TeliaSonera's Q1 Revenues Up 3.5%, Sees Double-Digit Eurasian Growth

• The operator saw subscriber numbers increase 9% y/y to reach 172.4 million at the end of March, of which 6.6 million were in TeliaSonera consolidated companies and 7.7 million to in its associated operators.

• TeliaSonera has seen some fair growth in its home market of Sweden, gaining 6% y/y mobile revenue growth in the face of fierce competition, while its LTE network expansion in the Nordics continues.

TeliaSonera has revealed its first-quarter 2012 revenues rose 3.5% year-on-year (y/y) to 25.69 billion Swedish kronor (USD3.8 billion), as the operator saw an improved performance in its domestic Swedish markets boosted by double digit growth in Eurasia. In Mobility Services, net sales increased 3% y/y to SEK12.5 billion, boosted by 5% y/y growth in Sweden and a surprise 25% jump in Spain:

TeliaSonera's first-quarter revenue from its Broadband Services sector was virtually flat at SEK 9.02 billion, while its Eurasia sector saw net sales increased 15.1% y/y to SEK4.45 billion. The operator's earnings before interest, taxes, depreciation, and amortisation (EBITDA) was down 0.8% y/y to SEK8.82 billion, and TeliaSonera reiterated its previous forecasts for the full-year 2012, expecting organic revenue growth of between 1% and 2%, and a flat EBITDA margin.

Operationally, the operator saw numbers of subscriptions increase 9% y/y to reach 172.4 million at the end of March, of which 6.6 million were in TeliaSonera consolidated companies and 7.7 million to in its associated operators.

Our Take

• TeliaSonera has seen some fair growth in its home market of Sweden, gaining 6% y/y mobile revenue growth in the face of fierce competition from Nordic rival Telenor and Tele2 as well as relatively new entrant 3 Sweden, as ramping smartphone use and ongoing fixed-mobile substitution increases pressure on network capacity (see Sweden: 29 February 2012: TeliaSonera Forecasts Tenfold Increase in Mobile Data in Five Years, Threatens to Start Charging for VoIP Use). TeliaSonera announced at the start of the year that it plans to expand its LTE network to 21 new cities in the next few months, taking the total number of localities covered by its LTE services to over 200 and plans to continue to extend its LTE coverage to over 660 localities by the end of 2012 (see Sweden: 16 January 2012: TeliaSonera Expands LTE Coverage to over 200 Locations, Aims for 660 by Year-End). Meanwhile, the Finnish state recently decreased its ownership of TeliaSonera to 11.7% from 13.7%, meaning that the Finnish and Swedish governments have lost their combined majority stake in the operator, but this is unlikely to affect strategy or performance as it has been effectively operating as a private company for some years now (see Sweden: 21 March 2012: Finnish State Investment Fund Cuts TeliaSonera Stake, Drops Finnish and Swedish Governments' Stakes to Under 50%).

• In Denmark, TeliaSonera and Telenor have recently gained regulatory approval for the formation of a joint-venture (JV), which will see the operators merge their respective radio access networks, comprising the antennas, towers and transmission equipment used for mobile traffic (see Denmark: 2 March 2012: Danish Regulator Approves TeliaSonera and Telenor Network Sharing Deal). The two operators have agreed to only bid on new spectrum licences through the JV, while they must sell or rent redundant antenna space to competitors. TeliaSonera has also revealed plans to expand the coverage of its LTE network in the country to an additional 69 cities, taking its total network coverage to 73 cities in the country—covering over half of Denmark's population (see Denmark: 11 October 2011: TeliaSonera Extends LTE Network to Cover Half of Danish Population).

• TeliaSonera's Spanish unit Yoigo continued to report strong growth with revenues growing 25.4% y/y to SEK1.95 billion, on the back of continued subscription growth; Yoigo reported 27.3% y/y subscription growth to 3.15 million. After several quarters of improvement and profitability, EBITDA fell to SEK33 million, down 10.8%, giving a EBITDA margin of 5.6%. TeliaSonera put the poor EBITDA performance down to increased network modernisation costs. Yoigo has been the largest beneficiary of the downturn in the Spanish economy, as a low-cost operator in a market where telecoms spend has been decreasing. However, it claimed that the decrease in average revenue per user (ARPU)–down 7.9%—and minutes of use (MoU)–down 7.4%—was due to the deterioration in the economy. Yoigo will see capex costs ramp up in the near-term, as it begins deployment of LTE in the 1,800-MHz band, in line with TeliaSonera strategy.

• In Russia, TeliaSonera's income from Megafon decreased to SEK673 million, from SEK1.09 billion the same quarter last year. Meanwhile, Russian investor Alisher Usmanov is seeking to increase his stake in MegaFon, and is in talks with Altimo on acquiring their 25.1% stake to increase his share to 56.23%. Such a deal would make TeliaSonera the smallest shareholder in MegaFon, reducing its influence over the future direction of the operator (see Russia: 2 April 2012: Analyst Commentary). Meanwhile, TeliaSonera is rumoured to also be interested in acquiring Altimo and AF Telecom's stakes in Megafon, boosting its current 43.8% stake and effectively taking over the Russian operator.

• TeliaSonera has recently announced it has sold its 18.6% stake in Cambodian operator Smart Mobile to a group of local investors, marking the Swedish giant's exit from the country. Elsewhere, TeliaSonera has also upped its stake in Nepalese mobile player Ncell to around 73% from the current 60.4%. The Swedish company did not give any financial details of either transaction, but said it does not expect either deal to have any discernible effect on its financial performance (see Sweden: 6 April 2012: Analyst Commentary). TeliaSonera says it sees Cambodia as a non-core market and the divestment, along with the increase in its Nepalese interests, fits with the Swedish operator's strategy of gaining control of key assets while offloading non-controlling minority interests.