Telia Company (TELIA.ST)

Transcription

1 Europe/Sweden Equity Research Wireline Rating NEUTRAL Price (09 Mar 17, Skr) Target price (Skr) (from 39.00) Market Cap (Skr m) 157,874.9 Enterprise value (Skr m) 208,014.3 Target price is for 12 months. Research Analysts Share price performance T ELIA.ST Henrik Herbst henrik.herbst@credit-suisse.com Jakob Bluestone jakob.bluestone@credit-suisse.com Ju l Ja n Ju l Ja n OM X AFFARSVARLDENS GENERAL INDEX The price relative chart measures performance against the OMX AFFARSVARLDENS GENERAL INDEX which closed at on 09/03/17 On 09/03/17 the spot exchange rate was Skr9.56/Eu 1.- Eu.95/US$1 Performance 1M 3M 12M Absolute (%) Relative (%) Telia Company (TELIA.ST) COMPANY UPDATE The anatomy of the Swedish fibre market Event: We update our forecasts post Q4 16 results and cut our target price to SKr 35. Our E EBITDA forecasts on like-for-like FX increase by % reflecting Telia's guidance for only a slight negative impact from RLaH (Roam-Like-at-Home) and more one-off fibre installation revenues as we have also raised our CAPEX forecasts and reflect Com Hem's SDU build out. Our FCF forecasts fall due to higher CAPEX. We are broadly in line with 2017 consensus but slightly below for E mainly as we forecast Swedish fixed revenue trends to worsen owing to less price inflation and fibre installation revenues. In this note we examine the Swedish fibre market, partly as a pre-cursor to how other European markets are likely to evolve. Sweden is one of the markets in Europe furthest ahead on fibre build out with c.80% of homes passed at the end of As demand for fibre has accelerated in the last three years, there has been a material rebound in the Swedish fixed line market with line loss improving from -4-5% per annum in to -0.2% in 2016 and broadband market subscriber growth has accelerated to 6% (versus 1-2.5% in ). Telia however, only covers 31% of Swedish homes with its own fibre network, and as the PSTN network has increasingly been overbuilt (mainly by city networks), Telia line trends have increasingly underperformed the market with Telia total (retail+wholesale) line loss of -8% in 2016 on our estimate. Telia fixed service revenues have however been broadly flat in the last three years helped by fibre installation revenues and price increases. The pricing power appears to remain strong as Com Hem recently announced an average 2.5-3% back book price increase and Telia has indicated it believes there is room to raise pricing again in 2017, potentially on fibre broadband while previous years' price increases been focused on xdsl and TV. Whether other incumbents that get overbuilt by fibre can sustain flat revenues is more doubtful. Valuation: We base our SEK35 target price on Telia trading on a sector 6.3x proportionate EV/EBITDA multiple post a Eurasia exit and DoJ settlement. Financial and valuation metrics Year 12/16A 12/17E 12/18E 12/19E Revenue (Skr m) 84, , , ,918.9 EBITDA (Skr m) 23, , , ,089.7 Adjusted net income (Skr m) 8, , , , CS EPS (adj.) (Skr) Prev. EPS (Skr) ROIC (%) P/E (adj.) (x) P/E rel. (%) EV/EBITDA (x) Dividend (12/17E, Skr) 2.00 Net debt/equity (12/17E,%) 36.0 Dividend yield (12/17E,%) 5.5 Net debt (12/17E, Skr m) 50,139.4 BV/share (12/17E, Skr) 31.0 IC (12/17E, Skr m) 189,446.6 Free float (%) 58.9 EV/IC (12/17E, (x) 1.1 Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Telia Company (TELIA.ST) Price (09 Mar 2017): Skr36.46; Rating: NEUTRAL; Target Price: (from Skr39.00) Skr35.00; Analyst: Henrik Herbst Income statement (Skr m) 12/16A 12/17E 12/18E 12/19E Revenue 84,178 77,782 77,334 76,919 EBITDA 23,954 25,449 25,350 25,090 Depr. & amort. (11,534) (10,345) (10,285) (10,230) EBIT 12,421 15,104 15,065 14,859 Net interest exp. (1,841) (1,771) (1,799) (1,770) Associates 2,808 2,902 3,047 3,196 PBT 13,387 16,235 16,313 16,285 Income taxes (2,816) (3,085) (3,099) (3,094) Profit after tax 10,572 13,150 13,213 13,191 Minorities (2,451) (1,500) (1,500) (1,500) Preferred dividends Associates & other Net profit 8,121 11,650 11,713 11,691 Other NPAT adjustments Reported net income 8,121 11,650 11,713 11,691 Cash flow (Skr m) 12/16A 12/17E 12/18E 12/19E EBIT 12,421 15,104 15,065 14,859 Net interest (1,663) (1,771) (1,799) (1,770) Cash taxes paid (3,375) (2,904) (3,176) (3,140) Change in working capital (1,067) Other cash and non-cash items 13,795 15,169 15,058 14,920 Cash flow from operations 20,111 25,598 25,147 24,869 CAPEX (18,703) (16,321) (16,146) (14,951) Free cashflow to the firm 1,408 9,277 9,001 9,917 Acquisitions Divestments Other investment/(outflows) 11, Cash flow from investments (7,428) (16,321) (16,146) (14,951) Net share issue/(repurchase) Dividends paid (12,990) (8,660) (8,660) (8,660) Issuance (retirement) of debt Cashflow from financing (13,581) (8,660) (8,660) (8,660) Changes in net cash/debt 6,378 29, ,257 Net debt at start 86,336 79,958 50,139 49,799 Change in net debt (6,378) (29,819) (341) (1,257) Net debt at end 79,958 50,139 49,799 48,541 Balance sheet (Skr m) 12/16A 12/17E 12/18E 12/19E Assets Total current assets 73,955 73,483 73,375 73,275 Total assets 253, , , ,854 Liabilities Total current liabilities 56,826 45,486 45,349 45,288 Total liabilities 158, , , ,605 Total equity and liabilities 253, , , ,854 Per share 12/16A 12/17E 12/18E 12/19E No. of shares (wtd avg.) (mn) 4,330 4,330 4,330 4,330 CS EPS (adj.) (Skr) Dividend (Skr) Free cash flow per share (Skr) Key ratios and valuation 12/16A 12/17E 12/18E 12/19E Growth/Margin (%) Sales growth (%) (2.7) (7.6) (0.6) (0.5) EBIT growth (%) (0.3) (1.4) Net income growth (%) (0.2) EPS growth (%) 62.9 (26.2) (0.4) (0.7) EBITDA margin (%) EBIT margin (%) Pretax profit margin (%) Net income margin (%) Valuation 12/16A 12/17E 12/18E 12/19E EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Dividend yield (%) P/E (x) Credit ratios (%) 12/16A 12/17E 12/18E 12/19E Net debt/equity (%) Net debt to EBITDA (x) Interest coverage ratio (x) Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates Company Background TeliaSonera AB is a Sweden-based provider of telecommunications services, mainly in the Nordic and Baltic countries. It is also operational in Eurasia, including Russia, Turkey and other countries, as well as in Spain Blue/Grey Sky Scenario Our Blue Sky Scenario (Skr) (from 41.31) i) Swedish mobile remains flat, ii) line loss improves to -5% in 2018 instead of the 9% we currently forecast, iii) as a result of better EBITDA trends and operational momentum Telia rerates to 7x EV/EBITDA Our Grey Sky Scenario (Skr) (from 23.24) A full blown Swedish mobile price war and worsening Swedish fixed line trends drives a -5% decline in Swedish revenues over the coming 2 years. Telia derates to 5x EV/EBITDA as a result TELIA.ST Share price performance May- 15 Sep- 15 Jan- 16 May- 16 Sep- 16 Jan- 17 OMX AFFARSVARLDENS GENERAL INDEX The price relative chart measures performance against the OMX AFFARSVARLDENS GENERAL INDEX which closed at on 09/03/17 On 09/03/17 the spot exchange rate was Skr9.56/Eu 1.- Eu.95/US$1 Telia Company (TELIA.ST) 2

