Russia

SEK million	2009	2008	Change
*) Including changed definition (see Note 5)
Number of customers (in thousand)*)	14,451	10,422	39%
Net sales, external	7,540	6,809	11%
EBITDA	2,473	2,368	4%
EBIT	1,822	1,834	-1%

Key priorities in 2009

The Russian operation is Tele2’s most important growth engine. Tele2 has GSM licenses in 37 regions in Russia covering 61 million inhabitants. The Russian operations consist of 17 old regions and 20 new regions, the main differentiator being the maturity level of each operation. The licenses for the 20 new regions were received in 2007 (some of the new licences offered to operators have been challenged in court due to alleged non-compliance with license terms). In 2009, 18 new regions were launched.

Tele2 Russia can during a transitional period be split into three categories depending on maturity level: Newcomers, Challengers and Defenders.

The 20 new regions in Russia are predominantly seen as Newcomers. The main goal in these regions is to acquire customers and expand market share. Through clear price leadership, wide distribution and innovative marketing, Tele2 can quickly expand its market position.

In 6 out of 37 regions, Tele2 acts as a Challenger. When moving from a Newcomer to a Challenger position, Tele2 Russia will increase its focus on ARPU development and retention activities beyond the strong focus on subscriber acquisition.

Tele2 Russia is market leader/Defender in 11 out of 37 regions. As a market leader, Tele2 focuses on retaining its existing customer base and maximizing its contribution. Through simple and easy-to-understand pricing plans, combined with attractive add-on services such as data access, the company is able to improve average revenue per user in mature regions.

Tele2 Russia’s total customer base amounted to 14,451,000 (10,422,000) per December 31, 2009. The competitive environment in Russia is, and will continue to be, very tough. Tele2’s main differentiator, as in all countries, is a clear price leadership position. However, as the market evolves it will become increasingly important to find other means of differentiating against the competition. The marketing campaigns based on the “La Famiglia” concept were very successful in 2009. Tele2 has also been recognized for market leading customer care. Customer perception is even more critical when the total customer base uses pre-paid services.

In 2009, Tele2 Russia successfully pursued its strategy of improving the operational contribution of its more mature regions to support the roll-out of commercial networks in new regions. Tele2 gained 2,947,000 (1,858,000) new customers despite a weak economy. The development of existing regional and federal retail channels, as well as the introduction of new means of distribution, also contributed to the strong customer intake in Russia throughout 2009.

Despite an impact from customer base growth in new regions, MoU for the total operations increased by 7 percent compared to 2008, amounting to 215 (201). ARPU amounted to 50 (54), despite a strong customer intake in new regions. The general pricing environment remained highly competitive throughout the Tele2 Russia footprint.

Tele2 Russia continued to deliver solid financial performance throughout the year. Revenue grew by 11 percent in 2009 compared to last year. The EBITDA margin development was robust, driven by strong operational performance in the more mature regions, focusing more on customer retention measures and stimulating usage rather than market share. EBITDA in the 17 mature regions amounted to SEK 2,950 (2,487) million, equivalent to a margin of 40 (36) percent. EBITDA in the new regions amounted to SEK -477 (-119) million.

Challenges to address in 2010

To be able to expand and also develop Tele2’s operations in Russia, it will be important to secure that the company obtains new licenses. Tele2 Russia will continue to look for the possibility to receive 2G licenses in regions where it does not yet operate, as well as securing next generation mobile licenses in its existing footprint in order to future-proof its operations.

Distribution will remain an important differentiator in the Russian mobile market. Tele2 Russia will continue to pursue its multi-pronged approach with local distributors together with federal dealers and mono brand stores. In 2010 it will be important to develop long term relationships with all parties and secure a well performing distribution network.

In 2010 it will continue to be important to balance improved profitability in Tele2 Russia’s more mature regions while aggressively launching mobile services in its new regions.

Tele2 Russia will continue to look for possibilities to carefully expand its operations in Russia through new licenses as well as by complementary acquisitions, which fit with its corporate culture.