Thank you for standing by. Welcome to the Telia Acquires Phonero in Norway conference call. At this time, all participants are in listen-only mode. There'll be a presentation followed by question answer session. At which time if you wish to ask a question, you'll need to press star one on your telephone. I must advise you this conference is being recorded today, Monday, 7th of November, 2016. To handle conference service you speak today, Christian Luiga. Please go ahead, sir.
Good morning. Thank you very much, welcome to this short, brief presentation on the acquisition of Phonero in Norway. I am here today with Jesper Wilgodt, Investor Relations, and also Abraham Foss, our CEO in Norway, that will help me to guide you through this presentation. I will start out briefly here to say I am very happy to announce this today. There is a presentation on our web page on this acquisition. You have seen the press release, but there is also a presentation on the web. Please find your way there. The acquisition is the second in Norway now in 2 years' time. It is part of our strategy of strengthening our position and shaping a Nordic growth footprint. This is a good acquisition, similar to the Tele2 acquisition made 2 years ago, or announced 2 years ago, and got approval one and a half year ago.
We are closing the gap on the B2B segment in Norway. We have said that we want to close the gap both in B2B and in the fixed to improve our converged offering in B2B and B2C. The synergies are very similar to the Tele2 acquisition. Thus, it is a good customer base with a good employee base. Meanwhile, the biggest synergy will come out of the transfer of customers onto our own network, and we will come back to that. This is a deal that is subject to approval to the Norwegian Competition Authorities, that is the only thing outstanding, and we expect that to close in quarter one next year. I will now leave to Abraham to go through a little bit what Phonero is, the way to create a full service provider with this acquisition, our B2B market position, and the strategic match.
Please, Abraham, have the floor there.
Thank you. Phonero is a Norwegian operator founded in 2008 and have built up a position in the B2B segment, also including a recent acquisition of Ventelo two years back in time. The operation is directed towards small and medium-sized businesses as well as the public segment, and they have approximately 250,000 mobile subscriptions into 25,000 invoiced customers. The organization comprises of roughly 180 employees, and it's a full service offering, with the net sales of NOK 1.1 billion with an adjusted EBITDA of a little bit north of NOK 200 million expected for this year. As Christian told, there are two major things that we've done in Norway during the last two years. One is the acquisition of Tele2 and thereby building a strong position in the B2C segment, just a little bit smaller than Telenor, but not much.
We have a very strong position with B2C segment. On the same time, we've invested significantly in an upgraded network in Norway, with now award-winning network both from a quality point of view, for coverage point of view, and from a speed point of view. That's the two major things. This third element is then completing the B2B segment and making us more competitive in the more complex B2B segment. As such, it's important part of a long-term plan. The strength in market position in B2B is both linked to the market share in itself, where we will then have a combined revenue market share of roughly 27%.
We will then also in especially two specific segments, meaning the public segment, they have some large public organizations in Norway, among them police and the defense army, and as well as the SME segment, and as I mentioned, roughly 250,000 subscriptions. I think in the strategic fit then, we end up with a portfolio of brands with both Telia and Phonero in the B2B segment, as well as Telia, Chess, MyCall, and OneCall in specific segments within the B2C segments. We complete our weaknesses from a segment point of view, and we increase our go-to-market muscle in the B2B segment. We complete our product and service offering, which we can then use across our whole customer base. Also, Phonero brings a very good process-oriented culture into the B2B segment, which we also intend to capitalize on across our company.
I think that gives an overview of the strategic rationale, and then maybe, Christian, you should then move on the synergy history.
Thank you very much, Abraham. Yes, we have a strong synergy track record in Norway. We have acquired Tele2, we have realized synergies above SEK 1 billion since that acquisition. That was also in line with what we promised. We have also continued to improve the EBITDA in the Norwegian organization in quarter three. Now we announce this deal where this is an operation that has around 20% EBITDA margin or NOK 200 million in profit standalone. We estimate yearly cost synergies of NOK 400 million to come through fully in 2018. These will be limited in 2017 based on that the deal is not expected to be approved until quarter one, it will be a transition of the customers over that year.
The margin will go down slightly in total, meanwhile be very close to the current one because this is a small addition in the total. The net debt impact from this deal will be minor, as this is an accretive deal after the synergies. Summarizing, I think I like to remind ourselves again what Abraham said about our network in Norway. Since the Tele2 acquisitions, we said all support of that acquisition was to increase the speed of the CapEx roll-out in Norway and was expected to be done up till 2019, to be on par with Telenor, that is something we succeeded, I think, with very well with what we got this summer. This also helps us now when we take the next step in Norway, adding these customers, they will be sort of welcome to a network that is on par in Norway.
