Tele2 misses Q4 target despite strong growth

9 Feb 2004

Pan-European telecoms services provider Tele2 reported strong subscriber growth/revenues for the three months to 31 December 2003, but the news failed to excite the market as the telco missed consensus expectations for the period by a considerable margin. The Stockholm-based operator posted earnings before interest, taxation, depreciation and amortisation (EBITDA) of SEK1.4 billion (USD195.6 million), down from SEK1.55 billion for the corresponding period of 2002, and lower than the anticipated EBITDA of SEK1.7 billion. Although the company has continued with its rapid expansion on the continent, its efforts were hampered by declining margins in its home market as a result of intense competition, higher subsidies and a reduction in interconnect revenues at its domestic mobile operations; the profit margin dropped from 41% to 26% over the course of the year.

On a more positive note, Tele2 said that rising subscriber numbers, prudent fiscal controls and the effects of low subscriber acquisition costs helped improve revenues and cash flow. The telco posted revenues of SEK37.2 billion, up 20% year-on-year, thanks in the main to five million new customers, boosting the company’s total subscriber base to 22.3 million; it added 1.9 million accounts in the fourth quarter alone. In addition, profits after tax surged to SEK2.4 billion, compared to a loss of SEK223 million previously, and cash flow leapt by 85% to SEK3.4 billion. Tele2 has strengthened its presence on the back of providing low-cost fixed and mobile services throughout Scandinavia, continental Europe and western Russia, and has also entered the UK sector with an aggressive campaign to steal market share from BT. Meanwhile, in December 2003 it received a licence to launch GSM services in Switzerland. The company concedes that its expansionist policies have had a detrimental effect on profit margins, but remains committed to growth. In December last year it announced that Svenska UMTS-Nat, its 50:50 joint venture with TeliaSonera, intended to buy the fourth 3G licence from Orange Sverige. At the end of 2003 Tele2 reported 3.3 million mobile users in Sweden, a 10% rise on the previous year, while blended monthly ARPU was down to SEK164 from SEK187 and minutes of use stood at 84, from 89. Pre-paid customers accounted for 76% of the total.