3 Figure 1: Telia: Summary of changes to forecasts SEK in millions, unless otherwise stated 2% upgrade to EBITDA forecasts For the group (ex Eurasia) our revenue remains broadly unchanged E as increases to the Swedish business (mainly on fixed) are offset by cuts to international carrier. Our EBITDA forecasts increase by % on old FX assumptions reflecting mainly higher fibre installation fees, partly due to timing (2016 revenues shifted to 2017) and the contribution from Com Hem's fibre ULL plans. Our increase in revenue and EBITDA forecasts for 2017E and 2018E reflect Telia's guidance of only a slight negative impact on EBITDA from RLaH as the company believes it can offset retail revenue pressure from raising prices and the EBITDA impact from better wholesale agreements. As a result of the limited impact from RLaH and stronger than expected operational trends our forecasts for the Baltic operations materially increases. We raise our 2017E revenue forecasts for Norway slightly due to more than expected NRA (National Roaming) revenues from ICE. As ICE is building out its own network however, our medium term forecasts for Norwegian revenues remains broadly unchanged. We cut our FCF forecasts as a result of Telia guiding for a higher level of CAPEX in 2017E and we now also forecast a more gradual decline in CAPEX from 2018E versus previous forecasts. We now forecast CAPEX from continuing operations excluding spectrum and licenses to fall to SEK12.7bn in 2019E vs SEK11.0bn on our previous forecasts. This materially reduces Telia's dividend coverage (SEK2 per share implies SEK8.7bn paid out) and we now forecast Telia operating FCF (equity FCF pre spectrum and license which Telia is now guiding as its basis for dividend payments) of SEK8.8-9,3bn over E. This leaves no room for Telia to raise its dividend, and makes the current SEK 2 per share dividend sensitive to any worsening of operational trends. 2017E 2018E 2019E New Old Diff Old FX New Old Diff Old FX New Old Diff Old FX Revenues 77,782 77, % 0.4% 77,334 77, % 0.2% 76,919 77, % -0.1% clean EBITDA 25,449 25, % 2.2% 25,350 24, % 2.6% 25,090 24, % 2.2% clean EBIT 15,104 14, % 1.9% 15,065 14, % 2.7% 14,859 14, % 2.2% Clean Net Income to parent 14,082 14, % 0.7% 14,032 14, % 0.0% 13,930 14, % -0.5% CAPEX (incl spectrum) -14,095-11, % 26.1% -14,111-11, % 26.7% -12,960-11, % 16.7% FCF (TLSN def) 9,277 13, % -32.4% 9,001 13, % -34.0% 9,917 13, % -26.0% FCF (continuing ops, ex spectrum) 8,810 12, % -31.3% 9,267 12, % -26.7% 9,320 12, % -25.2% Revenues Sweden 36,796 36, % 1.2% 36,420 36, % 0.9% 35,996 35, % 0.3% Europe 36,139 35, % 1.6% 36,067 35, % 1.6% 36,076 35, % 1.7% Eurasia 10,600 16, % -35.1% 10,175 16, % -37.0% 9,955 16, % -37.8% EBITDA Sweden 14,320 14, % 1.8% 14,194 13, % 2.9% 13,890 13, % 2.1% Europe 10,569 10, % 1.4% 10,596 10, % 0.8% 10,640 10, % 0.9% Eurasia 4,515 9, % -50.4% 4,313 9, % -52.1% 4,180 8, % -53.0% Source: Credit Suisse estimates Telia Company (TELIA.ST) 3

