CEO comment

Taking it to the next level. Together.

We achieved several important milestones during the second quarter of 2010. The availability of more affordable smart phone handsets contributed to the creation of a mass market, benefiting Tele2’s more value-oriented customers; we improved the mix of our handset portfolio in Sweden; Tele2 Russia exceeded 16 million customers and the new regions started to reach profitability; and Tele2 Croatia attained EBITDA break-even. This positive momentum will take Tele2 to the next level.

Russia

We are satisfied with the general trend in our Russian operation, particularly in the new regions. During the last 12 months, we have added over 4 million customers and, on a federal level, Tele2 Russia is now the clear number 4 player by revenue and customer market share. Customer turnover was lower and usage levels higher than planned for the quarter. The new regions of Tula and Orel reached EBITDA break-even on a monthly basis only nine months after commercial launch, proving again the strength of our roll-out model. The overall operational development was also steady during the quarter, with a solid net intake and a record high EBITDA margin.

Nordic

As mentioned earlier, smart phones are becoming mass market devices in Sweden. Declining prices and an ever-growing selection of handsets are fuelling faster-than-expected growth in this segment. The increasing demand for mobile data constitutes an attractive source of revenue for Tele2, reflected in our Q2 2010 result. In July, Tele2 announced an agreement with Apple thanks to which we will offer the iPhone to our customers. This will help us broaden our handset portfolio and further strengthen our position in the postpaid segment.

The roll-out of the 4G network in Sweden is proceeding at full speed, giving us valuable experience of the new technology and of cost efficient network building. We intend to leverage and develop this knowledge in our other markets to the benefit of all our customers.

Central Europe & Eurasia

During the quarter, we have seen signs of economic stabilization in the Baltic region and believe that our operations will start benefiting from this trend during the second half of 2010.

At the Capital Markets Day in September 2009, we committed ourselves to achieving EBITDA breakeven in Croatia during the second half of 2010. We are proud of the fact that we managed to reach the goal as early as during the second quarter. Tele2 Croatia is definitely on the right track to meeting the targets set for a Tele2 core market.

In Kazakhstan our immediate focus is to prepare the organization to relaunch our mobile operations under the Tele2 brand in the 1H 2011.

Western Europe

As the challenger and second player in the Dutch business segment with a market share of almost 10 percent, we see good potential to enhance our current position. With the announced acquisition of BBNed we will further strengthen our position in the corporate and consumer market, enhancing the scale of our Dutch operations.

In Austria, we have made some tough decisions and streamlined our product portfolio to become a successful niche player. We will continue to lay emphasis on the business segment, a strategy that has already proven fruitful.

Going forward our strategy is simple – Tele2 always offers the best deal.

Lars Nilsson
CFO & Interim President and CEO, Tele2 AB