Tele2 AB (publ)

Good morning, everyone, and welcome to Tele2's report call for the first quarter of 2022. With me here in Kista, I have Charlotte Hansson, our group CFO, Henrik de Groot, our chief commercial officer, and Stefan Trampus, our head of B2B. But before we go into the results for the first quarter, I'd like to say a couple of words about the war in Ukraine that has had a profound impact on society as a whole and for the people here at Tele2. The war has caused major uncertainty and stress for all of us, and we are participating in efforts to help some of the people that are suffering from the atrocities by temporarily offering customers in Sweden, Baltics, and Ukraine free calls and text messages to and from Ukraine and free roaming for customers located in Ukraine. And then I'd like to turn your attention to the results of the quarter, moving to slide two. I'm really happy to see a great start to 2022. both in terms of end-user service revenue and underlying EBITDA growth. End-user service revenue grew by 3% for the group, driven by both the Baltics and Sweden B2B. It is especially encouraging to see the impressive dynamics within Sweden B2B that now is able to grow with 3% in end-user service revenue. The strong end-user service revenue growth, together with continued growth within Sweden wholesale and execution of the business transformation program in Sweden, resulted in underlying EBITDA growth of 6% for the group. As we previously have announced, we are happy to see the T-Mobile Netherlands transaction finalized, and with the proposed extraordinary dividend from the cash proceeds and the proposed ordinary dividend we are able to offer our shareholders a significant dividend yield for 2022. I'm also happy to see the new strategic partnership together with Viaplay that we announced in the quarters. Through this agreement, we are able to modernize our TV proposition and prove that our aggregated model, which historically has been successful in the linear world, also works in the streaming world. Within fixed broadband, we see continued strong performance, both from an ASPU and volume perspective. And in the TV segment, Tele2 Play Plus continues to provide promising results ahead of the new TV propositions. We continue to see an improvement within Sweden B2B and user service revenue driven by the mobile and solution segments. Within the mobile segment, we see the improvement coming from both a volume and aspect perspective, which is very promising. Even though we have not seen any material impact on supply chain issues in this quarter, we prepare for different scenarios and continue to monitor the situation. In the Baltics, we experienced yet another quarter of fantastic performance, both in terms of end-user service revenue and underlying EBITDA. Here, we see more pressure from a cost perspective than in Sweden, especially in terms of electricity costs, which offsets some of the underlying EBITDA growth. We also, in a quarter, further improved our spectrum portfolio by acquiring spectrum in Latvia in the 1500 MHz band. Let's then move over to the Swedish consumer segment on slide four. Mobile post-bates saw lackluster net intake as competitors ran intense campaigns and high commission in external retail during the quarter, while some COVID-19 restrictions still hampered market activity. Mobile auspices saw a slight decline in the quarter, partly driven by a 10 million SEC negative one-off in the quarter. Fixed broadband continues to show good performance, both from an ASPU and a volume perspective. And we see that the price adjustments that we did last year are continuing to have a positive effect on the base. In digital TV, cable and fiber, we see continued contribution from Tele2 Play Plus, which helps to grow the ASPU in the quarter. However, the overall customer base continues to decline, which hampers end-user service revenue growth. Moving to slide five. Mobile postpaid end-user service revenue was flat in a quarter, as a slight ASPU decline was compensated by slight volume growth. We see continued end-user service revenue growth in a fixed broadband of 4%, driven by both ASPU and volume growth. Total end-user service revenue for digital TV declined by 4% in a quarter, primarily driven by continued decline in the legacy DTT TV service due to a declining customer base. Then let's continue with Sweden B2B on the next slide. The mobile net intake continued to be strong in the quarter, driven by new contracts, both within SME and large segments. The mobile aspect trend continues to show improvements, with a slight decline of just 1%. Continued mobile volume growth and strong growth in the solution business was able to fully offset the decline in the legacy fixed business, resulting in Sweden B2B growing end-user service revenue by 3% in the quarter. And then let's turn for an overview of Sweden. End-user service revenue was flat in Sweden, as growth in Sweden B2B was offset by a continued decline in the legacy services within Sweden Consumer. Underlying EBITDA increased by 5% in the quarter compared to last year, driven by slight end-user service revenue growth, Sweden wholesale, and contribution from the Business Transformation Programme. We should note that the mechanics of our negotiations with NEMT led to some cost avoidance in Q1, and that costs related to this contract will apply going forward when we use more content to upsell and promote growth in the TV business. Overall, we continue to see strong cash conversion of 65% as continued underlying EBITDA growth offsets higher capex levels. And then let's move to the Baltics. And we are happy that, similar to previous quarters, we continue to see strong volume and aftergrowth in all markets, as roaming is starting to come back in a meaningful way, and we are able to monetize data through our more-for-more strategy. In Estonia, we were able to successfully execute on our customer acquisition campaigns, which yielded a good net intake for the quarter. And then moving on. This Australian volume growth led to a strong end-user service revenue growth for all markets, and we saw the Baltics grow by 13%. The end-user service revenue growth in the quarter was able to offset the increased pressure from rising inflation rates, which resulted in underlying EBITDA growth of 8%. We continue to see a high cash conversion for the Baltics due to the strong performance and relatively low capex levels prior to the nationwide 5G rollout. And with that, I'd like to hand over to Charlotte, who will go through the financial overview.