4 Figure 2: Telia Company: Changes to revenue and EBITDA forecasts by market SEK in millions, unless otherwise stated 2017E 2018E 2019E New Old Diff Old FX New Old Diff Old FX New Old Diff Old FX Revenues Sweden 36,796 36, % 1.2% 36,420 36, % 0.9% 35,996 35, % 0.3% - mobile service revenues 14,145 14, % 0.6% 14,141 14, % 0.3% 14,110 14, % -0.3% - fixed service revenues 17,536 17, % 1.6% 17,164 16, % 1.3% 16,771 16, % 0.4% Finland 13,102 13, % 0.3% 13,067 13, % 0.3% 13,058 13, % 0.6% Norway 9,302 9, % 1.1% 9,280 9, % 0.2% 9,312 9, % -0.3% Denmark 5,872 5, % 3.1% 5,817 5, % 2.6% 5,774 5, % 2.4% Lithuania 3,363 3, % 5.4% 3,367 3, % 8.6% 3,368 3, % 11.3% Latvia 1,879 1, % 5.9% 1,905 1, % 6.7% 1,920 1, % 7.0% Estonia 2,720 2, % 0.1% 2,726 2, % -0.4% 2,738 2, % -0.8% EBITDA Sweden 14,320 14, % 1.8% 14,194 13, % 2.9% 13,890 13, % 2.1% Finland 4,087 4, % 0.2% 4,100 4, % 0.2% 4,129 4, % 1.4% Norway 3,215 3, % 3.9% 3,208 3, % 1.5% 3,219 3, % 0.9% Denmark % -4.2% % -8.3% % -11.9% Lithuania 1,166 1, % 3.7% 1,178 1, % 8.6% 1,179 1, % 11.3% Latvia % 5.1% % 6.7% % 7.0% Estonia % -3.3% % -5.2% % -7.1% Source: Credit Suisse estimates Below medium term consensus forecasts We now forecast group EBITDA to be broadly stable at +0.1% y/y in local currency and adjusted for M&A, in line with the company's guidance of: "EBITDA from continuing operations, excluding non-recurring items, in local currencies, excluding acquisitions and disposals, is expected to be around the 2016 level." We are also broadly in line with 2017E consensus. We believe EBITDA and revenues in 2017 will be supported by: Continued strong one-off fibre installation revenues from Telia's own build out. Com Hem connecting customers to Telia's fibre network as an unbundler will drive further fibre installation revenues, although at a lower margin than Telia's own fibre installation revenues. We forecast a broadly stable contribution from Com Hem of around SEK300m over E implying comps are getting tougher in 2018E. Increases in Swedish line price increases, both carrying over from 2016 and new price increases in 2017 More wholesale revenues from ICE which started to more materially help results in Q4 16. ICE is however building out its own network and we could see these wholesale revenues fall again at some point. ICE has boosted Telia's Norwegian revenues and EBITDA, but the company is saying it intends to move smartphone traffic on to its own network from Q1 17. So this may become a drag as we move forward. We forecast a slightly decline in EBITDA in and are slightly below consensus mainly due to more cautious forecasts for the Swedish business. We believe consensus is underestimating: Telia Company (TELIA.ST) 4

5 The slowdown of one-off fibre installation revenues as Telia's own build and Com Hem's build out slows. Continued high voice line loss (c.1pp drag on Swedish revenues and more on EBITDA) We are 2-10% below consensus operating FCF (equity FCF before associate dividends and spectrum and license payments), the new financial metric Telia is now guiding on. In 2018E we are mainly below consensus due to higher CAPEX forecasts while it is mix of both CAPEX and EBITDA in 2019E. Figure 3: Telia Company: Summary of Credit Suisse forecasts vs Consensus TeliaSonera Group 2017E 2018E 2019E SEK in millions CSe Cons CS v Cons CSe Cons CS v Cons CSe Cons CS v Cons Net sales 77,782 78, % 77,334 78, % 76,919 79, % Growth -7.6% -0.6% -0.5% EBITDA excluding non-recurring items 25,449 25, % 25,350 25, % 25,090 25, % EBITDA margin 32.7% 32.8% 32.6% Reported EBITDA 25,449 25, % 25,350 25, % 25,090 25, % Depreciation, amortization and write-downs -10,345-11, % -10,285-11, % -10,230-11, % Income from associated companies 2,902 3, % 3,047 3, % 3,196 3, % of which Russia 1,243 1, % 1,261 1, % 1,231 1, % of which Turkey 1,579 1, % 1,706 2, % 1,885 2, % Operating income excl. non-recurring items 18,006 17, % 18,111 17, % 18,055 18, % Operating income 18,006 16, % 18,111 17, % 18,055 18, % Finance costs and other financial items, net -1,771-2, % -1,799-2, % -1,770-2, % Income after financial items 16,235 14, % 16,313 15, % 16,285 15, % Income taxes -3,085-2, % -3,099-2, % -3,094-3, % Net income from continuing operations 13,150 12, % 13,213 12, % 13,191 13, % Net income from discontinued operations 2,432 2,666 2,319 2,599 2,239 2,607 Net income 15,582 15, % 13,213 15, % 13,191 15, % of which owners of the parent 11,650 14, % 11,713 14, % 11,691 14, % of which non-controlling interests 1, % 1, % 1, % Earnings per share (SEK) % % % of which continuing operations % % % Dividend per share (SEK) % % % Free cash flow 9,277 10, % 9,001 10, % 9,917 11, % of which operating free cash flow 7,301 7, % 7,757 8, % 7,811 8, % of which from discontinued operations 866 1, % 934 1, % 897 1, % Net debt % % % Source: Consensus collated by the Company, Credit Suisse estimates Telia Company (TELIA.ST) 5

6 Figure 4: Telia Company: Credit Suisse revenue and EBITDA forecasts vs Consensus Net sales 2017E 2018E 2019E SEK in millions CSe Median CS v Cons CSe Median CS v Cons CSe Cons CS v Cons Sweden 36,796 37, % 36,420 37, % 35,996 37, % Europe 36,139 36, % 36,067 36, % 36,076 36, % Finland 13,102 13, % 13,067 13, % 13,058 13, % Norway 9,302 9, % 9,280 9, % 9,312 9, % Denmark 5,872 5, % 5,817 5, % 5,774 5, % Lithuania 3,363 3, % 3,367 3, % 3,368 3, % Latvia 1,879 1, % 1,905 1, % 1,920 1, % Estonia 2,720 2, % 2,726 2, % 2,738 2, % The Group 77,782 78, % 77,334 78, % 76,919 79, % EBITDA excluding non-recurring items 2017E 2018E 2019E SEK in millions CSe Median CS v Cons CSe Median CS v Cons CSe Cons CS v Cons Sweden 14,320 14, % 14,194 14, % 13,890 14, % Europe 10,569 10, % 10,596 10, % 10,640 10, % Finland 4,087 4, % 4,100 4, % 4,129 4, % Norway 3,215 3, % 3,208 3, % 3,219 3, % Denmark % % % Lithuania 1,166 1, % 1,178 1, % 1,179 1, % Latvia % % % Estonia % % % The Group 25,449 25, % 25,350 25, % 25,090 25, % Source: Consensus collated by the company, Credit Suisse estimates Valuation What is Telia worth post a Eurasia exit? Figure 5: TeliaSonera overview of Eurasian holdings Telia continues to look for a buyer of its Eurasian assets and is also still negotiating with the US DoJ regarding the settlement regarding its Uzbek business. We set out an overview of Telia's Eurasian holdings in Figure 5 and Figure 6. Eurasia assets Kazakhstan Azerbaijan Georgia Moldova Tadjikistan (SOLD but not Nepal (SOLD) Uzbekistan closed) Brand Kcell Azercell Geocell Moldcell Tcell Ncell Ucell EBITDA (100% consolidated, SEK'm) 1, N/A 3,668 Direct stake 24.0% 94.0% Indirect, through: 60.0% N/A - Fintur 29.9% 30.0% 58.6% 58.6% - Turkcell 8.0% 8.1% 15.7% 15.7% Effective stake 61.9% 38.1% 74.3% 74.3% 60.0% N/A 94.0% Source: Company data Telia Company (TELIA.ST) 6

