Thank you very much. With that, I thank everybody who participated on the line. For those of you who are present, please don't miss our video conferencing demonstration on the way out or as you wait. With that, we conclude the first quarter results presentation and Q&A. Thank you very much for attending. Thank you so much.