Okay, I think that we are ready to start. Good morning, everyone. Welcome back to TeliaSenora 's Press Conference for the Third Quarter of 2011. My name is Andreas Ekström, Head of Investor Relations. I have with me our Chief Executive Officer and President, Lars Nyberg, and our CFO, Mr. Per-Arne Blomquist.
Very good.
As in the two previous quarters, we have another press conference that I know some of you are interested in, starting in about an hour. We have the ambition to close this conference within one hour. After the formal presentation from Lars and Per-Arne, we will do Q&A as usual. With that, if Lars is ready, we are ready to begin. Welcome.
Thank you very much. Good morning. Welcome. I think we had a good quarter. I think you've seen it already. We had growth, 2.4%. I'm pretty pleased with that. We improved our EBITDA margin. I'll come back on that in a minute. Our earnings per share was lower than last year for two reasons, and you all know that. It's Turkcell, delivering significantly worse results than the year before, and currency. We had very strong cash flow in the quarter. As I said, 2.4%. The drivers of this were Mobility Sweden, where we grew 6%, Kcell in Kazakhstan, Ncell in Nepal, Yoigo in Spain, and Ucell in Uzbekistan. I make the point that if you do analyze the growth in actual krona, half of the growth basically comes from the Eurasian area, and the other half comes from Mobility Sweden and Spain. It's sort of half-half in local currency.
In reported currency, it's even more in Sweden and Spain than in Eurasia. This is something I am very proud of. It's the 12th consecutive quarter that we improved the EBITDA margin. We are now clearly in the upper quartile of the industry if you compare with our competitors. This is a result of a lot of work over many years with a lot of people. I'm not sure how much higher it can go, but I'm really pleased with the level that we have achieved over the last four years. I want to talk about a few other things because the quarter is so much in line with the expectations. There's not much to talk about, in my opinion. I'd like to talk about some other things that I think are exciting for TeliaSonera . We did a rebranding in the spring of this year.
I said then that it's probably 80% internal reason and 20% external reason. I think it really worked very well for us. It revitalized the company. It underlined our ambition to behave as one company, which is not part of the culture in TeliaSonera . This picture shows the spontaneous, the red one is the spontaneous awareness of our different brands. If you show the logo, then the lower graph tells you how that if you see that logo, you connect it to TeliaSonera or Omnitel, or whatever the brand is that you are familiar with in our group. I'm very pleased that it has been received so well. As I said before, internally, it has meant a lot to the company. We did something in connection with the rebranding. You might remember that.
We lowered the data roaming tariffs in the Nordic and the Baltic countries quite significantly. I believe that we have now come to a price level that I would say is reasonable. That means that the earlier prices were unreasonable. With these reasonable price levels, I think the usage will go up. I actually know it is going up significantly. I think it's going to be a good financial decision for us, apart from the fact that our customers now can use mobile data, even if they are not in their home country, and be sure that they don't pay an astronomical amount of money. This week, we extended this offer beyond the Nordic and the Baltics to the European scene. You can expect us to do even more outside Europe going forward. One of the reasons why we did this was I am, like you, quite often in airports.
Standing at the gate with three people in front of you and three behind you and hearing all of them saying to each other, "Don't forget to turn off the roaming," I thought that must be wrong. Now we have prices that people won't turn off the roaming. They'll use their telephones. I think we'll make more money out of it. This increase of traffic requires us to invest. I wanted to highlight that we invest quite a bit of money and capital into our networks to ensure our first priority in this company, which is network quality or quality of networks. It includes, of course, buying frequencies. You have to have frequencies. We have been successful in two auctions. We paid a lot of money, but it's worth it because you need a lot of frequency to be able to guarantee good quality networks.
We continue to roll out the 4G, the new technology. Maybe more important in the short term is the capacity expansions that we do both in Sweden, Norway, and Spain because of the growing traffic volumes. We had traffic volumes a year ago growing about 100%. It has gone down a little bit. Maybe it's growing like a 50% at this point in time on an annual basis. As you also know, we did agree with Telenor to create a joint network in Denmark to ensure we are number three in Denmark. They are number two to ensure that we have a real first-class network in Denmark. We talked about M&A activities. We always said that our first priority when it comes to M&A is to increase ownership in core holdings. In this quarter, we announced the intention to increase our ownership in Kcell. Very important.
Kcell is a significant part of Eurasia. Because we owned via Fintur 51% of Kcell, we didn't even have in effective means more than 50%. We had less, something like 35. In this way, we will increase it significantly, which I'm very pleased of. It's just sort of that we did the same thing in Uzbekistan before. We had Nepal some months ago, and now we have Kcell. I'm sure you're going to ask me about Turkcell. If I try to measure where we are compared to a year ago or two years ago, I think we have made significant progress. We actually have three areas where we are trying to make progress. Two areas are legal. It's the damage award we got in Switzerland, which I think was significant. The other one, of course, is our agreement with Altimo to cooperate.
They have their fight with Cukurova, and lately, they won their second round. It's now a deal, and we'll go to Privy Council in London. That's going to be the final decision. I think we're making progress there. Something happened in connection with the EGM, or actually the evening before the EGM. The Turkish authorities announced a decree that says all the biggest 30 companies in Turkey, the CMB, the SEC of Turkey, demands that there will be more independent directors on the board. That's something they have argued with Turkcell for many years, something we have supported for many years. Cukurova has blocked it with the help of the Chairman of the Board. Now it's a decree, a law, which we welcome.
