Tele2 evolves further, embraces LTE

Monday 19 September 2011 | 16:26 CET | Background

Tele2 held its 'Capital Markets Day' in Stockholm on 15 September. The company gave presentations on its different country and regional operations, including new targets for Croatia and Kazakhstan. The management was upbeat. The company's profitability is improving, supporting an increase in the ROCE target from 20 to 24 percent. It continues to target an EBITDA margin of 35 percent for its mobile operations with their own networks. Tele2 is now focusing on a further improvement in results and increasing scale. The company maintains the idea that a market leader with a 50 percent market share should be able to achieve an EBITDA margin of 50 percent. For the number two player, with a market share of 35 percent, a 35 percent margin should be possible, while the number three with 15 percent share has a margin of 15 percent. This underlies the company's target that each of its country operations should target a top-two position in their market, based on subscriber numbers.

Tele2 is active in 11 countries, split across the following regions:

  • Nordic: Sweden and Norway
  • Central Europe and Eurasia: Estonia, Latvia, Lithuania, Croatia and Kazakhstan
  • Russia
  • West Europe: Netherlands, Austria, Germany

Tele2’s ‘Best Deal’ proposition means low prices in emerging markets such as Russia and Kazakhstan, while in its mature markets, such as Sweden, Norway and the Netherlands, the company is reaching out more to SMEs to market the ‘Best Deal’.

The focus is on mobile, but in the Netherlands and Austria, the business market is also important. In Germany, the company is making a first step towards mobile services, as carrier pre-select customers are moved to GSM handsets that resemble Dect phones. By porting the fixed number to these lines, line rental is no longer due to Telekom Deutschland. Customers will also no longer need to worry about two bils (one for line rental to Telekom Deutschland, one for services from Tele2). Around 1.1 million customers have already moved to the new service since May.

Sweden is also an interesting market. While it’s Tele2’s home market, the tough competition means the operator has yet to reach the targeted 35 percent EBITDA margin. It’s building a LTE network together with Telenor, in the Net4Mobility joint venture based on network sharing. Notably the company plans to launch LTE in early 2012 as a DSL replacement service. It’s developed a new router that can support LTE both as a mobile and a fixed wireless service. The company makes grateful use of the advantages of LTE over HSPA with the service, noting that every new release of HSPA requires more effort to implement, with less added value than the previous version. This supports the move to LTE, a technology known for its highly efficient use of spectrum and very low latency. In addition, Tele2 Sweden is selectively deploying FTTH and FTTO. In short, it’s clear the Swedish operations are the cradle of invention for the entire company. Tele2 also plans to push LTE as a replacement for fixed lines in other countries.

Conclusion: things are going well at Tele2. The company has formed a well-defined portfolio, and management is already talking cautiously about more geographic expansion, likely in Eurasia. Further consolidation is also expected in the Norwegian market. The different country operations are learning from each other, whether it has to do with LTE, FTTx or the business fixed market. This strengthens its business case, leading to expanding margins. With the new auction conditions in the Netherlands, Tele2 will also likely soon be making another big step there, to create its own network infrastructure. Even in Germany, the company is not giving up and making its first steps in mobile. Tele2 is completely embracing LTE and also using the technology for fixed wireless, as a DSL replacement. The business market is still limited largely to the Netherlands and Austria, with a growing share in Sweden, where FTTO is being deployed. Over the long term, this offers a market for Tele2 to seek further growth in the other countries, possibly also through acquisitions. 

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