Thank you, Kjell, and good morning, everyone. Please turn to page 12 in presentation. Strong end-user service revenue and growth of Sweden Wholesale, coupled with continued execution of the business transformation program, resulted in solid underlying EBITDA. However, this was partly offset by headwinds stemming from rising inflation rates, primarily in the Baltics. In total, underlying EBITDA increased by 6% in the quarter. Depreciation and amortization continues to be higher on a quarterly basis compared to last year, as we started amortizing the Comhem brand in May 2021, when we consolidated the old Tele2 and Comhem brands into the new Tele2 brand. Results from associated companies and joint ventures increased significantly in the quarter compared to last year, as we saw a 1.6 billion SEK impact from the capital gain from the T-Mobile Netherlands divestment, which was completed in a quarter. Effect losses from hedges connected to the T-Mobile Netherlands transaction was the primary reason as to why we saw net interest and other financial items increasing by roughly 100 million SEK in Q1 2022 compared to Q1 2021. So let's continue with the cash flow on slide 13. CapEx paid was lower in the quarter compared to last year, as we had a spectrum payment in Sweden related to the 3.5 gigahertz spectrum auction of 333 million SEK in Q1 last year. And changes in working capital was negative in the quarter, primarily driven by timing of accounts payable. Taxes paid increased in Q1 2022 compared to last year, after the final tax payment related to the fiscal year of 2020 in the quarter. We continue to see strong equity-free cash flow with 900 million SEC generated in the quarter, yielding an equity-free cash flow from continuing operations of 5.9 billion SEC in the last 12 months. Please move to slide 14 for the capital structure. At the end of the quarter, we saw economic net debt decrease to 14.3 billion SEK, driven by the cash proceeds received from the T-Mobile Netherlands transaction and cash generated in the quarter, which resulted in a leverage of 1.5. We expect to pay out the cash proceeds from the T-Mobile Netherlands and the first tranche of the ordinary dividends in May, once our shareholders have voted for the two propositions. If we adjust for these two payments, leverage would have been 2.6. Please turn to slide 15 where we will update you on the progress of the business transformation program. During the quarter, we made significant progress within the business transformation program. We have started migrating the first batches of customers on the Tele2 brand onto the new IT stack. So far, this has been going smoothly, and we expect it to be done later in the year. upon when we will start migrating customers from Convict and Boxer onto the new IT stack. We also continue to make optimizations within the organization, primarily in the technology and IT organization. The annual run rate of the business transformation program was 600 million SEC by end of Q1. The P&L effect of this was 140 million SEC in the quarter, with a net effect of 70 million SEC compared to Q1 2021. And with that, I will hand over to Chef.

Thank you, Charlotte. And then please turn to slide 16 for a summary of the key priorities going forward. In Sweden, we have now finished the golden clusters and have started the wider 5G rollouts. Similarly, on the fixed side, we will try to further ramp up the speed on our RemoteFi project in order to gain the benefits from this investment as soon as possible. Both of these projects are key for us in order to increase customer satisfaction, which will support our more-for-more strategy for years to come. We will continue executing on the business transformation program to deliver at least 1 billion SEC of savings by the end of Q2 2023. In Sweden Consumer, we will continue to balance value and volume in order to build sustainable growth while gearing up our capabilities to address the 1.3 million non-FMC households. We will also continue to build our premium brand in order to increase customer satisfaction that we can monetize through reduced churn or price adjustments on the back of product improvements. During 2021, a lot of focus went into stabilizing the B2B business in Sweden. And now that we have achieved that, we will turn our focus towards the TV business, which has historically been the second drag on Swedish end-user service revenue growth. The agreement with Viaplay is a key part in this strategy, and now we have a more competitive offer out in the market. We will start migrating linear customers onto our new TV propositions during Q2, and we will launch our streaming propositions later in the year. In Sweden B2B, we will continue the turnaround that we started during the second half of 2021 by executing on our new granular approach with clearly defined segments. Going forward, our ambition is to grow in the business for the full year. But as in any business, it usually does not develop in a straight line, and fluctuations should always be expected. But we are witnessing a very important and sustainable shift within B2B. In the Baltics, we will continue to build on the performance that we've seen and execute on our mobile-centric convergence strategy through more-for-more offers in order to make sure that we can sustain the growth. With the 5G auctions now concluded in Latvia, we'll start to ramp up the 5G rollout while preparing for the auctions in Lithuania and Estonia, which we expect to occur this year. At the same time, we will continue to develop and explore FMC capabilities. During the quarter, we signed a wholesale agreement with Baltcom in Latvia, which means that we now have FMC capabilities in all countries. We've had a really good start to the year, with low single-digit end-user service revenue and mid-single-digit growth in underlying EBITDA in the quarter. When we presented the recent Q4 results, I said that Tele2 is a growth company at heart, and that we are witnessing the positive results from our strategic initiatives. With yet another quarter completed, I'm even more certain that we can reach the goals that we've set for ourselves. And with that, I'd like to turn it over for some questions, please.

Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero, followed by the one on your telephone keypad. Our first question comes from Andrew Lee from Goldman Sachs. Please go ahead. Your line is now open.

Good morning, everyone. I just had a question on your Swedish consumer growth acceleration outlook. You seem pretty confident on that. I wonder if you could talk us through that. the key drivers on what will accelerate your Swiss consumer revenues from the flat delivery that you delivered in Q1. And particularly within that, I just wondered if you could talk about the two components of price rises, whether your price rises can be more this year than last year to provide a boost to growth, and then same on upselling. Do you think your scope to upsell customers to upsell high speeds at a high price is greater than it was a year ago. Thank you.