I think that being implemented in the correct way, that in itself will take away the deadlock that we have in the board, which would be very good for the board and maybe more important for the company, I believe. Yes, we did not change the outlook after the third quarter, so it remains the same. Before I give the floor to Per-Arne, I have one more picture, which for me personally is as important as any of the other pictures because we are on a journey. I've talked to you about that many times. We are on a journey to change the culture, the values, the way we do business in Telia Company AB. Many of the decisions we have taken have been tough, tough on employees, tough on management. We do something called Employee Commitment Score.
We ask people in the company how they feel about this company in quite a number of questions. We do that once a year. We had an 85% response rate, which is, I think, very good. 85% of our employees actually answered it. Here are the results. We have now gone in the four years where we have done this journey. We have gone from below 60% to 74% commitment among our people. I'm extremely proud of this. This also makes me more confident that we will be able to continue to improve this company because the verdict from our employees is we are on the right way. We are doing the right things. If you study the details, they're saying it goes too slow. I am very happy about it.
As Lars said at the beginning here, a quarter which is a good segment, and I think that's good in this kind of environment that we're living in today, producing more than 2% in that sales growth and also an improved EBITDA margin. This is supported by lower costs. As you know, we have talked about cost efficiency, and we could see now the effect coming in the third quarter, which meant that we were actually down with half a percentile of our OpEx. That also means that if you look at the first nine months, we are now at 2.7% at the top line growth. EBITDA is increasing with 5.4%. And cost today of the nine months is increasing with 2.5%, which means that we're now getting a better burnout that we described that we should get after the second quarter.
I made during the last press conference three predictions. One of the first was that we will have less impact from FX, and that has actually happened, even though it was a risk to state that. You never know what happens. You can see right now that the euro exchange rate is now coming closer to what we had at the end of last year, and the impact is now roughly at 2%. It also shows that we have had an organic growth during the last six, seven quarters in our group, which I think is a strength. If you look at that perhaps more in detail, we usually talk about Spain and Sweden when it comes to mobility, etc. This quarter, I think it's important to note also that both Estonia and Latvia showed positive growth. I don't know whether this is a sign of recovery in the market.
We see that GDP is actually growing in these countries, but so far, we haven't seen much of a recovery. This is at least a tendency. When it comes to Sweden in mobility, I think it's not only the top line growth that is impressive, also their margin. They're now more than 47% in EBITDA margin. That, I think, is an extremely good performance in this kind of environment. Eurasia also growing with Kazakhstan 16%, close to 17%. We have seen that Uzbekistan continues to grow 35% and Nepal 106%. Both Kazakhstan and Nepal are well above 15% when it comes to EBITDA margin. Norman is still, I would say, struggling. Sweden is down with 4.8% on top line. You can also see wholesale is down with roughly 9%.
What is positive in Norman is that Sweden is actually increasing the margin from low 41% up to above 41%, and we could also see an improvement in wholesale. Their cost efficiency measurement has sort of given a result. That creates the picture that Lars showed before, that we continue to increase our EBITDA margins for the 12th consecutive quarter. In this quarter, we have especially improvement from mobility, growing from 30.3% up to 31.8%. Meanwhile, both broadband and Eurasia are rather flattish compared to previous quarters. I know that I will get the question about the gross margin, and it's pretty stable, I would say, according to the way we are measuring. If you sort of calculate it backwards, that's what I'm sure you usually do, not here today. It is a bit of a difference, but that's more connected to FX changes than operational issues.
I talked about the addressable cost base, and that was also the second prediction I made at the last press conference. I said that we need to be pretty flattish during the second half year to reach our outlook. We are now down to 0.4%, and we have sort of changed the trend, which was growing between 2%- 4% during the last three, four quarters. This is basically the effects that we could see from Norman, but also if we take mobility, they have done a good work on the cost side. They are down roughly 1.3% on the OpEx, taking away Spain, they're actually down with 5%. These measurements have actually taken place in reality, which I think is very, very good. One of the concerns we have is the income from the associated companies. You can see that it's dropping, you can say, dramatically.
Biggest impact has actually Turkcell, with roughly $ 430 million, very much connected to Belarus. We see also a downturn in MegaFon, where roughly $ 80 million is connected to FX, but the rest, roughly around $ 150 million-$ 160 million, is connected to lower margins, tougher environment where you have lower ARPUs or revenue per minute, and also pressure on price. That hits, of course, our EPS at the end of the day. What we could steer to more on a day-to-day basis is actually improving, as you can see here on the EPS side. Operations up with $ 7, meanwhile, associated is down with $ 2. If we take the impacts from FX and we take the first nine months, the impact from FX is roughly $ 31, which has a great impact on the EPS at the end of the day.
It's less evident now in this quarter and hopefully also even less evident in the fourth quarter this year. We continue to invest as Lars said, 30.6% in CapEx to sales. I think it's good that we this year have the more even distribution of the CapEx. We are slightly above what we were last year, but we have been working more, I would say, consequently during the year with the investment that we have. As we also said or described, we also bought license during the last couple of weeks in Sweden, 1,800 MHz, where we paid $ 920 million. This is not included in these figures. This one we booked in the quarter. Cash flow, it's always king especially in these times. We had a strong cash flow, basically based on tax paid compared to last year. At the third quarter, we had a major payment in taxes.