7 Figure 6: TeliaSonera Eurasian asset holding structures Source: Company data We discussed Telia's exit of Eurasia and the broader strategy of the group post an exit in Telia Company - What next?, 22 Mar Post an exit from Eurasia we believe Telia could look to exit its stake in Turkcell as well and Megafon has already been labelled a financial asset for some time now. Valuation of Telia's Eurasian operational assets When Telia announced its intention to exit the Eurasian region in September 2015 the company targeted to have exited by the end of This has now been pushed out to end of While Telia said it had several interested parties in the stake, Turkcell was the only publicly announced bidder for the asset. Turkcell has now however agreed to sell in tandem with Telia and the company has said it has seen an increase in potential suitors. So far, Telia has only sold two of its Eurasian assets, Ncell in Nepal and Tcell in Tadjikistan. The completed deal to sell Ncell to Axiata in December 2015 valued Ncell at 5.0x EV/EBITDA and was closed in April 2016 with Telia already receiving the net proceeds (SEK7.5bn). The sale of its stake in Tcell to Aga Khan Fund for Economic Development for an implied valuation of 4.0x EV/EBITDA is yet to close. We have assumed the deal closes and Telia receives the SEK334m agreed for its 60% stake. We discuss our assumptions for the remaining assets below and set out a summary in Figure 7. Kcell (Kazakhstan) Telia owns a 24% direct stake in Kcell, in addition to the 29.9% indirect stake through Fintur (Telia owns a 58.55% in Fintur which owns a 51% stake in Kcell). Kcell is a listed entity and we base our sale proceeds on the current share price. In our lower case we value the Kcell stake (direct and indirect) at a 15% discount to current market price, implying a value of the stake of SEK3.7bn. In an upper case we assume only a modest discount versus current market price of 5%, implying a value of the stake of SEK4.1bn. Fintur (Azerbaijan, Georgia, Moldova) Telia Company (TELIA.ST) 7

8 Selling Telia's stake in Fintur has proven more difficult than what the company initially anticipated. Even though Turkcell has now also committed to sell its stake, which we believe could make a sale easier, finding a right buyer that passes Telia's due diligence may still prove challenging. Looking at some of the regional listed peers, Kcell, is currently trading at 4.7x 2017E EV/EBITDA while Russian telcos Megafon and Vimpelcom (which also has assets in Eurasia) are trading on 4.9x and 3.7x respectively. We believe there is a clear risk Telia would have to settle for a lower valuation than the above listed peers due to what seems to be a lack of interested parties in the assets so far, lack of liquidity and due diligence requirements from Telia. In our upper case we assume a 4x 2017E EV/EBITDA multiple, a premium to Vimpelcom but a discount to Kcell and Megafon. In our lower case we assume a 2x EV/EBITDA reflecting the lack of potential buyers and Telia potentially being willing to sell at a discount to refocus management capacity on its core businesses. This implies a value of Telia's stake in Fintur to SEK1.9bn in the upper case and SEK960m in the lower case. Uzbekistan Telia's Uzbek business is the source of the DoJ investigation and we believe finding a buyer of Telia's asset which fulfills the company's due diligence requirements may prove difficult. Therefore we assume a valuation range well below our assumptions for Fintur, assuming Telia could get nothing for the business in a worst case and 2x EBITDA in our upper case. Total Figure 7: Assumptions for Eurasia sales proceeds The above assumptions value Telia's Eurasian assets an EV of SEK9.8bn in our upside case and SEK5.0bn in our downside case. In addition, Telia reports SEK6.3bn of net cash in the Eurasian assets. While the company has not disclosed a recent split of this cash between the different operations, it said in late 2015 it had SEK bn of cash in Ucell in which Telia owns a 94% direct stake. We estimate the blended ownership of cash is 66% which implies proceeds to Telia of SEK4.2bn. So, including net cash we believe Telia will get SEK bn (SEK per share) in the sale of its Eurasian assets. Eurasia assets Kazakhstan Azerbaijan Georgia Moldova Tadjikistan Nepal (SOLD) Uzbekistan Net cash Total proceesa Brand Kcell Azercell Geocell Moldcell Tcell Ncell Ucell Total Eurasia 2017E EBITDA 1, ,836 Net cash 6,335 Direct stake 24.0% 94.0% Indirect, through: 60.0% 60.4% - Fintur 29.9% 30.0% 58.6% 58.6% - Turkcell 8.0% 8.1% 15.7% 15.7% Effective stake 61.9% 38.1% 74.3% 74.3% 60.0% 60.4% 94.0% 66% Stake sold 53.9% 30.0% 58.6% 58.6% 60.0% 60.4% 94.0% 2017E EV/EBITDA (upper range) 4.0x 4.0x 4.0x 2.0x 2017E EV/EBITDA (lower range) 2.0x 2.0x 2.0x 0.0x Discount vs mkt cap (upper range) 5% Discount vs mkt cap (lower range) 15% Proceeds upper end 4,129 1, ,451 4,182 =14,015 Proceeds lowed end 3, ,182 =9,170 Source: Company data, Credit Suisse estimates Telia Company (TELIA.ST) 8