I'm going to start and then hand over to Hendrik. It's of course more granular. We see an overall okay performance in the fixed area. We've talked a lot about how we have strengthened the basics now for our TV position. We can actually move TV from having had relatively big negative numbers on linear to now stabilizing that business so that all other things equal will be helpful. And then I would say this quarter was a bit disturbed by one of the players using massive commissions and quite strong offers out in the unlimited space. We think that's a temporary move from that player and we have basically focused on value rather than volume here. we think that's going to stabilize and that's going to help us to promote growth.

Andrew? Yeah, thanks, Shell. Andrew, just to add a couple of more color points to it. So I think if I look at the outlook, a couple of considerations here to take along. First of all, macro environment. We do feel that we're getting more solidly out of the pandemic, which we did have and found ourselves still in In Sweden in general, in January and February, we've seen that March is much more buoyant. So I think that will certainly help us throughout the rest of the year, if that sort of remains a trajectory. Secondly, we do feel that also, if you look typically at our quarterly profiles, that as we move into Q2, Q3, and Q4, in that sense, we have seasonality picking up again. that will certainly on the mobile side have its effect on, for example, the variable revenues. And to Shell's point, in terms of the competitive nature of things, we do play for value in this market. Of course, we're also looking at the careful balance with volume, but we consciously decided to stay the course this quarter. You do see, though, in the context of the market that we need to look at the channels and what we need to do also in the second quarter to move forward, which we're doing. And then I would also want to say that last points, that as we move into this quarter, we will see some effects, right, from price adjustments and from roll-off of Q4 campaigns that all coming into, you know, all playing out into the regular base. And that's based on a strong and, I think, continued outlook and sustainable outlook on broadband and the effects of moving the TV proposition in the second quarter onto its new packages during the period May to July. And certainly will help, you know, gaining that momentum on the consumer business as we go along.

Thank you. Can I just ask one follow-up? So you obviously mentioned the large commissions used by a certain player during Q1. We also saw Telia raise mobile pricing across its main brands. Overall, what's your perception of the market, or how much price rise it will afford you to be able to make? Is the market... presenting a greater platform for price rises this year versus a year ago or two years ago or less of a platform for price rises?

I would say the way we look at it, Andrew, is that in the end, we do feel there's always momentum for certain price adjustments. I wouldn't say the current inflationary environment gives us an additional opportunity as such, because at the same time, the customers may get used to inflationary pressures. They're also getting more conscious about their spend. So I think it's always a balanced game. And we do that in the context, of course, of competitive environment, because if you adjust your pricing on the one hand, but on the other hand, go very aggressive on your offers and discounting, then you still end up with a zero-sum game. So yes, we're looking at you know, the potential of price adjustments like we do every year. And we've already implemented some of these on the broadband base in the first quarter, as you may have noted.

Thank you.

Thank you. The next question comes from Ulrich Ratter from Jefferies. Please go ahead. Your line is open.

Yeah, thanks very much. I wanted to ask two questions, please. The first one is on your inflation commentary, which focuses very much on the Baltics. If you take this one step up to the group level, would you say that this is starting to put some pressure on guidance, or does the guidance essentially bake in more or less what you are seeing in terms of actual inflation developments, or is there a picture you know, as an alternative where you can adjust plans near term to adjust whatever inflationary pressure is higher than you expected maybe at the time of issuing the guidance in the first place. That would be my first question. The second question is on the B2B comment. Obviously, you had a very strong Q1 now and you're highlighting that this isn't going to be a straight line. Could you talk a little bit about which areas the volatility could come in and where maybe Q1 was unusually strong compared to what you would expect for the rest of the year. Thank you very much.

So maybe Charlotte on inflation and then Stefan on B2B.

Yes. So on inflation, when it comes to Sweden to start with, there we don't see... that much inflation as up to date. Of course, we are conscious and we are following this closely all the time and see if there are changes that we will make and can make going forward. But we also have the, when it comes to wages, for example, then that is pretty much in control, the way the system we have here in Sweden with the, what's it called? Yeah, the union negotiations that we have here. But when it comes to the inflation in Baltics, of course, that is double digits, so that is quite substantial. And we also have the electricity prices. And in Baltics, if you look at historical, they've also been very good at compensating for this when it comes to price rises, which they are doing on a continuous basis. And we see that that's how we're going to deal with this going forward as well. And I'd just like to make one more comment when it comes to Sweden and the energy and the electricity costs. We have actually hedged our costs, so pretty much during 2022. And after that, of course, we will probably see a big impact of it.

Perfect. Thanks. Hello, Valerius, and thanks for your question. And in regards to the B2B then and the fluctuations that Kjell was talking about, I would say there's two things. One is about the nature of the business and the second one is some risks that we see or some concerns in regards to semiconductors. We see that some of our vendors have had problems during Q1 on deliveries in regards to some equipment. and that may continue both in the networking area but also in the handset area and that could affect both some mobile post paid sales in the B2B arena and also in regards to our solutions business basically where we are dependent on equipment. So that is sort of a risk part. The other part that I started off with was the nature of the business. I mean, we are dependent on that our customers want to engage in different projects, especially in the solutions area. So that is the area that I think I would like to highlight. And depending on how the customers want to buy their services and hardware, how they want to build their solutions, we could time to time get more equipment sales, and time to time we can get more solutions business going forward. So those are the two basic topics, areas in regards to fluctuations that Shell was talking about.

Very helpful. Thank you very much.