Now we're coming back to most of the normality, and that generated a cash flow of $ 5.1 billion in the third quarter. That also means that our net debt is going down slightly from $ 1.87 billion-$1 .80 billion. I predict that this will continue to also go down during the year. The third prediction I actually made also was that we should have a strong cash flow, which you could also see on the last or the previous picture. Debt maturity schedule is also important. We have during the coming three years a rather decent amount to refund. Next year will be a bit tougher with the $ 10 billion. We have $6 billion-$ 8 billion in the coming years.
I am very pleased with this maturity schedule because this will not put us under any pressure when it comes to refunding ourselves in a market. We actually went out, was it two or three weeks ago, and caught a EUR 500 million bond where we paid 4.30% all in for 10 and a half years, which is a very, very good pricing for long money. You could also see that we try to get longer out on this curve. We actually have also invested in a 20-year bond in Germany. There were some comments about the pension fund and our pension obligations in the newspaper a couple of weeks ago. I think sometimes you mix this up with an enormous life company. I would say as a company, we are very pleased to have dedicated cash for our pension obligations.
Even though we might have a slight deficit, this is a long-term obligation that we're talking about, roughly 15 to 20 years. I do not see this as a problem, rather as a very good thing for a company our size to have dedicated cash for our obligations. Do not mix this up with a normal life company that might have problems today with low interest rates and so on. This is an advantage for us to have this in our books. Finally, from the last third quarter, we continue to grow in local alternatives. Eurasia, Spain, Sweden continues. EBITDA margin continues to improve for the 12th consecutive quarter. We have declined our cost base, as we have said before. We have a strong cash flow generation, which means that we keep within the range from our target net debt EBITDA.
That also means that given the performance today, we could also keep our outlook for 2011. Thank you.
Thank you very much, Per-Arne. I also invite Lars back to the podium. We will start with a couple of questions. We'll see if there are anyone here. We have a microphone, hopefully. We give the microphone to Stefan.
Yeah. Good morning. Stefan Gauffin, Nordea. First of all, I would like to start with the claim from Cukurova. I also noticed that you received some cash from Altimo in the fourth quarter, $100 million. Regarding the claim of $932 million , how can you get your hands on that kind of money? If successful, is there any sharing agreement with Altimo relating to that cash? Secondly, moving into the operations, I noticed there was an increased churn in the mobile operations and some subscriber losses in several markets. Are there any quarterly specific items to be aware of? Thank you.
Whether we get hold of the cash or not, I don't want to speculate on. I think it's a strong point that we got this award from the International Chamber of Commerce. I think it will help us. Our main objective is to break up the deadlock in the board of Turkcell, ensure that we get good governance in Turkcell, and that Turkcell starts performing. I think this award can help us reach those objectives. I haven't commented much on the agreement with Altimo. I don't intend to start doing that, but it is true that we got $100 million a couple of weeks ago. We have an agreement with Altimo where the objective is for them and us exactly what I said. We need to have a functioning board. This company is a great company. This needs to start performing. That's the objective. We have an absolute deadlock.
As part of that agreement, there are certain milestones being met, and there are payments going between us. I think about two years ago, we received a $50 million payment from them for a certain milestone, and we received now $100 million from them for a certain milestone. There are further milestones agreed upon that could actually generate more payments. We'll see. I really don't think the payments are that important. What is important is to get this company board deadlock broken up and get this company to perform again. You can see how much effect it has when they do a devaluation in Belarus and it's not working in Ukraine. You see what that means for us on our EPS. That's my concern. Whether I get X or Y dollar from this award is less important to me. Much more important is that the company starts performing again.
Yeah. Next topic is the churn rate. If you take Sweden, for example, they still keep a very, very low level of 15%, which I think is impressive. You have seen Norway. We have seen Denmark that has sort of changed with 4% or 5% units. I don't know whether you would like to comment on that.
There are some specific clearing out of inactive subscribers. For instance, in Lithuania, I think it's $180,000. There are some small items in Finland as well. There are some inactive subscribers being taken out of the operational data.
Okay, we have another question from Thomas.
Thank you. Thomas Rees with Handelsbanken Capital Markets] Two questions, if I may. Firstly, on Sweden Mobile, it's a fantastic EBITDA margin. How much would you say this links to the growth development in Sweden Mobile? I mean, the Swedish market is pretty outstanding. If we see a little slower growth ahead, how do you expect margins to develop?
I have predicted that the growth will decline now for 15 quarters or something, and I've been wrong every quarter, which I'm, my colleagues are very pleased that I'm wrong. I sort of, if I'm wrong, I like to be wrong that way. I will be very cautious saying the growth will slow down in Sweden. I think the mobile data clearly is the driver of it. We don't see the decline in the voice traffic to the same extent if you compare some other markets. In general terms, the Swedish market is a very sound market for all the operators. We are clearly number one. Volume is the key to everything in our industry, and being number one, you are clearly helped. If you look at the EBITDA margin we have compared to the other three, we are way ahead of them because we have the volume.