We will strengthen our B2B market share, be a good vendor, also a good competitor in the Norwegian market. We have sizable synergies that we also have shown in the past that we can deliver on, this is really a good strategic fit and will improve our customer offering. With that, I'd like to lead to Q&A from the audience, if there's any.
Thank you. We'll now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, that's star one if you wish to ask a question. Your first question comes to line of Robert Horwich. Please go ahead.
Good morning, everybody. I was just wondering, this is a consolidation between number two and number three in the market. Do you see it going through without any remedies, or could it be some pushback on that? Since this consolidation, do you expect better pricing, a better market going forward as what I assume is one of the more aggressive players is taken out by you? Thank you.
I think we will pass on any market repair discussions on the pricing. We have been focusing on a good customer base and the synergies from the cost side as we get through. I leave to Abraham to elaborate a little bit on the regulatory part, which is a Norwegian regulatory question, not European.
Based on the history and the dialogues that we have continuously with the authorities, we definitely expect this to go through. This is a specific dynamic in the B2B segment, and Telenor is very strong in that segment already. This deal will actually increase the competition in the B2B segment based on that fact. We do not expect any remedies to occur. This is a fairly straightforward company and segment base.
Okay. Thank you very much.
Thank you. Your next question comes from the line of Usman Ghazi. Please go ahead.
Hello, gentlemen. Thank you for taking the question. In that it shows that while Telenor has a very high market share in business mobile, in the fixed broadband segment, Telenor's market share sitting at around 27%. Mainly the market share being taken by the utility companies now. The incumbent has lost so much share in Norway in B2B because of the strength of the utilities. Why does Phonero improve your strategic positioning specifically? Thank you.
Abraham, you want to take that question, please?
Yeah. Yes, sir, I will, to the extent that I might not have fully understood it. Let me try to explain it, and then you can guide me with a revised question. Telenor has between 60% and 70% market share in the B2B segment in Norway. They are very strong and dominant player. On top of that, they have then also MNO players like Phonero today, meaning that they cover a lot on that market. Through our doubling of our market position through our existing between 13% and 14% revenue share and Phonero's between 13% and 14% revenue share, we will both have a customer base which is much broader, especially within both the SME segment and as well as the public sector, which is important.
In addition, it will strengthen our position because Phonero has a pretty smooth go-to-market muscle, which we intend to capitalize on going forward. They will also complete on the product side, especially on mobile switch for capabilities, which we also will capitalize on going forward. It's also so that in the B2B segment, there are enough specific issues that you need to address and set up. By having this more scale within the B2B segment, it makes us able to focus with a scale and force which is better than the existing, relatively speaking, limited position compared to the B2C.
Okay.
Even, I'm not sure if that answered your question, so please guide me.
Yeah, no, that partly does. You focus it with Phonero's on the mobile market, I guess, in the business segment, where Telenor don't have a high market share.
Oh, absolutely.
Yeah.
Absolutely. They have a broad offering.
Phonero has the ability to cover all communication services from a big, also network agnostically. The main focus in Phonero is definitely from a mobile point of view.
My follow-up question would be that if I look at the fixed broadband market in the B2B segment, it's the utilities that have a very high market share. It seems around 40%, with Telenor's market share having gone down to around 28%. Given the benefit of cross-sell in the B2B space, should we be looking for follow-up kind of collaborations with the utility companies if you're really going to make a push in this segment?
Christian, I'll allow myself to answer that.
Yeah.
We have just launched in the Telia brand cooperation, our Telia fiber, where we actually go together with the company Broadnet out in the market. It's a good question in terms of being able to cover, to deliver services both from a mobile point of view as well as from a fixed point of view. Phonero's doing that today, and we're also doing that with Telia. The next question or next aspect of the question is to what extent do we need to own that kind of infrastructure also in the future? That's a longer question, and Christian referred to that as a part of the long-term strategic question within our convergent story within the Telia Company. Short term, it's actually more important just being able to cover those needs for the customer.
Mobile is by far the most important angle in the B2B segment short term.
Great. Thank you.
Your next question comes from the line of Mads Mørch from DNB. Please go ahead.
Hello, good morning. The acquisition today, you've become very strong in corporate mobile, and now also you're very strong in consumer mobile. Do you have ambitions also to move into TV, perhaps in Norway or further grow the business into other segments?
I'll take that, Abraham. We have said that we want to, in all Nordic footprints, work with our converged offering, and this is very set on the corporate side, as you say. We will come back to how we see it on the fixed side. We have said that we are continuously looking at the fixed side also in Norway, but without specifying exactly how and when we will be able to do something there.
Okay, thank you.
Thank you. Your next question comes from the line of Peter Nielsen. Please go ahead.
Just a quick one, please. You're not mentioning, talking about integration costs. Will there be any of any significance on this purchase? Thank you.