Thank you. The next question comes from Andreas Jolten from Banske Bank. Please go ahead. Your line is open.

Thanks a lot and thanks for taking my question. I would like to dwell into the Viaplay partnership a little bit more and your ambition of this, especially in terms of where you see the main impact. Is it churn prevention or that you can add more customers or is it on price, etc.? And then also maybe on the cost side that you mentioned that you had some lower cost this quarter. but that could come up again. Is that regardless of what is happening on the top line or will those costs come anyway?

Andreas, I'm happy to talk to you about our partnership and about Viaplay. A couple of things here. You mentioned churn, price and cost and what our objective is. And clearly, as Shell pointed out, if you look at the Swedish business, the TV side has been forming a drag for quite a while. And I think we clearly also stated in Capital Markets Day already last year that we clearly intend to stabilize this business by basically driving quite a lot of innovation revitalization throughout the product line. In January we announced that we are rebranding our streaming offer in preparation of this and following moves. And Viaplay is in that sense a first quite substantial move. The key for us therefore is to basically stabilize our business not only on the DTV side as you can already see in our results today, but across the whole category. we should be able to offset the continued decline on DTD going forward with the move we can do here with Viaplay. And basically, if you look at the new packages that we've been announcing and you relate that to the old packages, we have put a lot of value in these packages, but at the same time, we're rising our prices between 50 and 60 sec across the board on all these packages. And we do intend... to roll all of our DTV linear base onto these packages in the period May, June, and July. That has already been announced, and customers have been informed. So that will, I believe, drive quite an extent of stabilization. And that, to me, is the first tick in the box. And the way the cost will develop, Andres, to give you a view, it will develop as the business and customers pick up the service. It's to a high degree variable. What we expect going forward is more innovation to come because the world is moving on to streaming. But as you may have seen also with the Netflix announcement, we see that there's maturity in the streaming business. And we do believe that operators have a very well-chosen position for bundling and buying through, buying your streaming package through an operator. And that, I think, will come much more to the forefront. And I believe we're well positioned there because the choice in the market is just too large for consumers with the SVOD stacking you see, and therefore the choices consumers are starting to make. So the combination of having Tele2, having an integrated streaming service that has a lot of content and value in it, we believe is quite a nice proposition for the market. Thanks a lot.

Very good.

Thank you. The next question comes from Andre Kabyshek from UBS. Please go ahead. Your line is open.

Hi. Thank you for taking my questions. I maybe had a couple of follow-ups to the previous one. So first of all, in terms of the B2C trends and specifically in terms of mobile service revenues you mentioned, that you're confident that the competitor being more aggressive in terms of unlimited tariffs, etc., will not do that for too much longer. So just a question in terms of what makes you confident. Are you already seeing that receding? And then maybe on the play deal also, in terms of the migration, so what kind of reception do you expect? Because as you mentioned, you're increasing the prices quite significantly, so is there also a risk that you might see an elevated trend and people just not wanting to pay for this maybe more premium offering that you're now basically imposing on the entire customer base, if I'm not mistaken? Thank you.

Okay. Andre, I'm happy to take the question, and thanks. So first of all, on competition, We do believe still that we have in Sweden at large a rational market that is driving a balance of value and volume in general. We do of course see this sort of temporary more tactical offensive plays and in a way sometimes they are done to make up for lost you know, lost quarters beforehand. And clearly, if you look into last year, you can see there has been some weaker performance with some of the players that, you know, probably now has been sort of tried to rectify to a certain extent. We are very careful to just, you know, not hop on, you know, on the first inclination because, again, ultimately we want to drive value into the Swedish market. So, and competitive activity in that sense has already been residing as well in terms of the offering. and it's clearly just a quarterly activity. That's what we can see for now. On the migrations, yes, of course, there will be a part of the customer base that will probably scratch their heads by having to pay more for possibly content that they are not out of themselves are looking for. What we expect, though, is that because there's so much value packaged in, And we do see many, many households in Sweden that have streaming. We would say the majority of customers and consumers are actually quite happy and first reactions are in that line. And we also feel that this will be very appealing to, in particular, the younger parts of our customer base and of the market. So we feel that there is a market between 20% and 40%. that has years of age and families, that has a lot of potential that we have not fully tapped into, and we can much better tap into with an offering like this.

Thank you very much. And Andre, I think the second question was in relation to how we can sustain the growth in the B2B segment. And first of all, I mean, we have a trend in the B2B market, which is based on digitalization and improvement, improve efficiency, improve growth in our customers' businesses, etc. So that whole underlying trend that is happening is supporting our business. And when we set out the strategy last year, it was based on that trend. We also set up a couple of growth areas, how to build on that. And I think we are well positioned to be close to our customers and support them on this journey with all the expertise that we have. Secondly, we have the segmented approach to the market. I mean, it brings different segments like the small and medium segments, the public, the key, etc. So there are different segments where the growth is coming from, and we have a segmented approach to that market. And then lastly, the third leg in our strategy is really to develop our product offerings, develop our business models that we bring to the customers, to support them on this journey. And I would say that it's all about, and that has been the case for the last couple of quarters, it's all about the execution and consistency on delivering on this strategy, which has proven to be good, and to be disciplined in the execution of that strategy. And I think we have the capabilities in place to further develop on this, So it's both, you know, an internal perspective, but also an external perspective. And we truly believe that we will see growth for the full year for B2B.

Thank you.

Thank you. The next question comes from Peter Kurt Nielsen. Please go ahead. It's from ABG.