It's the same thing in Denmark, just the other way around. We are number three in Denmark, and our margin is something like 15%, 16%, 17%. Kenneth Calder once told me that the EBITDA margin in percent equals your market share in percent. I think he's right about that. If your question was if the growth rate goes down, of course, the EBITDA margin will come under pressure. I don't foresee a dramatic change of the margin, but it will come under pressure, that's for sure.
What I think is specific also in this quarter is that, I mean, the 4%- 7% is pretty high. You could always, you could keep up over time. The combination of good cost control, lower OpEx, and not so much the increase is not so much depending on equipment. It's a very, very minor part of that. That also helps the margin upwards. If these sort of fundamental things are changing, then the margin will also change.
Second question, if I may. Thanks for that. Sorry to you. For Finland, on broadband services, you note in the report that the cost cuts aren't quite enough to compensate falling gross margins. Do you see a need to sort of do something a bit more dramatic? It's been a little volatile margin in broadband services there.
I don't think we need to do something dramatic. You remember we did something dramatic in 2008, 2009 timeframe. I was pretty new, and we really had to, in one shot, get the cost down. We took down 20% of the people in Sweden, for instance. I said after that, I don't think we're going to have those kinds of programs anymore. Management needs, in this journey, we are all maybe changing the behavior. We have to be cost-conscious every day. I think that starts to work. That's what you're seeing now. Certainly in broadband, they have two challenges. They have to be cost-conscious every day, which I think they are. We have a technology shift in broadband, which is an enormous challenge. We're going from analog to digital technology. We have too much skills of analog, and we have not enough skills in digital.
They are modeling this challenge with two things at the same time. That's why that job is so complicated. It's no discussion to me that the cost has to continue to come down and has to come down much more in analog. Actually, the cost in the digital side has to go up most probably. The total cost has to come down. It's really a complicated and challenging management job.
We gave them some credit for that because the addressable cost base was actually down 7% in the quarter. Lena, next question.
Yes, Lena asked about Carnegie. First of all, a question on your revenue guidance. You maintained the guidance of 3% and you're 2.7% for the first nine months, but I think in the quarter, you're at 2.4%. You say around 3%, but what's the flexibility if you come in at 2.5% for a full year? Is that still 3%? That's the first question. I was also wondering on the roaming agreements, the data roaming in Europe. Is there a specific operator that you have sort of mutual contracts with, or how does that work, or what would the financial impact be for you for lowering the charges?
If that's not with the last one, which I think is more important or more interesting, maybe. Yes, we do negotiate with other operators. I think this issue has finally, finally become a little bit of a hot issue in the industry. I'm very pleased with that because I think this industry has made, I think it's a major mistake to for so long have had these kinds of prices. I think it works against the industry, not only in perception of the industry, but actually, it's not a good business decision. I was alluding to it before when I made my presentation. People turn off their roaming when they leave Ireland. We are in the business of them turning it on, not turning it off. You know, if you have a 95% gross margin on zero, it's still zero, right?
I like people to use their phones, but they don't do that if the price is sky-high. Maybe you all read about these articles about family going skiing in Switzerland, kids talking to each other in the ski slope, coming home $10,000 is the bill, right? I think the industry has made a mistake not addressing this before. Now, we are addressing it, and some of our colleagues close by are addressing it. I think the whole industry will have to address it. When we sit and talk to those other operators, there is a willingness to help by lowering their prices. Of course, we are lowering our margins to get the business going. I am convinced that this will have a positive impact. First year, maybe it will have a negative impact.
If you look at what happened in the Nordic and the Baltic, Håkan Dalsland thought it would be this much loss, not significant for you to bother about, but for me to notice. It's less now than we predicted. The loss is less. You just go on growing this volume by the 100% for a couple of quarters, and you have no loss. On the growth, on the forecast, right? Do you want to talk?
I could take it. Something 2.7% is still around people, maybe around 2.5%. I mean, you put the cuts where you need it. We are talking about tenths of a percent. We're talking about $20 million for each tenth. It's a very, very small amount we're talking about. That won't really change the picture.
We do. We will come back to the floor. We have a number of questions on the conference call. Please, operator, can I have the first question?
Your first question comes from Andy Kehnle from UBS. Please ask your question.
Yeah, hi guys. It's Andy Kehnle at UBS. Two questions. First of all, just in Spain, I just wondered, what's your sort of outlook, I guess, over the next 12 months for Spanish sort of subs growth and margin? Should we continue to expect margins to be sort of low single digits or mid-single digits whilst you're sort of going for sort of 200,000 subs growth a quarter, or is the subs growth likely to slow and margin improve? Secondly, in Kazakhstan, I just wonder, what impact have you seen from Tele2's entry in Kazakhstan? Are we likely to see sort of a slowing growth or loss of share there as Tele2 builds up its position? Thank you.
Let me start with Spain. Spain has historically had high price levels, significantly higher than, for instance, in the Swedish market. Those price levels are coming down very much thanks to Yoigo. We started as a price fighter, remembering having a higher price in Spain, actually as a price fighter than we get in Sweden. Now, the competitors or the incumbents, they have responded by lowering their prices. I think the general trend is to lower prices. We believe that we will continue to grow. As I said before in another answer, this is a volume business. If you can increase your volume, you will improve your bottom line. I think Spain will be a tougher market for all the people who are in that market, including Yoigo. I think we are well positioned with a brand and the perception of the brand, what we stand for.
