TeliaSonera chooses for cost focus, cooperation

Wednesday 15 June 2011 | 15:31 CET | Background

TeliaSonera presented its strategy at a recent Investor Day in Stockholm. TeliaSonera's main operations are in the Nordic region (Sweden, Finland, Denmark, Norway) and the Baltics (Estonia, Lithuania, Latvia). TeliaSonera is the incumbent there, apart from in Norway, Denmark and Latvia. The company is also active in Eurasia (Turkey, Russia, Moldova, Georgia, Azerbaijan, Kazakhstan, Tajikistan, Uzbekistan, Nepal) and Spain.

At the group level, an important target has been set for each subsidiary to be number 1 or 2 in its market. The company has ruled out a bid for Polish mobile operator Polkomtel, in which Vodafone has a minority stake, despite it holding the number-two position after TP/Orange (the incumbent, controlled by France Telecom) and just ahead of T-Mobile (recently renamed from Era/PTC). In addition, TeliaSonera announced plnas to invest in VDSL and fibre in its Nordic and Baltic markets. It’s also working on tiered pricing, both in fixed and mobile. In mobile the distinguishing elements will be speed, volume, quality and new services (such as surcharges for mobile VoIP). For fixed, the parameters are only volume and quality.

Targets maintained, focus on costs

The guidance for 2011 remains:
o Organic revenue growth of 3 percent
o Higher EBITDA marging
o Capex at 13-14 percent of revenues

The focus is strongly on cost containment. In the mobile market, TeliaSonera aims to be a cost leader. The main goal is to reduce complexity:
o Streamlined IT
o Fewer suppliers
o From six to one NOC (network operations centre) in the Nordic/Baltic region
o Lay-offs in Sweden and Finland
o Network sharing in Denmark with Telenor
o 4G: LTE is eight times more efficient than 3G


Based on the above, the targets for the medium term are as follows:
o Slower increase in costs than revenues
o Capex at 10-15 percent of revenues (8-12% in Nordics/Baltics, 15-25% in Eurasia)
o Net debt at 1.5-2.0 times EBITDA
o Minimum 50 percent of net profit paid out as dividend
o Excess cash returned to shareholders (via share buybacks)


High mobile data growth

TeliaSonera has a notable strategy when it comes to net neutrality. It’s both charging for extra services such as mVoIP and asking for fees from OTT providers for ‘high-quality’ access. This is a strategy that has attracted criticism on an international level (see our commentary ‘Net neutrality offers operators more opportunities than threats’). This comes despite TeliaSonera showing excellent growth of 6 percent in its total mobile revenues through rebalancing: traditional revenue did fall 8 percent due to price pressure and regulation but other sources generated growth of 14 percent, through heavier usage, smartphones, mobile data, substitution and apps.


The increase in mobile usage is evident in research conducted in April 2011 compared with the year earlier. This shows a number of interesting figures:
o Traditional handsets: down 15 percent to 3.1 million units. Average 7MB per month per subscriber, up 80 percent.
o Smartphones: up 150 percent to 1.2 million units. Average 300MB per month per subscriber, up 70 percent.
o Laptops: up 40 percent to 750,000. Average 1.3GB per month per subscriber.


The focus on fibre is positive (with open access for other service providers), as is the choice for LTE. This not only boosts capacity, but also helps costs (opex). The move to FTTx is happening not only where TeliaSonera is the incumbent, but also in Norway and Denmark – via partnerships. Cooperation, such as through network sharing, and efficiency improvements are also important. And finally, the focus on emerging markets, with a low penetration, is important for growth. Mobile data also offers a chance in these markets, due to the low penetration of fixed markets. Although in 2010, it was Spain surprisingly enough that contributed the growth.



With an eye for cost control, cooperation, new networks and emerging markets, TeliaSonera has a solid basis. Looking at its valuation as well (enterprise value divided by estimated EBITDA for this year), TeliaSonera (6.8) Is well ahead of its competitors (Deutsche Telekom 4.8, KPN 5.1, Telefonica 5.6).

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