Thank you very much. Thank you for the opportunity. You have talked about the... the VIA play agreement and your expectations for that. Can I just ask more specifically, how should we view content cost in the coming quarters? I assume there will be an increase in cost here related to the premium content. Could you give us any indications how we should think about that? Thank you.

Well, Peter Kurt, thanks for the question. And of course, as Peter Shell has also been eluding there will be, as we roll out our new TV packages to our customers, there will also be a reflection of that on our cost line. And we cannot share any sort of inherent details here on the call, but what I can, of course, tell you is, which I alluded to before, that these costs are having a variable nature. So they are very much linked to the customer usage and the customer volumes. Basically, what we intend to do in the agreement is that we are basically repackaging and relaunching our linear offerings, our DTV offerings that have been announced already, and that we also intend to further strengthen our streaming offer that we will launch pretty soon, actually, but that's still to come. And in both elements, you know, the NAND agreement has a big role to play. And in both elements, of course, there's cost associated. And, you know, the totality is of a variable nature.

Okay, thank you. In other words, our strategy is the same. We are not making huge upfront content. The commitment is limited, and it's like Hendrik says, it is linked to the usage by and large.

Okay, thanks.

Thank you. The next question comes from Stefan Guffin from D&B. Please go ahead. Your line is open.

Yes, hello. A couple of questions. The first one, relates to the pressure that we saw on consumer postpaid ARPU this quarter and you have stated that it was more activity from a competitor and I just wonder what is really driving the pressure on your ARPU have you being forced to lower prices in response to this competition, and how long time should we see this pressure on the ARCO? Is that for a longer period of time? The second one relates to commercial spend. In Q4, you mentioned that it should be a higher commercial spend in Sweden in the first half. And it seems that was not the case, partly likely due to the COVID situation. But should we see that this marketing spend is pushed into Q2 and perhaps later in the year? Or how should we view the totality on marketing spend?

Okay, Stefan, it's Hendrik here. Happy to talk to you about that. Good questions. So first, let me take the commercial spend. I think we addressed the content part of it, but if you look at the commercial spend as in marketing and commercial costs, then yes, we indicated more investments as we would enter the year, but But we did find ourselves in a pandemic situation. We entered that, of course, second half of December, as you will recall, and that had quite a bit long tail. It stayed pretty much with us January and February, and it has profound effects just on consumer behavior. And that's not the right time to press the metal, let's say. And it's more the pandemic and macro situation than any competitive activity. in itself, that, you know, has led us to be a bit moderate on the commercial spend. Now, that sort of going away now, we do feel, as I said, on the call already from March onward and also now into April and into the second quarter that we, of course, can ramp up, not just around, you know, TV and Viaplay and our new portfolio, but also around our broadband and our mobile business. So, yes, the commercial spend, you know, we definitely intend to carry on with the investment, as we said, late last year. On the ASPU, the following. And ASPU is, that's, you know, that competition and the nature of competition has a effect on it. But at the same time, you know, if you look at a, you need to look at the quarterly trajectory of ASPU development on the mobile side, right? Because there's, of course, a level of seasonality that you continuously have in our business. And typically, of course, we see that the Q2, Q3 are typically quarters where we have a lot of more variable spend that, of course, are also lifting the ARPU. At the same time, we have the effect now of the pandemic residing, so that we'll have an additional kick, we believe, as we go throughout the year. And then And then last but not least, and quite importantly, we typically see that our Q4s are quite active quarters in terms of trading. You've seen in our Q4 that we've sort of really had quite a big push on the metal in Q4. And now some of that volume has come in at quite discounted prices, but they will all roll off. quite a bit already in the second quarter, so that will all go into regular pricing. And then, of course, we have continued roll-off on price adjustments. Some of that we did in Q1, also on the mobile side. Some of it still stems from last year, where customers that have been on 12 months are rolling off onto their regular pricing. So there's a more composite picture on the ARPU, and I hope you can see that.

Yeah, so if I understand this correctly, you are not really... I mean, if I look at the post-paid ARPU, consumer post-paid ARPU, it was down around 1% year-over-year. And that is despite some positive tailwind from roaming. But you are... certain that you can return to solid ARPU growth in the coming quarters?

Yes, to just give an example, just one illustration of what I just said. For example, last year, if you look at a year-on-year basis, last year we already had some price adjustments in the first quarter that we are not having this year in the first quarter. So that is already an effect of price adjustments in one quarter versus another quarter. that, you know, creates a delta, right? So, yes, we're quite confident that we will, you know, see a pickup on the ARPU as we go through the year.

That's very clear. Thank you.

Thank you. The next question comes from Nik Lau from Societe Generale. Please go ahead. Your line is open.

Good morning, guys. Just a quick question please on the business business. You mentioned large business specifically in the presentation today. I just wondered, are you a lot more hopeful now that you can maintain pricing in large businesses? There's nothing one-off in nature in the course that I'm assuming in terms of sign-up of subs or new contracts or whatever. Is this something that you think is sustainable? And then secondly, just a little bit like Stefan's question just now, but more specifically on the marketing budget for the second quarter. I mean, you told us you were going to pull back on the marketing budget, I think, as you went sort of into through the first quarter. So is that going to be significant? Can you give us any idea of this sort of sec million amount that you might have to see sequentially first quarter to second quarter in terms of lifting the budgets back up? Is it big like it was back in COVID and really quite substantial marketing budget rises you're going to have to see in the consumer Swedish business as well. Thank you.