Therefore, we think we will continue to grow the business, which will improve the results. In Kazakhstan, I wouldn't say we have seen results of. There is, of course, higher competition. Instead of having two players, we now have three players. Tele2 is a good company, and I respect them. I think that we are with Kcell positioned as the number one, the premium brand, with a very good quality. It's a huge country. Geographically, we have a great coverage. The mobile data will come with the three a couple of months ago. I'm very confident about our position in Kazakhstan. Of course, with three players instead of two players, there will be more competition. My God, we are four players in the Swedish market.
You probably saw, Andy, that we had similar growth in the third quarter as we had in the second quarter. They had a strong subscriber intake, as we saw this morning. So did we. I think that we passed 10 million subscribers in the third quarter in Kazakhstan.
Okay, thanks, guys.
Thank you.
Operator, can we have the next question, please?
Your next question comes from [Laurie Fitzhite] from Citi. Please ask your question.
Hi, thanks. Morning. [L]aurie Fitzhite from Citi. One, two questions. First, on Sweden Mobile. It looks like your service revenue growth accelerated up to 48% by taking ARPU-type subs and offsetting handset sales from the lack of an iPhone launch. Is this growth in service revenue underlying? If so, what would be driving it? Secondly, maybe a more general question on Turkcell. I know you can't go into details. One thing that's come up quite apparent through the process is the strong local support that Turkcell has. I wonder, longer term, do you have any concerns about owning and having a stake in this asset without a local partner? I mean, in some countries, you know the local partner is important. Do you think that is important in Turkey? Thank you.
Can I start with Turkcell? I think, yes, it's true that we normally have, or quite often have, a local partner. I don't think it's the same necessity in Turkey as we have been for such a long time in Turkey and have relationships by ourselves. I wouldn't rule it out, but you can't have a partner which you are fighting with that is blocking everything you want to do. In that sense, it's a non-discussion. As I said before in an answer, our prime objective is to resolve the deadlock in the board, get proper governance into this company, and get the management back to performing and generating profits and dividends for us.
When it comes to Sweden and the service revenue, yes, I mean, it's mobile data. It's growing with close to 40%. You have voice also steadily growing with, I think, a 2% quarter- quarter. As I said before, equipment sales is very marginal. If we are growing with, I don't know, $ 250 million in Sweden, $ 20 million is equipment. The rest is more like other services, very much based on the data growth.
Exactly. The small increase that you said came in the third quarter, Laurie, is correctly as Per-Arne said. It came from increased mobile data, actually. Voice had similar growth as in previous quarters. Hopefully, it was increased usage on roaming that drove that increase.
That'd be good.
Shall we take one question more from the conference call before handing back to the floor?
Your next question comes from Jakob Bluestone from Credit Suisse. Please ask your question.
Hi there. I've got a couple of questions, actually. Firstly, on Turkcell, you said in your opening remarks that you believe the introduction of the sort of new decree for more independent directors will end the deadlock. Does that mean you believe we're close to seeing a resumption of dividends at Turkcell? Secondly, just in terms of the cash that you received from Altimo, you said there might be more such payments assuming you hit certain milestones. Could you give us a ballpark of how much more money you stand to receive assuming you hit those milestones?
On the last questions, I can't, even if I wanted to, because there are different levels. Milestone, how do we meet it, and so on, and what? I think in Turkcell it has to do with the fact that we have asked in the annual shareholding, we've asked for a discussion and then a decision on who sits on this board. I think that's a very normal request from the biggest shareholder. That has been blocked by the chairman together with Cukurova. We have responded by saying, as long as you don't treat the annual shareholder meeting in what we call a legal way, we will not participate in that meeting. Therefore, we're not going to vote on dividend either.
Now, if you speculate in the fact that we would resolve and that new board would behave in line with, of course, we will vote for all items on an AGM, including the dividend.
Just for my understanding, the proposal from the government now is something you would consider sufficient for resumption of dividends. Is that a fair characterization?
No, no. I've said if we break the deadlock in the board and the board accepts that the shareholders have the right to discuss who sits on the board and have the right to decide who sits on the board, you have a legal annual shareholder meeting. In such, we will certainly participate, and we will vote on all issues, including the dividend. I do think if we could get three independent members to the board, that will automatically break the deadlock.
Got it. Thank you.
We go over to the floor with a couple of follow-up questions. We have Stefan here.
Yes. Stefan again, Nordea. I just want to follow up on the question on Spain. You have guided for cash flow break-even in the fourth quarter. Regarding the EBITDA break-even, Lars was quite clear that once you've reached EBITDA break-even, you'll not go under any quarter. Would you say the same rules apply for the cash flow break-even?
I haven't thought about that. It depends. I could imagine you want to make some investments quarter one, two after you make the break-even, and we take a decision we want to grow capacity. In Spain, it's very favorable financially to us the more the trust that goes in our own net. If we would decide for medium-term financial reasons to expand our own network in Spain and therefore take down the cash flow to a negative number in one quarter, it could happen. I wouldn't be as black and white on the cash flow as I am on the EBITDA.
Thank you. Very clear. Follow-up also from Lena.
Yes. I was wondering, in the last financial crisis, you experienced some difficulties of refinancing because the whole capital markets froze. You decided to take a more cautious view on your dividends. Given that you've now paid out a generous sum to shareholders and your gearing is up at 1.8x , you said currently you're not seeing any constraints due to refinancing. That could potentially happen given what we see in the markets. Should we assume that you take a more cautious view on dividends now again, or how should we view your sort of view on the gearing and the shareholder remuneration for this year?