9 DoJ settlement Offsetting the sales proceeds is the likely settlement relating to Telia's Uzbekistan business. Both the US DoJ and the Dutch government are investigating payments made by Telia relating to the company's acquisition of its license in Uzbekistan. The US DoJ offered Telia to settle for US$1.4bn in September 2016 but since then there has been little news. In a separate case, Vimpelcom announced a settlement of $795m (after having made a $900m provision) in early 2016 regarding its dealings in Uzbekistan. It is not clear what the initial offer from the DoJ to Vimpelcom was, but the final settlement coming in below the provision implies the company managed to negotiate the amount down. Other examples include Citigroup which was investigated for similar issues was asked to pay US$12bn in 2012 while the final settlement ended up at US$7bn. When Teva Pharmaceuticals recently settled with the US DoJ it received a 20% discount for its cooperation with the DoJ and implementation of some remedial policies. While Telia has no shares listed in the US, the DoJ is investigating Telia as the payments made in regards to the Uzbek business were made in US$. Vimpelcom has its shares listed in the US, in our view, arguing for the DoJ having a stronger claim from Vimpelcom than Telia. So, it seems the final settlements have fallen materially below the DoJ's initial ask in previous cases and with the DoJ, in our view, having a less strong claim to fine Telia we believe Telia is also likely to negotiate down the US$1.4bn asked for by the DoJ. We set our lower/bear case at US$1bn and our upper case/bull at US$500m, well below the US$795m settlement Vimpelcom paid. Impact on net debt from Eurasia exit and DoJ settlement In Figure 8 we look at the total impact on net debt in the various scenarios. In addition to the sales proceeds and DoJ settlement we deconsolidate 100% of the net cash in the Eurasian assets which Telia currently consolidate. Figure 8: Scenario analysis of net debt impact from Eurasia exit and DoJ settlement Upper case Base case Lower case Sale proceeds 14,015 11,592 9,170 - EV paid 9,833 7,411 4,988 - net cash 4,182 4,182 4,182 DoJ settlement -4,450-6,675-8,900 Deconsolidation of Eurasia net cash -6,335-6,335-6,335 Decrease/(incrase) in net debt 3,230-1,418-6,065 Source: Credit Suisse estimates SOTP In Figure Error: Reference source not found! we value Telia Company at SEK35 per share on our base case for Eurasia exit and DoJ settlement on the following assumptions: We value the stub of Telia on a proportionate basis, including the minority stakes in MegaFon (25%) and Turkcell (37%), at a sector 6.3x 2017E proportionate EV/EBITDA. Sales proceeds from a sale of the Eurasian business of SEK11.6bn (incl SEK4.2bn for Telia's stake in net cash in the assets). DoJ settlement of SEK6.7bn (US$750m) A SEK6.3bn increase in net debt from deconsolidating net cash in the Eurasian assets. Telia currently consolidate 100%. Telia Company (TELIA.ST) 9

10 Figure 9: Telia SOTP 2017 Upper case Base case Lower case Proportionate EBITDA, ex Eurasia 34,077 34,077 34,077 EV/EBITDA multiple Implied EV 214, , ,685 Eurasia sales proceeds 14,015 11,592 9,170 - EV paid 9,833 7,411 4,988 - net cash 4,182 4,182 4,182 DoJ settlement -4,450-6,675-8,900 Deconsolidation deconsolidate Eurasia net cash * -6,335-6,335-6,335 Deduct proportionate net debt, pre Eurasia exit 61,626 61,626 61,626 Implied equity value 156, , ,994 # shares 4,330 4,330 4,330 Share price Implied adj equity FCF yield, 2017E 6.0% 6.2% 6.4% Source: Company data, Credit Suisse estimates *this scenario analysis only considesr the impact of different Eurasia exit and DoJ settlement assumptions while the Blue and Grey sky scenarios in the financial summary section look at the whole group. Summary of valuation multiples In Figure 10 we set out a summary of Telia Company including the Eurasian assets. We set out a summary of the valuation of Telia post an exit from Eurasia and post a settlement with the US DoJ. Telia is currently trading at a discount to the sector on proportionate EV/EBITDA. We believe mainly due to the lower trading multiples of Eurasian assets and the risk associated with Telia's exit of Eurasia and DoJ settlement. The stub of Telia (continuing operations and proportionate stakes in associates) trade broadly in line with the sector on our base case for a Eurasia exit and DoJ settlement. Telia Company (TELIA.ST) 10

11 Figure 10: Telia Company: Summary of valuation multiples (including Eurasia) TLSN 2017E 2018E 2019E Number of shares outstanding 4,330 4,330 4,330 Headline market cap 157, , ,615 Deduct: Cumulative dividends paid 8,660 17,320 25,981 Net debt (proportionate) 58,162 57,724 56,085 EV (proportionate) 207, , ,719 Adjusted EV (proportionate) 217, , ,270 Co reported FCF 9,277 9,001 9,917 Co reported FCF yield 5.9% 5.7% 6.3% Proportionate EBITDA (incl Eurasia) 37,940 37,749 37,389 Proportionate EV/EBITDA Consolidated EBITDA (incl discontinued operations) 29,964 29,663 29,270 Consolidated EV/EBITDA Proportionate EBITDA-CAPEX 16,922 17,769 17,670 Proportionate EV/(EBITDA-CAPEX) EBITDA-CAPEX 14,043 14,716 14,618 EV/(EBITDA-CAPEX) EPS P/E DPS Dividend yield 5.5% 5.5% 5.5% P&L Tax -3,085-3,099-3,094 Cash tax -2,904-3,176-3,140 Tax credits used Deduct: NPV of cash savings from tax credits License costs 400 1, Add: NPV of estimated license costs 1,821 1, = Adjusted MV 159, , ,185 Adjusted FCF 8,947 9,951 9,933 Divided by : Adjusted MV 159, , ,185 = Adjusted FCF yield 5.6% 6.2% 6.3% Adjusted enterprise FCF 10,990 12,017 11,972 Adjusted EV( Adj Mcap + net Debt) 217, , ,270 Adjusted enterprise FCF yield 5.1% 5.5% 5.6% Source: Credit Suisse estimates, the P/E multiples deviate slightly versus the financial summary box on the front page due to different adjustments Telia Company (TELIA.ST) 11

12 The anatomy of the Swedish fibre market Sweden is one of the leading markets in terms of fibre built-out with c.80% of households currently passed by FTTH/B (see Figure 11). Similar to Norway and Denmark however, the incumbent, Telia, has been late to build and the majority of homes are built by challengers (municipalities, utilities and private companies). The early build out in Sweden has been supported by the Swedish government early pushing for fibre build out being the first country in Europe to develop a broadband policy (in 1999). While there has been some public funding available, the fact that consumers have been willing to pay to get fibre installed (around SEK20,000/ 2,100) has been a big difference versus other European markets and supported the economics of building fibre. While Telia has since its CMD 2014 ramped up its fibre build out and currently covers c.1/3 of Swedish households (targets 42%, 1.8m homes by the end of 2018), it covers less than half of the fibre built in Sweden. Figure 11: % of Swedish homes passed by broadband technology 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% E xdsl Coax Fibre Source: PTS, Credit Suisse estimates Who has built what? City fibre networks As Telia were slow to start to build out fibre, the Swedish municipalities decided to start to build out fibre themselves in the early 2000s. The pace of buildout however accelerated in the mid 2000s (see Figure 12) as demand started to grow and still there are new municipalities setting up their own fibre projects. The Swedish city fibre organisation estimate around 1.92m households in total were connected to one of the c.155 city networks in Sweden by the end of 2016 see Figure 13. The 1.92m homes connected makes up 42% of Swedish households and 58% of Swedish households connected to fibre and makes the Swedish city fibre networks in aggregate the main builder of fibre in Sweden. Telia Company (TELIA.ST) 12