All right. Thanks, Nick. Stefan here. Thanks for your questions. And let's start off in regards to the B2B questions. And I would say then if you look at where we get the intake in the B2B business, and Shell was mentioning the large business, but if you look at mobile business, The intake is coming from basically all segments. But it's good to see that we also see that coming in the large segment. And the intake is coming both on new customers that we acquire, but it also comes from existing customers expanding their business with us. And we've also seen that the discipline that we have created in regards to deals and margin requirements we have on the deals are yielding results. You've seen that on the mobile aspect where we've been flat now for three quarters in a row. And that is a testament to the actions that we've taken in order to to safeguard margins. So in general, it's not a big customer that has yielded these results in the mobile revenues. It's generally from all of the segments. And I would also add that we had really good development in regards to our churn, actually better than our expectations for Q1. That is the answer on large business or your questions on B2B. I hope that answers your question, Nick.

Yes, thanks. On the marketing budget as well, is that something to take into second quarter?

Yes, I just wanted to answer that one for you, Nick. So on the marketing budget, yes, we will increase versus Q1. Again, Q1 is a choice choice. is a result of the pandemic. None of us wanted to spend less. And then secondly, versus year-on-year, you know, we'll be in the range of last year. But the thing you need to take into account there last year, we still had two brands that we were supporting with Commem and Teletoo. And of course, you know, we did rebrand and we had all, you know, some of these business transformation efficiencies. So on an underlying basis, you know, it will probably, it will translate into a bit of a higher, let's say, spend, I would say, you know, versus Q2 where we were spending on two brands. But on an absolute level, it will be same type of level, I would think.

Great. Okay. And is there any, can you give us any idea of the sort of sequential rise? I mean, was it a a big slash in the marketing budget for the first quarter just because of those two months where you had low activity, or was it reasonably insignificant in terms of EBITDA and other numbers?

You know, in terms of the total EBITDA of the company, you know, it is pretty insignificant, I would say. But, you know, it's still, in terms of market momentum, it is, you know, it is still something that makes a difference, ultimately.

Okay. Thanks very much.

Thank you. The next question comes from Titus Krohn from Bank of America. Please go ahead. Your line is open.

Good morning, everyone, and thank you for taking my questions. I have just two topics to touch on, if I may. The first one would be a follow-up on the Baltics. You already mentioned the inflationary pressures there, and I was wondering more about the timing of the impact on EBITDA. I mean, energy has already failed. I assume you haven't had much of it. But also, can you talk a bit on the timing of the wage inflation in the Baltics, given that you currently still have quite a strong EBITDA growth this quarter? To what extent is it sustainable? And have you already felt the full impact on the inflation in the Q1 or is the driver increasing over the remainder of the year? And the second question would be on the wholesale growth, which you flagged as one of the main drivers of the EBITDA growth this quarter as well. Could you maybe provide some more color on the outlook, particularly as we had now I think four quarters of double-digit revenue growth in this segment. How should we think about it going forward? Is there any specific effect that could annualize? How should we think about it for the next couple of quarters? Thank you.

Okay, thank you. This is on the Baltics. Yeah, we do have some level of hedging in the Baltics, but still we are impacted by the prices for electricity going up And that's, of course, all reflected in our numbers. And there is more wage inflation in the Baltics than there is in Sweden. Sweden has collective bargaining generally, so it's a quite predictable system. In the Baltics, there is an even more fierce fight for talent. We are pretty good at retaining people and an attractive employer, so that helps. But there is some level of wage inflation, and And I think it's a strong sign that during this time of relatively high inflation, I think Estonia had the highest inflation in Europe a couple of months ago. It was just for a specific month that was recorded that we are able to offset all of that and still grow our EBITDA. And of course, at some point, these trends will start abating and then the underlying strength of the business, the application of the more for more strategy, which has given us growth, will then be helpful to drive cash conversion. But clearly, you are touching on issues that are more of an issue for us in the Baltics than maybe in Sweden. When it comes to roaming, so some of this is related to, sorry, to wholesale, some of this is related to roaming. And we are also extracting good, very good value from delivering A2P wholesale services, which is a rapidly growing market. And of course, that's helpful to our business.

Okay, thanks. So that's likely to kind of continue in a similar range of the next quarter, so maybe a little bit lower, but nothing material changing.

Yeah, I think you will continue to see volume expansion within A2P for some time. But of course, the relative level of growth will probably slow down.

Okay, very clear. Thank you very much.

Thank you. The next question comes from Steve O'Connell from Redburn. Please go ahead. Your line is open.

Yeah, good morning, guys. I'll go for three questions if I can. I just want to first come back to the NENT deal. Can you give us an idea of the cohort of customers in your linear base that already take buy play. And I guess for those customers, they'll end up spending less, but will you book the revenues gross? So that'll look like service revenue growth, but the customer will actually be paying less. That's the first question. Second is on the sort of addressable market. You added another 50,000, I think, homes this quarter. The broadband base didn't really grow. Can you just give us a sense of, you know, how much more growth you've got in terms of open city networks going forward? and whether you think there's a lag effect in growing the broadband base or whether we should just assume that penetration across that footprint continues to decline. I think it's at about 100 basis points for the last couple of years. And then finally, just coming back to the Baltics, I mean, and following up on the last question, which I thought was a very good one, I mean, do you see any sort of – I think we're sort of talking about inflation in very much a two-dimensional way at the moment, price, energy, stuff like that. But do you see any growing risks that, you know, Baltics consumers begin to resist price rises because of the rise of energy and their food costs? I mean, Lithuanian inflation, I think, was 16 percent in April. And, you know, will that could that have a much bigger impact on EBITDA, you know, going forward? Or are you very much in the view of this kind of transitory and the pricing will stick forever? Because it just feels like the Baltics inflation is running a little bit out of control. It's sort of moved from nice high inflation to worrying inflation, if you see what I mean. Thanks.