I think that we keep to what we have set up on account as to shareholders' remuneration, that if we see that we have excess cash, we return it to shareholders. At the same time, we have said that we should have a gearing between 1.5x and 2. Of course, when we went below the 1.5x, we started to talk about repatriating cash to shareholders. I think that's one thing you have to look at. Secondly, you should always be cautious in these times when you don't know whether you have access to markets. The most important thing when you look at future dividends and extra dividends is what kind of refunding needs you have in the coming years. That was one of the major reasons why we made this buyback program for 2010 while executing in 2011. I think we stick to our policy that we have had.
Of course, you should be cautious in this market.
Now, if you want to hear the other side of the coin, I think we have also said for a couple of years that we want to improve our yield and be more competitive, which we have done. I think we both think that's also important. This is a discussion and weighing the pros and the cons. There are pros and cons. There are both a wish to maintain a good, attractive yield and being cautious and making sure that we have the funds available to us. This discussion changes what happens in the world. We can't control that.
We'll be back in Q4 with that. We have a question also from Lars before going on to the conference call.
Yeah, thanks, Lars , Lowlands Bank. Lars, you mentioned Denmark here in your comments. I think we all agree that it's a scale problem here. Building market share organically is a quite lengthy process. What other actions can you take to offset that? You mentioned the network-sharing agreement with Telenor to get the cost down. Are there any other actions you can take in the medium term to improve the profitability in Denmark?
Yeah, I think so. I think [Håkan, Ekstrom , Per-Arne] , and some other people, we are having a discussion now. What are we going to do? Are we just going to do more of the same? It hasn't worked for the past five years. I think we have to do something different. I'm not going to stand here and tell you what it is because I don't know yet. I might have a hunch of what I think it's going to be. Denmark is an important market. Let's not get that wrong now. It's our home market, but the profitability levels are not acceptable. We have to find a solution to this.
Let me repeat a little bit. Given the current volumes, given the current subscriber base, what type of EBITDA margin would you consider to be acceptable or reachable?
I haven't thought about it in the last couple of quarters because we're having this fundamental strategic discussion. What position do we have? What do you want to have? How are we going to, how does that company look like, et cetera? I do remember three years ago or four years ago when I came in here, I said, "You got to be at least at 25%, right?" We all said, "Yes, we should be at 25%," and now we're at 16%. We have a problem.
Denmark is also a bit different when it comes to the contractual length. You're just allowed to have six months.
Yeah, same for everybody.
The point is that the whole market has a lower margin, but we are at a lower range than that, and that we need to change.
Thank you, Lars. Operator, let's move back to the conference call.
Your next question comes from Andrew Lee from Goldman Sachs. Please ask your question.
Thank you. Just one question for me on Swedish broadband. We didn't see the size of improvement in EBITDA margin that we had expected following the second quarter headcount cuts, given you took all the costs for those in the second quarter. Why was this? Should we expect margin improvement acceleration into Q4? Thank you.
During the third quarter, we had some extra costs for phone tending, and that took down the cost decreases that you should have expected. That explains pretty much, I would say, the lack of impact from the cost side. It's still a good, good impact, but not as much as you have expected.
Are those extra costs repeatable in Q4, or are they one-off extra costs?
No, these kind of costs would have been repeatable for Q4 if we had the normal weather conditions.
Thank you very much.
Operator, let's take the next question.
Your next question comes from Terence Tsui from Morgan Stanley. Please ask your question.
Hi. Good morning. Two questions, please. The first one on the Swedish spectrum auctions. The pricing for the 1.8 auction appeared relatively high compared to auctions elsewhere in Europe. That's around EUR 0.25. Why do you think this was the case? Was it predominantly to avoid the cost and disruption of transitioning customers onto a different frequency band? The second question is just a bit more of a follow-up on Spain. In Q3, the revenue trends still appeared strong. Can you just give us a bit more color on why EBITDA came in significantly below consensus expectations? Also, do you see any signs for any price cuts at Yoigo to preserve your low-end brand position given the price moves over the summer by your competitors? Thanks very much.
If I start with the first question, yes, I agree. I think we all agree with you that the prices came in higher than we expected. I don't want to speculate why, but they did. I think, if I speak on behalf of the industry, we have to watch out. I think the authorities need to watch out. We all remember what happened 10, 12 years ago when those license costs skyrocketed and brought nearly down the whole industry. We are not even close to that now, but yes, they were a bit higher than we had anticipated. Having said that, I'm very pleased that we got those five slots because it ensures that Telia, the brand Telia in Sweden, can continue to deliver a network quality second to none.
I can take the question on Spain and the margin. Two reasons why it deviated, I think, versus consensus, Terence. One is that the competition has intensified in Spain during the summer and after the summer. You can see that from our churn rate going up to 35% from 32% last year. We still have the same subscriber intake, but it cost us a little bit more money to get those customers. Secondly, that you were probably not aware of, the 1,800 license that we bought in Spain, we started to pay a license fee. The annual license fee in Spain for that license is EUR 18 million. We paid roughly EUR 3 million in the quarter for that. That is probably something that you didn't capture before the result. You had a question also if we're going to lower the prices to follow competition.