13 Figure 12: Swedish fibre investments by city networks Source: SSNF.org Figure 13: Homes connected by Swedish city fibre networks 2,500 2,000 1,500 ('000) 1, E Homes connected to city fibre networks Source: SSNF.org Most of these city networks have decided to open up the networks on a wholesale basis. Depending on several factors such as scale, industry knowledge and ambition the city networks manage different levels of the networks themselves and the market has evolved into three categories: Network operator: The network owner and provider of the passive infrastructure. Communications provider: Is essentially the active infrastructure provider and comes on top of the network operator, enabling the network for services. This can be, but is not necessarily, the same as the Network operator. Some operators have tried to become pure communications providers but it appears with limited success and the main ones have been acquired by the established telcos (OpenNet was acquired by Telenor in 2012 and Zitius by Telia in 2013). The Swedish state owned Teracom is now the largest independent communications provider alongside the more established telcos, Telia (Telia Open Fibre and Zitius), Com Hem (itux) and Telenor (Open Universe). Telia Company (TELIA.ST) 13

14 Service provider: The service provider is essentially a reseller layering its services and applications on top of the communications provider. This could be, but is not necessarily the same as the Communications provider. As the demand for fibre has grown and the barriers to enter as a pure service provider are low, there has been a steady increase of local as well as regional or national service providers emerging. In % of city networks said they had more than four service providers in the network, and this has grown to 82% in The two main pure service providers in Sweden are Bahnhof and Bredband2, which together have gone from essentially nothing 9 years ago to now having c.10% each of the Swedish fibre end market (c.5% each of the total broadband market). The wholesale price for a service provider varies depending on network (as city networks are not regulated), but based on Service provider gross margins of around 30-40% (Bredband2, Bahnhof and comments from Telia and Telenor) the wholesale price for a 100/100Mbps connection seem to be in the range of SEK /month ( 16-21/month). This compares to Telia's current fibre ULL pricing of SEK128/m ( 13/m) and copper ULL of SEK96/m ( 10/m). Telia is the second largest fibre provider Telia was relatively slow to start to build out having only c.400k homes connected in 2011, in line with Telenor. Telia has since accelerated its investment having passed c.200k homes per year in 2015 and 2016 and invested over SEK3bn in fibre in Telia has been building both on its own and in partnership with municipalities and landlords on the same open network principles as the municipalities themselves. By the end of 2016, Telia passed 1.26m homes (excl c.240k communications provider/zitius households) and had 970k homes connected (645 MDUs and 325k SDUs). Telenor Telenor's Swedish fibre footprint (and fixed line business) is mainly put together from acquisitions. Telenor acquired Bredbandsbolaget in 2005 which was a pioneer in fibre build in Sweden and the second largest broadband provider when it was acquired by Telenor. In addition, Telenor acquired Tele2's fibre and coax business (passing 370k homes) in By the end of 2014 Telenor had 730k homes connected to fibre. The company has not disclosed an updated number since then but we estimate around 900k, assuming some further build out. IP-Only a late entrant, but very active The Swedish Private Equity company EQT acquired the smaller fibre network and data centre operator IP-Only in 2013 and has since increased the turnover from SEK420m in 2012 to SEK1,027m in 2015 (+57% growth in 2015), through increased investments in network expansion (SEK35m in 2012 to SEK983m in 2015) and some acquisitions of municipality city fibre networks. We believe IP-Only passes c.300k and the rest by municipalities. Cable footprint is increasingly overbuilt The cable footprint of 1.7m homes (40% of total homes) has essentially stopped growing and main cable operator Com Hem is predominately growing its footprint through utilising Open Fibre networks and expanding its reach through unbundling Telia's fibre SDU network. What are future build plans? Telia has guided for CAPEX in 2017 in-line with 2016, implying a similar rate of build planned. However, Telia has guided for CAPEX to start to fall from 2018 and onwards. Telia plans to increase its fibre footprint (incl Communications operator footprint) to 1.9m homes (42% of total Swedish homes) by the end of 2018 from c.1.5m currently on the same basis. Telia Company (TELIA.ST) 14

15 IP-Only seem to be continuing to build at a similar or even higher rate than up to now. The municipalities most keen to build have already built and we are seeing an increasing amount of municipalities teaming up with private companies to build, eg Telia and IP-Only. Talking to the organisation for Swedish city networks however, there seem to still be 2-3 new fibre project per year. Telenor has guided for an increase in fibre homes passed in Sweden from 2.0m in 2016 to 2.8m in The company has however not guided for how much of this 800k increase in footprint will be from own roll-out versus unbundling Telia's SDU fibre versus pure wholesale agreements. Com Hem has guided to pass 800k MDUs by This will however mainly be achieved through unbundling of Telia's fibre network. Com Hem has however said it is looking into the opportunity to build fibre, in addition to these 800k homes. Swedish market growth has improved as a result We note that over the last four years (since around 2013) see Figure 15, the Swedish fixed line market has gradually improved. The number of Swedish market fixed lines only fell by 0.2% in 2016 versus 3-5% in and represent the third consecutive quarter of improving trends. Market fixed broadband subscriber growth has materially picked from 1-2% in to 4-6% in Fixed broadband penetration of 80.5% is broadly in line with the European average and well below other Norther European markets around 90%, in our view, leaving room for the high growth to continue. By the end of 2016, we estimate fibre made up 55% of Swedish fixed broadband connections, having increased from 30% five years ago and surpassing xdsl in It is easy to put this improvement in trends down solely to the availability of fibre in Sweden, and indeed the build out has accelerated somewhat over the same period of time. However, in 2012, c.65% of Swedish households had already access to HSB (fibre or coax) and broadband penetration at 68% was below the 73% European average and increasing by less than 1pp per year. So, fibre availability alone does not seem to have been the main driver of Swedish fixed line picking up. The pick-up in Swedish fixed broadband trends however coincided with the launch of Netflix and HBO Nordic in Sweden in H2 12. Mediavision, a Nordic media consultancy agency, estimate Netflix alone now has more than 1m subscribers in Sweden (>20% of households) and c.35% of households now subscribe to one or more streaming services. So OTT services have proven to be very popular in Sweden. Whether high availability of fibre has supported the uptake of streaming services or the increased quality and availability of streaming services has driven the demand for fixed broadband is not clear. However, it seems as the combination of high availability of high speed broadband and streaming services has been a major factor in turning the Swedish fixed line market around. A recent survey from the Swedish telecommunications regulator, PTS, further supports streaming and the requirement for high bandwidth and data usage associated with these services have increased demand for fixed line over mobile broadband. The survey (see Figure 14) shows a material increase in fixed broadband customers not considering switching to a mobile connection. The arguments why consumers are less willing to cut their fixed broadband connection, mainly not enough data usage on mobile broadband and mobile broadband being too expensive is likely to also explain why there appear to be many consumers having migrated back to or got their first fixed broadband connection. In addition, we believe the higher availability of fibre has helped, as the quality improvement versus 3G/4G mobile broadband is higher. Telia Company (TELIA.ST) 15