Thanks, Steve. I'll start on the Baltics, and then maybe Henrik will go back on the Viaplay and broadband part. So clearly, for segments of the population in the Baltics, you will get into a situation where you'll start prioritizing your spend harder than you've done before. When we speak to customers and we speak to our people in the three different markets there, we don't detect any hesitation around the value that is provided by our mobile offerings. So there is a quite strong, good demand. So it hasn't popped up as a big issue. In the future, if we see these trends going for a long, long time, That could, of course, be a factor. But as of now and where we see things, it is not a major issue for us.

Isn't there a slight risk? That's slightly backward-looking because energy prices have only just doubled, tripled. Food prices are only just going up by 20%. It feels that's all quite a backward-looking perspective at the moment.

Well, we could argue back and forth what is backward and not backward, but that is what the feedback is from the market today or last week. So, yeah, I can see that you could have an argument that it's still early days, and I would respect that argument. But from what we hear at this point, it is not a major issue. I think we will have to be a bit cautious, of course, and I think we all understand that to have massive double-digit growth is not going to go on forever. So I'm not trying to say that everything is going to be continuing exactly as it is today.

Okay, thanks.

Okay, Steve, just on your two other questions on broadband and on NAND. Let me start with broadband first. We believe the overall market has been growing at 7%, 8% over the last number of years, will at some point, of course, start to tail off a little bit, but still have a good mid-single-digit growth number within. We, of course, you've seen that we've been able to grow our business around 4%. We do believe that in that range, we can sustain that still for a while, but in the context of overall growth, starting to tail off a little bit over the next period, I would say. So that's, I would say, our outlook on broadband and we feel quite okay there.

Just on the addressable market, I think you added 50,000 new homes in the quarter. I mean, how much longer do you think you can do that in terms of increasing your addressable market by accessing open city networks and the like?

Well, there's still a lot of network and universe that we can access. It may not be through our own HFC, but it would then be, of course, through Fiverr out there, which we're quite well interconnected with. It's a question of how far we want to reach out. And we certainly have not fully, you know, how do you call it, fully executed on on that opportunity at this stage. So that's still room to grow. There is, of course, a different level of marginality to it, and that's, of course, why we also need to tread carefully there in the right balance. But there's clearly more room there to grow into for us. On the NAND side, revenue growth, we don't share details of what our customers have in terms of their their subscriptions. Viaplay, of course, is a popular service in a way, but still has a lot of room to grow. And we believe that the balance of upside far outweighs maybe a small number of customers that feel that they are paying for it now and now they can get it into a package and that therefore would be revenue loss for us in a way. We're also bundling the service as part of, you know, linear TV and of Tele2 Play Plus, which, you know, gives them that additional value to come in as well. And some of them already pay as part of Tele2 Play Plus today. So all in all, there will be, you know, a very small number maybe, but, you know, in the bigger scheme of things, that will not be significant.

But just to be clear, if I currently pay for, you know, linear TV from you and Viaplay separately, and then it's bundled together at a cheaper price, presumably with a wholesale discount, you would then book the whole revenue gross. So it will look like revenue growth, but for the consumer, they actually end up paying less for that cohort of customers.

Well, yes, if a customer today has Viaplay, you know, from Nent, right, direct-to-consumer, so it just bypasses us in that sense, and it now becomes a buy-through, then obviously that's revenue for us, incremental revenue for us in the package, yeah. And mantra, okay. Yeah. Thank you.

Thank you. The next question comes from Abhilash Mahapatra from Berenberg. Please go ahead. Your line is open.

Yeah, good morning, and thanks for taking my questions. I just wanted to come back again, sorry, just to this, to the Viaplay agreement, and just to follow up on the question earlier, just to confirm, you know, so for a customer who already has the Viaplay package and they now get it through you, the revenue that you book, that would, would that be the sort of old ASPEW plus the market price of the Viaplay offer, or would it just be the increased bill? You know, whatever the new bill is. I think it would be the latter, but if you could just confirm that, that would be helpful. And secondly, just to follow up, I mean, you sort of indicated that the ultimate sort of goal here, the main goal here is to turn the TV revenues back to stability, which is obviously... quite a big swing compared to the 4% decline at the moment. And clearly, the way you're doing it is by hard bundling this product and raising prices. And you've also sort of mentioned that you don't think churn will be a big issue. But what happens, say, if you raise prices now, and if in a year's time, let's say, a customer wants to spin down, will you sort of allow them to do that to a lower price point? Or would you

be okay to just sort of let go of that customer if you will thank you hey yeah i'm much happy to talk to you about your questions um so first of all on on how it works if if customers today have uh you know a asphalt service then this could be netflix or could be via play or could be disney plus or whatever um which actually is the issue in the market right there's there's there's too much stacking and too much individual payment in, in the, in the mind of the customer. And they now get it packaged and buy it through us. Of course, it would be like an asphalt cut, right? Um, um, instead of court cut, it would be an asphalt cut. Um, and I do believe that there's some market trending that we hope we will start to see in, in a very mature and overcrowded asphalt market. Um, and, um, So the combination, so for us it means, you know, it becomes our billing customer driving our revenue, driving our ultimate marginality of it. And that's the bottom line for us, right? So hopefully that answers your question on that one. And then just remind me of your second part of your question. Sorry.