I don't know if you want to comment on that, Lars, in Spain.
You have to ask the guys who run the business in Spain. I don't know.
Now we come back on that issue.
Thank you.
Thank you, Terence. We go on to the next question. Operator, please.
Your next question comes from [Ulli Schreitz] from Jefferies. Please ask your question.
Yeah, thanks very much. On Finnish broadband, Lars, you sort of mentioned that you believe there's nothing dramatic needed given current trends. Does this mean that sort of the mid-20s margin is the right margin? You're content with that at those levels roughly? Second question, vis-à-vis these milestones in Turkey. Obviously, you have said several times you don't want to comment on details, but can you give us just a general sense of what nature these milestones are? What sort of criteria are they related to if you don't want to get into the details?
That is detailed. I'm sorry. I won't comment on that. I understand your question, and I understand your curiosity, but I have said as much as I want to say. I think I might even just create more confusion if I said more because it's a complex agreement. I'm happy with the agreement, and I'm happy with so far what we have achieved. I won't say anything more than that.
I want to come to broadband in Finland. I don't think that we would speculate what is the future margin there. The most important thing is that you have a balanced approach between cost and also the top line. We are working with both things right now. What at the end of the day will be the margin will remain to be seen.
Thank you. All right. We still have a number of questions on the conference call. Operator, please.
Your next question comes from Peter Nielsen from [SEB]. Please ask your question.
Thank you and good morning. I have three questions, please. If I may return to Turkcell, Lars, your comments about the CMB's decision. Do you at this point have any understanding as to how the three so-called independent board members will be appointed and by whom? Secondly, at the Investor Day this summer, you announced the establishment of a new common network operation center for the Nordic Baltic countries to be established by year-end. We haven't heard much about it since. Is there anything you can share with us on your progress, good or bad? Thirdly, when do you think you'll be prepared to give us some more information on the network-sharing agreement in Denmark? I'm thinking the technical side and also the financial benefits you would expect. Thank you.
If I start with the last one, I think Håkan Dalsland said when we announced it that we weren't looking for financial improvements out of this in terms of historical data. We were really looking to share future investments, maintaining sort of the level we have today and not increasing the burden. To have a network with the quality that Telia and Telenor always insist on, we would have to invest a significant amount of money going forward in Denmark. By sharing it, that significant money is half, basically. It's really not making a lot of OpEx savings, but ensuring we have the right quality in the network also in Denmark.
Network operating center?
Yes, the NOC. The NOC is just the first milestone. I think the more important question, actually, is are we making progress in the multi-market operation? I think the answer is yes, with a little bit of hesitation because it's so early stage. The things that we have to do are complicated. It has to do with OSS and BSS technology. It has to do with people, maybe even some legislation. That's why I'm a little bit hesitant because I don't think I'm not hesitant because I don't believe we're going to do it. I'm hesitant that I don't have much proof. I know we are all very committed to this. I think this is, if it succeeds, which I believe it will, it will be the first time in the industry that we actually are taking synergies cross-border.
It doesn't happen very easily in this industry for maybe good reasons. We're going to prove it's possible. That's what Håkan, who is taking the lead, but Marlen with the broadband is following. I believe we'll have one NOC by the end of the year. Much more important is what are we going to achieve in the next year in terms of really making sure that we are able to take down cost and improve efficiency and improve quality of the technical management of our networks?
The first question was about the independent in Turkcell.
It is a new law, so you have to wait a little bit for the interpretation of the law. You asked who is going to appoint directors, and for me, that answer is very simple. It is the shareholders who appoint directors in the board, nobody else. I do think that the authorities will have some influence on the definition of who is independent and who is not. That is where I think we stand. As I said, we need to have a dialogue with the CMB and other shareholders and see how the practical interpretation or implementation of this law looks like.
Okay, thank you.
We'll see if we can squeeze in all the questions that we have. Operator, please.
Your next question comes from James Britton from Nomura. Please ask your question.
Thanks very much. First question is around your language of your views around fighting brands. You suggested this would be a transition that the consumer market faces. Do you expect fighting brands to gain traction in all your markets, including your home market, ultimately? Secondly, I've got a very detailed financial question. On slide 22, the free cash flow waterfall shows an increase in dividends from associated companies in the quarter. Which associate paid a dividend this quarter, please?
I can follow it on. It's telecom in the Baltics.
Okay.
On the issue of fighting brands, yes, we have seen a tendency in the last five, six quarters that the growth comes more from the fighting brands than the established brands. I'm not at all convinced that that trend is going to continue. I think it's important that TeliaSonera with our brand that normally are number one or number two, we try to take the premium position with the best quality in the network, world-class customer service, combine that with an efficient organization. That's sort of our strategy. We have to articulate the value of the premium brand and defend the premium brand. It's absolutely not in our interest that this whole industry goes to fighting brands only. That would be a bad development for us, I think.
Terence, follow up. In Sweden, you appear to have really diffused the power of the impact of the fighting brands. Do you think that that can continue indefinitely?
Nothing continues indefinitely, as far as I know. I think we have good management. Rikard Steiber runs the mobile business in Sweden, and we have Håkan preached already when he was running the business in Sweden. We are the number one. We should not start price wars. We will have to respond to them sometimes, but we will not start them if you are number one.
Thank you. Thanks, James. Operator, please.