16 Figure 14: Would you consider switching from fixed broadband to mobile only broadband at home? 35% 30% 29% 25% 20% 15% 19% 19% 17% 16% 15% 11% 11% 10% 5% 6% 0% No, because the bandwidth is throttled if I am using over a certain amount of data No, for other reasons No, because I think it will be too expensive No, because I am concerned the connection might go down Do not know No, concerned if it will actually work technically Yes, I could do it Yes, and I have already done so No, have no cell coverage Source: PTS 2015, Credit Suisse research Telia Company (TELIA.ST) 16

17 Telia Company (TELIA.ST) 17 Figure 15: Swedish fixed line market overview TeliaSonera fibre build model E** Population growth y/y 0.8% 0.8% 0.9% 0.8% 0.7% 0.8% 2.1% 0.9% 1.0% Swedish households ('m) growth y/y 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Network coverage ('m homes passed) Covered by copper Coax Fibre (homes passed) of which Telia fibre homes passed (ex comm op*) HSB homes passed % of Swedish homes 51.2% 51.7% 54.5% 57.2% 60.4% 64.6% 68.5% 74.5% 79.2% 87.8% - fibre and coax overlap 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% Market fixed voice lines 5,407 5,217 5,003 4,730 4,480 4,165 3,923 3,734 3,537 3,301 - net adds y/y -3.5% -4.1% -5.5% -5.3% -7.0% -5.8% -4.8% -5.3% -6.7% Market fixed broadband lines 2,780 2,903 2,945 2,997 3,025 3,070 3,149 3,286 3,496 3,713 Market voice-only lines 2,940 2,671 2,469 2,207 1,984 1,710 1,484 1,297 1, Market lines 5,720 5,574 5,414 5,204 5,009 4,780 4,633 4,582 4,552 4,543 Market line loss y/y -2.6% -2.9% -3.9% -3.7% -4.6% -3.1% -1.1% -0.7% -0.2% Telia lines (retail+wholesale) 5,076 4,849 4,552 4,252 3,994 3,695 3,468 3,254 3,056 2,803 Telia lines (retail+wholesale) y/y -4.5% -6.1% -6.6% -6.1% -7.5% -6.1% -6.2% -6.1% -8.3% Broadband subscribers by technology xdsl 1,716 1,737 1,666 1,591 1,515 1,437 1,340 1,227 1, Telia retail 1,010 1,044 1, Wholesale Fibre ,034 1,221 1,435 1,711 2,031 Cable Other Total fixed broadband 2,780 2,903 2,945 2,997 3,025 3,070 3,149 3,286 3,496 3,713 - growth y/y 15.9% 4.4% 1.5% 1.8% 0.9% 1.5% 2.5% 4.4% 6.4% 6.2% - penetration of homes 63.1% 65.5% 66.1% 67.0% 67.3% 67.9% 69.3% 72.0% 76.2% 80.5% - delta penetration y/y 0.0% 2.4% 0.6% 0.8% 0.3% 0.7% 1.4% 2.7% 4.2% 4.3% Source: Company data, PTS, Credit Suisse estimates, *We do not include Telia homes passed as Communications provider to avoid double counting, ** as data from the Swedish regulator (PTS) is not available for 2016E we make our own estimates 13 March 2017

18 Telia has lost share of lines While Telia as other incumbents has underperformed the market line loss trends, as demand for fibre accelerated and the Swedish market started to improve around , Telia's underperformance has accelerated - Figure 16, and in 2016 we estimate Telia lost 8.3% of its lines (retail+wholesale) versus the market close to flat at -0.2%. Figure 16: Sweden market vs Telia line loss y/y 0.0% -1.0% E -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% Market line loss y/y Telia lines (retail+wholesale) y/y Source: Company data, Credit Suisse estimates, PTS, NOTE: As data from the Swedish regulator (PTS) is not available for 2016E we make our own estimates We set out the details of Telia's line loss in Figure 17. The main drivers of the accelerated line loss at Telia, in our view, are: c.55% of Telia's xdsl footprint is now overbuilt by fibre and/or coax. While the vast majority of these networks are Open networks, ie free for anyone to resell, allowing Telia to continue to compete, with the loss of retail market share Telia is not gaining anything back on wholesale revenues. Telia has had a large number of voice only lines, customers taking only fixed voice and no broadband or taking only fixed voice from Telia but broadband from someone else. This customer base is rapidly declining now. We estimate Telia still having 631k voice only lines in its base. Telia's price increases on xdsl in 2016 negatively impacted churn and Telia's broadband subscriber base was broadly flat in 2016 versus growing by 2.4% in Telia Company (TELIA.ST) 18