Abraham, you want to mention that, or there is some slight integration cost, but they're not that high, actually.
We have calculated with some slight integration costs linked to two issues. One is to make sure that we are offensive in the bigger customers where there might be some need to extend our network Specifically, that can only be accurately measured as we implement. As well as there's going to be a customer integration, of course, migration, of course, with the Telia SIM cards. That will be adjusted for. That's not the significant part of the business case.
Relatively minor?
Relatively minor, yes.
Thank you.
Thank you. Your next question comes the line of Henry Phillips. Please go ahead.
Yeah, thanks very much. I just want to follow up a little bit on Broadnet and the cross-sell potentially seeing between Phonero and Broadnet. And also if you could elaborate a little bit on what you actually get access to with Broadnet, if that's mainly a fiber to the business thing and a little bit about that footprint and the cross-sell opportunity with Phonero. Thanks.
Abraham, you give some thought here, a brief answer on that, on Broadnet side?
On the Broadnet side, Broadnet is a fixed, as you probably know, and that's why you ask, the B2B, focused player with also on the transportation network. We have a relation to Broadnet, both in terms of white labeling their offerings out in the Telia fiber market, as well as also looking into extending our part of the mobile network or the fixed part of the mobile network. Other than that, this transaction will not have any, if I understood you correctly, this transaction will not have any significant impact on that part. The question is whether how is our relation to Broadnet in a long-term conversed setting, but that's a different matter, and I don't think I should comment upon that as such.
Okay, thanks.
Thank you.
Next question comes from the line of Adam Fox-Rumley . Please go ahead.
Thanks very much. I wondered if you could talk about the go-to-market strategy of Phonero. Are there any substantial differences with Telia, for example, does it have different or better relationship with channel partners, for example? Secondly, I wondered if you could just make some comments around the level of churn in the B2B market at the moment. Is it better or worse than the consumer market, and how would you expect that to evolve? Thanks.
Okay. Abraham, if you give it some flavor on the go to market, the churn, I'm not sure if we have all the data points on that, but you can give some kind of high level view on that also compared to the overall churn that we have provided in our results, Abraham.
Well, the churn is relatively smaller than in the B2C segment. That's of course linked to the more complex offerings and the more tightly sort of, I wouldn't say integrated, but tightly linked between any supplier or operator and the customer. I don't think I want to go into percentages here, because then that varies from segment to segment, and it's a big difference between the public segment as opposed to the private segment and so on and so forth. In general, I can say that Phonero has had a good churn history and has had a long-term standing with the major customers who are very enthusiastic about that. When it comes to the go-to-market model, it's different, and that's intriguing, because they are running a tightly managed agent model with a very strictly process-oriented and a very hungry sales organization.
Typically a smaller type of business run with very strong incentives mechanism, but managed centrally in terms of having strong focus on the many dialogues that takes place with the customers. They have more than 100 agents engaging in a very strictly managed customer dialogues. That is different than the broader channel setup that we have in Telia. It complements the way we are operating, and we're definitely going to spend a lot of time, and there's a limit what we can discuss in detail these kind of issues before we actually engage together. Definitely we're going to leverage on both angles going forward. We do not intend to just swallow the go-to-market operation in Phonero and then put it into a Telia context. We're definitely looking into how we can leverage these kind of mechanisms in the broader context.
That's what we're going to spend a lot of time in 2017 on doing exactly that.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. We have another question from the line of Usman Ghazi. Please go ahead.
Okay. Thank you for taking the follow-up. Just on synergies, I mean, you mentioned cost synergies, but there are no revenue synergies being indicated. I was just wondering if you could give us some idea of how to think about that. Thank you.
I think we will not guide you on the revenue synergies as we have done also the cost. This is a deal where we have clear cost synergies, and they are NOK 400 million, and that is what we will focus on. As Abraham said, this may bring more competition actually partly in the market, but it is a strong, still strategic fit and addition to our offering, and will help us driving our business case. That's all we will say.
Okay. Sorry, the purpose of the question was just to gauge whether this is a cost savings driven deal or whether this is something broader than that.
Yeah, we present it as a cost saving driven deal.
Okay.
It also over time will strengthen our position in Norway and help us to drive the B2B area, which is something we need to strengthen. That's why it's going to help us also on the offering side. We're not going to guide you anything on sort of revenue synergies on top of this.
Okay.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. No further questions at this time, sir.
Okay, good. I thank you all for participating today. It's been good to have you on board and listen to this very positive deal. Thank you, Abraham, for helping me through this press conference. I'll talk to you all soon again then. Thank you.
Okay. Bye-bye.
That does conclude our conference for today. Thanks for participating. You may all disconnect.