Your next question comes from [Norris Patrick] from Barclays. Please ask your question.
Oh, hi. Yes, Morris from Barclays. A couple of questions. First of all, on Denmark, obviously, the network-sharing agreement in place will focus on the cost side. I wonder what plans you had on the revenue side to turn that around. It's a more longer-term question on that. On the roaming points you made earlier, Lars, how much money do you currently make, say, in the Swedish businesses from roaming? Clearly, offering cheaper roaming can stimulate demand. Obviously, it could cannibalize near to what you currently have. Perhaps give us a sense of how much you can make right now as a percent of revenues on, say, messaging and data. Thank you.
Can I try to answer the last one first, but not exactly the way you asked it? 12 years, 15 years ago, in this country, the price per voice minute was about 10x higher than it is today. The question is, do we make more money now, or did we make more money when it was 10x higher? The answer is we make more money now. We have reduced the prices by 90%, and we make more money now because of volume. This is a volume business. I am convinced that the traffic volumes will dramatically increase outside of the whole market, Sweden, for the Swedish customers when they travel if the prices are reasonable instead of being unreasonable.
If we go back to Denmark, you also talked about the revenue path. I think that, as Lars said, we will now be able to invest much more in this market as we could have done on the stand-alone basis. That will hopefully give us also more revenue going forward. That is an important part of this. We will never get the coverage that we get today together with another player.
Perhaps a very quick follow-up. On the roaming points, presumably, one of the barriers to this is on the cost side, in so much as you need all your other European partners to play ball. If you are to make, if you are to cut prices, then, of course, the wholesale costs of others don't cut that. That could, of course, impact the profitability. Do you think you can really influence that, or is it just down to regulation to cut it over time? I'd love your thoughts on that.
Yeah. I shared that in the beginning of this conference. I think the industry is coming together, not because of the regulation, but they are finally, the industry is finally coming together, realizing this is not a good policy. I believe we have been shooting ourselves in the foot for years having these kinds of prices. Yes, I do think that those operators that we have to negotiate are much more understanding of this argument. The problem has been as much ourselves in putting margin on top of those prices. It's not only the other side. It's also our own responsibility. Therefore, we have decided for this change. I feel very comfortable that we will make more money after this decision than before.
Thank you.
My colleagues indicated that we have two more questions. Let's try to squeeze them in. Operator, please.
Your next question comes from Dani Zeitun from Berunder. Please ask your question.
Hi. Good morning. Three quick questions, if that's okay. The first is on Finnish Mobile. I know you've churned away some subscribers this quarter, but the current headline numbers seem to suggest that you're losing share in Finnish Mobile. I was just wondering whether you could give me some color on the market developments, whether you are losing share, and how you plan to address that. The second question is on Spain and whether you still see yourselves as long-term investors in Spain or whether it's a market you'd consider exiting at some point in the future. The third question is on Kcell. I was just wondering how and who decides on whether the increase in stake is through Finto or directly through Telia. Thank you.
Should I start with the last one? I mean, it's a decision for the Fintur board and the shareholders of Fintur, which is Turkcell. If they say no, they're not interested, then Telia certainly will do the investment. That's how it works in Fintur.
In Finland, I think that we just have to wait and see when the other guys have reported. I think that we did a slight improvement in the third quarter compared to the second quarter. Let's wait with that one.
When it comes to Spain, I've said, what is it now, a year ago, I want the guys to go and play second half. We are playing second half right now.
Okay. Can I just ask one follow-up to the Kcell question? Does the current Turkcell board issues play into the decision that will be made by the Finto board in any way?
I don't know. I don't think so. I haven't seen anything of it.
Okay. Thank you.
Thank you.
There is one more. Let's take that one before we conclude here. Operator, please. Last question.
Your final question comes from Dominic Kleiman from HSBC. Please ask your question.
Yeah, thank you very much. Just a big picture question on regulation, please. There is this new idea out of Brussels to basically stimulate fiber investments by reducing copper ULL fees. It appears pretty counterproductive to me, but I'm just interested in how serious you take that threat and if it influences your ongoing fiber rollout.
Maybe just in more general terms, how you sense the E.U., E.U. Commission, is thinking about fiber regulation today, and if that has changed, I would say, in the last six months or so.
Yeah, I have spent some time in Brussels together with colleagues, not only telecom operators but also telecom equipment suppliers and content providers, under the chairmanship of Neelie Kroes. I've had two meetings. My perception of the Commission is that they are really anxious to put good telecommunication services to the EU people, and that will require a lot of fiber investments. The investments are huge. I think there is an understanding in Brussels that if that is supposed to be financed by private companies, there's got to be an acceptable investment environment for those investments. Otherwise, there won't be any private money. I don't think the EU is in a position to finance this whole fiber rollout. I have some expectations, actually, that it will be an interesting or at least an acceptable environment in which we can invest. That's how I feel about the fiber investment in Sweden.
It is an acceptable environment. It's not totally stable, but it's at least acceptable.
Do you think this idea of reducing copper ULL fees is rather unlikely to materialize?
I don't want to speculate on that. You asked for a big-picture question, and I gave you a big-picture answer.
Thanks. Very nice.
Good and important question, Dominic. Let's conclude with that one. Thank you for coming, and I'll see you here back in February when we present our Q4 numbers. Thank you.
Thank you.