19 Figure 17: Telia lines Telia lines calculation Telia total voice lines ,347 2,209 2,054 1,896 1,675 - y/y -6.9% -7.3% -8.3% -6.7% -6.9% -5.9% -7.0% -7.7% -11.7% Telia broadband subs ,175 1,208 1,275 1,306 1,299 - Telia consumer fibre subs % of broadband subs taking voice - xdsl 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 97.0% - fibre 70.0% 69.0% 68.0% 67.0% 66.0% 65.0% 64.0% 63.0% 62.0% 61.0% Broadband + voice lines 1,028 1,073 1,067 1,058 1,061 1,065 1,070 1,096 1,087 1,022 Broadband lines 1,067 1,122 1,125 1,129 1,149 1,175 1,208 1,275 1,306 1,299 Voice only lines 2,384 2,105 1,880 1,645 1,460 1,282 1, net adds Total Telia retail lines 3,451 3,227 3,005 2,774 2,609 2,457 2,347 2,233 2,115 1,952 - y/y -6.5% -6.9% -7.7% -5.9% -5.8% -4.5% -4.9% -5.3% -7.7% - line loss Telia retail share of lines 60.3% 57.9% 55.5% 53.3% 52.1% 51.4% 50.7% 48.7% 46.5% 43.0% Telia wholesale PSTN lines 1, Telia fibre wholesale lines Telia xdsl ULL lines Total Telia lines 5,076 4,849 4,552 4,252 3,994 3,695 3,468 3,254 3,056 2,803 - y/y -4.5% -6.1% -6.6% -6.1% -7.5% -6.1% -6.2% -6.1% -8.3% - net adds Telia total share of lines 88.7% 87.0% 84.1% 81.7% 79.7% 77.3% 74.9% 71.0% 67.1% 61.7% Source: Company data, Credit Suisse estimates Price increases and fibre installation revenues have offset line loss Over the last four years, Telia's fixed service revenues have materially outperformed the relatively heavy lines loss of >6% per annum (see Figure 18). In our view, this is mainly explained by improving pricing trends in the Swedish market and aggressive price increases put through by Telia (and the whole market), the growth in fibre installation fees and to a lesser extent, the growing penetration of TV due to higher fibre uptake (c.2x TV attachment on fibre vs copper). Telia Company (TELIA.ST) 19

20 Figure 18: Telia Sweden fixed lines and revenue trends 2.0% 0.0% E 2018E 2019E -2.0% -4.0% -6.0% -8.0% -10.0% Line loss, y/y Fixed service revenues, y/y Fixed service revenue, ex fibre installation, y/y Source: Company data, Credit Suisse estimates, Telia lines estimated as broadband lines+voice only lines+pstn wholesale+fibre wholesale+ull Swedish fixed prices rising Over the last couple of years, and despite of the push from smaller fibre service providers, price increases in the Swedish market has accelerated see Figure 19, and this has in our view been one of the key reason's Telia has managed to keep its fixed service revenues broadly flat despite its >6% line loss. Telia grew its broadband ARPU by 4% in 2016 and TV ARPU by 11% in 2016 mainly as a result of these price increases. All the main Swedish operators, Telia, Telenor and Com Hem have raised pricing over 2015 and Telia in particular have been aggressive raising pricing on TV (for example pricing on the Large bundle has increased by 22% since early 2012). Telia and Telenor are however yet to raise pricing on fibre broadband, while Com Hem has raised pricing (front book + back book) across the board. Telia Company (TELIA.ST) 20

21 Figure 19: Swedish fixed price changes by main operators (Telia, Telenor and Com Hem) Date Operator Product Comment Early March 2015 Telia TV Telia raised pricing on the Large TV bundle from SEK278/month to SEK299/month (8%)- new and existing subs 1 April 2015 Com Hem TV+BB Back book price increase of c.1.5% Mid 2015 Telia TV+BB Telia increased paper billing fee from SEK19/m to SEK29/m August 2015 Telia TV Telia raised pricing on the Medium TV bundle from SEK198/month to SEK229/month (16%) - new and existing subs H2 15 Telenor Broadband Telenor scrapped its 10Mbps entry level fibre/cable broadband bundle H2 15 Telenor Broadband Raised pricing on 24Mbps ADSL from SEK389 to SEK 409/month, +5% H2 15 Telenor Broadband Raised pricing on 60Mbps VDSL from SEK439 to SEK 459/month, +5% H2 15 Telenor Introduced 40Mbps VDSL SEK459/m 1 Mar 2016 Com Hem TV+BB Com Hem raised front book pricing on the entry level 50Mbps bundle and 250Mbps bundle by SEK30/m respectively. Also a 2.5-3% back book price increase March 2016 Telia TV Raised pricing on Medium TV bundle to SEK279/m (from SEK229/m 22%) and Large to SEK339/m (from SEK299/m +17%) for new customers, not advertising the entry level April 2016 Telia TV Put through the above TV price increase on the existing base as well April 2016 Telia Broadband xdsl price increases by 15-20% for new customers June 2016 Telia Broadband xdsl price increases by 15-20% for existing customers June 2016 Telia Broadband xdsl customers do not need to take fixed telephony Late Summer 2016 Com Hem Broadband Raised pricing on 100Mbps broadband from SEK349/m to SEK369/m for new customers Feb 2017 Com Hem TV+BB Front book - Broadband 50Mbps from SEK319/m to SEK349/m, Broadband 250Mbps from SEK449/m to SEK469/m, DTV 1 Mar 2017 Com Hem TV+BB Back book increase by 2.5-3% Source: Company data Figure 20: Swedish fixed broadband pricing 2Mbit/s 8Mbit/s Bas from SEK179/m to SEK199/m, DTV Silver from SEK279/m to SEK299/m. Looking at the current fixed broadband pricing (we set out full fixed line pricing including TV in Appendix A), the pricing between the three main players are relatively similar. Com Hem and Telenor only prices SEK10/m, 3% below Telia on a 100Mbps broadband connection. Interestingly, Telia also prices its fibre broadband at a lower price than xdsl. In our view, in part to incentivize Consumers to pay the around SEK20,000 to get fibre installed. Telia has however recently started to talk about the potential to raise fibre broadband pricing. ComHem* Telia xdsl Telia Fibre TNOR xdsl TNOR cable/fibre 10Mbit/s Mbit/s Mbit/s Mbit/s Mbit/s Mbit/s / Mbit/s Mbit/s Gbit/s Source: Company data, Credit Suisse estimates, Com Hem 100Mbps broadband is 10Mbps upload speed while Telia and Telenor are 100Mbps both ways Pricing with the main challengers Bahnhof and Bredband2 varies somewhat by network as the wholesale prices are different. Looking firstly on the pricing in Telia's fibre network (see Figure 21), the price for a 100/100Mbps broadband connection is SEK379/m with Bahnhof and SEK357/m with Bredband2, similar to Telia, Telenor and Com Hem. Telia Company (TELIA.ST) 21