Sweden

SEK million	2010	2009	Change
Number of customers (in thousand)	4,744	4,553	4%
Net sales, external	11,881	11,377	4%
EBITDA	3,272	3,184	3%
EBIT	2,201	2,134	3%

Key priorities in 2010

In 2010, Tele2 Sweden continued to focus on three areas: growth in the postpaid and mobile broadband segments, improved quality, and market share expansion in the business segment.

Tele2 Sweden pushed hard in the postpaid segment and the continued uptake of smartphones (mobile phones with text and data capacity that handle voice and data, and are able to download different applications) further boosted mobile data revenues and equipment sales. The uptake took off in the second half of 2010 with the introduction of iPhone in Tele2 Sweden’s handset portfolio. As a result, seven out of ten postpaid customers in Sweden bought a smartphone, the majority of them opting also for a data subscription at the end of 2010. This development is not expected to stop as Tele2 Sweden expects to be able to offer a greater selection of attractively priced handsets, making it possible for the company to also address the prepaid market with smartphones.

To capitalize on the mobility trend among customers in Sweden, Tele2 continued the roll-out of the 4G network. In the fourth quarter, Tele2 Sweden commercially launched 4G offers to the consumer and business customers in five major cities in Sweden. The roll-out progresses according to plan. Tele2 expects to cover more than 100 cities by the end of 2011 and to have 99 percent population coverage by 2012. Faster mobile connections allow the customers to do everything they are used to doing via the fixed ADSL connection, but through the 4G network.

Despite tough market conditions, Tele2 Sweden managed to show strong results through quality-enhancing activities, combined with cost containment efforts. The ongoing upgrade of Tele2’s system has started to show results. Cost efficiency was improved by Tele2’s cost effective networks.

As to the business segment, Tele2 Sweden completed the acquisition of Spring Mobil. The one-phone solution will further strengthen Tele2’s product portfolio and position within the SME segment. The continued focus on integrated services led to the acquisition of a number of customers to whom the product communication as a service is particularly important. The customer segmentation within the business segment generated a higher ARPU (average revenue per user) development and the customer base continued to grow, as the domestic economy strengthened.

The total mobile broadband customer base amounted to 361,000 (274,000) in 2010. Tele2 Sweden secured the number one position in the prepaid mobile broadband market. The total mobile net intake amounted to 212,000 (205,000) in 2010. Net sales for mobile services grew by 8 percent to SEK 8,474 (7,877) million. EBITDA contribution for mobile was SEK 2,803 (2,661) million in 2010, affected by an increased amount of subscriptions sold with monthly instalments. Tele2 Sweden showed continued profitability within the prepaid voice segment with an EBITDA margin of 48 (49) percent. The mobile operations in Sweden reported an ARPU of SEK 186 (187). ARPU for mobile broadband increased during the year to SEK 130 (112). MoU per customer, excluding mobile broadband, increased to 242 (230) in 2010.

EBITDA of Tele2 Sweden includes invoiced costs from the joint ventures SUNAB and Net4Mobiliy of SEK -491 (-417) million in 2010.

Tele2’s broadband services also showed profitability in 2010. During the coming year, Tele2 expects demand for high-speed access to increase. Tele2 will meet the increased demand for data capacity by further developing its LAN business, and by complementing its fixed broadband services with a high-speed mobile broadband network (4G).

Again, fixed telephony reached profitability and positive cash flow during 2010, and Tele2 managed to defend its market position in that segment. Mobile and fixed services are converging, a trend that Tele2 capitalizes on by offering the latest product Home telephony via the mobile network. This product enables the customer to keep the home phone, but over the mobile network, making it a simple and cost efficient solution for all parties.

Challenges to address in 2011

The postpaid strategy of investing in high ARPU customers will continue into 2011. A stagnating market with fierce price competition and decreasing termination rates will put pressure on margins. Tele2 expects to deliver revenue growth through postpaid sales that generate higher ARPU. Tele2 will attract customers by responding to the increasingly price-conscious market as the undisputable price leader. Growth in new areas will also contribute to increasing sales, e.g. mobile broadband, mobile advertising and mobile payments. Tele2 expects an increased growth in data as customers go mobile. Voice over IP is still on very low levels, but Tele2 will monitor the development going forward. In addition, profitability will be enhanced through cost savings from operating joint-venture networks, the efficient use of distribution channels, stronger focus on online activities, and increased levels of self-service. Furthermore, Tele2 continues to roll-out the combined 2G and 4G-network through the joint venture Net4Mobility as cost efficiency is a necessity to be a price leader.