Yes, sorry, it was slightly long.

Yeah, hold it down. The downspin, yeah. Sorry, I got it. The downspin, yeah. So, of course, we offer customers choice. And if customers want to move to different packages, they're more than welcome to do so. The way we have designed the packages, and that hopefully also will give you some confidence of our strategy to drive value into the market. If you look at the package, the way we designed the packages is that the mid-tier packages is a huge value package that has sports in that, that has a huge amount of content, and that is a very, very nice deal. Whereas it may be in the past we saw that a lot of the, in the old packaging, a lot of the volume sat at the entry level, we feel that with this we can get way more volume into the mid-tier. And actually from first results I think we can already build some initial confidence that I think we're hopefully getting that equation right. So, yes, we allow, of course, customers to pick their choice, but we do believe that we've built a lot and a lot of value into the packages, and in particular into the mid-tier going forward. And you mentioned that we tread light on churn. I think that's not fully what I said. I just want to make sure that we're well understood. We do believe price rises of this kind are not taken lightly by everyone. Although we put a lot of value in, we do expect, of course, some people not to like it, and we do expect a level of churn of this. But at the same time, we do also believe that there's a big part of the market that we are now attractive to. So in balance, this should give us an upside.

Mm-hmm. That's helpful. Thank you for the color. Thanks.

Thank you. The last question comes from Adam Fox from HSBC. Please go ahead. Your line is open.

Thank you very much. I'll just have a couple, please. In your closing remarks, Shell, you mentioned speeding up the Remote 5 build. You kind of linked it to improved customer perception. And so I just wondered whether or not that's something you – you've just decided that you want to do it as fast as possible or whether or not that is a response to some other competitive element. Secondly, I was wondering, I think a couple of questions around the Viplay deal are kind of dancing around the question really of, can you just confirm that each customer comes with a net cash contribution effectively? We appreciate that it's a wholesale deal and not retail margins, but I think that's what some of the questions are getting at. And then finally, if I may, I'd just be really interested to know in the context of the competitive environment in Sweden, how quickly you can change your tariffs. I mean, I assume that the billing system changes that you're making enable you to move faster. But if, for example, you feel like you do want to respond at some point later in the year, can you change your mobile tariffs in a day? Does it take a week? That would just be really interesting to hear. Thank you very much.

Yes, let me make a stab at that, Adam. So, remote PHY, no, it's not something that we came up with recently. I've actually been pushing for more speed on remote PHY for quite a long time. And we're trying to ramp that up. Jogesh has been very busy with making sure that our migrations go smoothly, which they do. And of course, getting the 5G show on track, plus changing the entire full stack of our core. So there have been many things, but we are pushing for speeding up remote PHY, which is basically, as you know, putting fiber to the building all the way. And that's going to be an improvement of the customer experience because we take away node splits. It's going to simplify our networks. And in terms of the CapEx involved here, it does not really move the needle that much. So it's a no-regret move to do that even faster, and that is something that we are pushing for. Now, let me talk a bit about the Viaplay here so we don't get too bogged down here. The Viaplay deal is important because for stabilizing the TV business from a service revenue perspective. It also adds additional margin to us in terms of profitability at EBITDA level and particularly as we move into 2023 when we have got this thing going and running. But it's also a strategic move that's important for us in terms of the ability to build a convergent offering. one of the key things we want to achieve by the journey we're on, the transformation program is not only about saving a billion, it is about preparing ourselves for the future so that we can, in a much more easy way for our customer base, combine our offerings seamlessly. And then we want to have a strong mobile proposition where we're going to build the best 5G network in Sweden together with our partner, and that is the clear claim that we are making. We want to make that happen. We are upgrading our broadband with Remote 5, which basically puts fiber into the building. And we want to have a proposition on the TV side that has both the traditional linear element that we had, where we've been the aggregator in the market. We're moving that now into the streaming world, becoming an aggregator, earning a margin, keeping our market relevance, and looking at how the streaming market is developing, we see now that it is no longer a super fast growing business. It's becoming a mature business. Some of those who have been very, very fond of themselves will probably want to be more cooperative and collaborative going forward. And we are very well positioned for that. But that brings it all together in a way from a consumer's perspective for Tele2. That's the ambition. And on the tariffs, yes, of course we can change our tariff plans. The fact that we are changing our IT stacks is not in a big way limiting us from making moves in the market. So the thing that we are talking about the first quarter here, we made a very conscious choice to educate the market that we are willing to look at value while other people are moving a bit more short term on it. That's okay. but it doesn't stop us from responding if we feel that that is right. And sometimes we definitely will do that, and sometimes we will do it hard in a short period of time just to teach the market that we can also be provoked.

Brilliant. Thanks very much.

I think we have an internal thing for all of our employees. I don't think we can take very many more questions, but we don't have to stop right now. You're welcome. We're okay.

Yes.

All right. But then, if that was the last question, then I'd really like to thank you all for joining us for the session today. I hope you see that we've had a good start to the year. We have a lot of work to do, as always, to continue our improvement journey, but it gives us confidence that this year we can deliver on what we have promised, and that's a good feeling to have. And thank you for all your good questions. If they make us... They make us think one more time about how we conduct our business, and that's very helpful.