Telenor ASA

OSE:TEL

Earnings Call Transcript 2019-Q4

[Sigve Brekke, President & CEO]

Okay. Good morning to everyone here at Fornebu, and also good morning and good afternoon to those of you that are following us on the video streaming.I'm satisfied with the first (sic) [ fourth ] quarter. It's a quarter that reflects a solid financial performance. And it's another quarter where we show that we are able to execute on the strategy that we laid out, now 3 years ago. It also show our ability to stay focused on growth, on efficiency and on simplification. Subs and traffic growth is up 2%. That's coming from a very solid performance in Norway, both on fixed and mobile, and I'm going to come back to that more in detail. The ARPU in Norway, mobile ARPU, is up 4%. And we see now in Norway that the fixed and the fixed wireless access 4G application we have is able to offset the decline in the copper-related businesses. In addition, Thailand and Myanmar continues the positive trend that we saw in the third quarter. In Myanmar, we added 5 million new subscribers in 2019. And we see then a very impressive 15% revenue growth in the quarter. And Thailand also continues to deliver on the revenue growth which we presented this quarter. In Pakistan, we still see some challenges. As we explained in the third quarter, there are macroeconomic challenges and there are also effects of the service tax that we got back last year. This is resulting in a 10% reduction in S&T revenues. However, we also did say in the third quarter that we now are increasing our efforts on using granularity and the cluster-based model in sales and distribution, and we see that giving us some effect. And we added 1 million new subscribers in Pakistan in the fourth quarter, and we also now see a continuous data growth.I also want to mention Sweden. We see a tough competition in Sweden on the B2B segment, and we also see that some of the campaigns on the B2C segment is putting pressure on the revenue development. And last but not least, we continue our modernization of Telenor, resulted in a 6% OpEx reduction in the quarter.So let me dig a little bit more into some of the operations, starting with Norway. I'm very impressed by the Norwegian management team that they in a highly competitive market are able now to deliver very strong performance on all the segments, both on fixed and on mobile.Let me start with fixed. We see a 3% revenue -- traffic revenue increase. And as I said, this is a quarter that we have been able then to offset the decline in the copper-related legacy revenues. We see a record high addition on new fiber connections, 17,000 new fiber customers in the quarter, and we did deliver on what we said when the year started, that we aimed to increase our fiber connection with 60,000 last year. So we have got now the speed that we anticipated. We also now have 10,000 -- we added 10,000 new fixed wireless customers. We had 8,000 in the third quarter and added 10,000 now, so 18,000 together. It's a product that really turns out to give a smooth broadband experience for our customers. And overall, we then see a 13% increase in the broadband ARPU. This is coming from the growth in the fiber connection, as I mentioned, upsell to higher speeds and also to some price adjustments.On the mobile side, the strong ARPU growth that we saw in the third quarter is continuing, and this quarter, as I said, 4% ARPU growth. The upselling into richer data bundles continues. But in addition, as we saw in the third quarter, we are now able to add services on top of the data connectivity, and those services are insurance and security. And if you look at the 4% ARPU growth, approximately 2/3 of that growth is actually now coming from those new services. And I'm very pleased to see that we are able to satisfy our customers with not only the data connectivity, but also with services that are valuable.The modernization in Norway continues. We have talked about for several quarters that we want to digitalize the core business. And this is then paying off. And we see that the modernization and the digitalization of the customer journeys are enabling us to bring down costs, that being in sales and marketing and that being in operations. And that's why this quarter we have also a very good cost reduction of 7%. This then leads to a very solid EBITDA development. And as you see on the right-hand side of this slide, the revenue and the OpEx development now more than offset the increase in COGS. And the increase in COGS comes from fixed wireless hardware and also content costs.Moving to Finland, our new daughter. This is the first quarter where we have a full DNA effect in our P&L. I'm pleased to see a continued strong revenue growth, 8% S&T growth in this quarter. And this is according to the expectations we had when we decided to acquire DNA a year ago. The growth is coming from increased data usage and upselling to faster speeds to existing customers. And during the quarter, we also launched 5G commercially in Finland. And the first stage in this launch is targeting fixed wireless access customers in selected areas close to Helsinki. And as we see in Norway on the 4G fixed wireless access, the same we experienced in Finland, the customers are very happy with this fixed wireless product.After we concluded the acquisition in Finland, we have been working on the integration. And it's clear to us now that DNA and Telenor has the same DNA, and the same DNA meaning this attacker's mindset: always trying to do better, always trying to be more efficient, and not least, trying to satisfy our customers. We have confirmed the synergy areas that we talked about when we announced the acquisition. And we have already started to execute on those, the first one being on the B2B where we have launched a Nordic Connect product. We are expecting a delisting on DNA during the first (sic) [ fourth ] quarter we are in now. Moving to Thailand. The turnaround that we talked about a year ago continues in Thailand. And we are on plan. We are actually a little bit ahead of plan. And as you may remember, we said that we are going to turn positive in the fourth quarter. We did that already in the third quarter and then follow up with continuous growth in the fourth quarter. We have completed a massive rollout on the 2.3 gigahertz spectrum band we have. We now have 17,000 installed sites. And overall, on all the frequency band that we are operating on, we now have 25,000 -- more than 25,000 sites on air. That gives us a leading 4G position in the market.In 2019, we are also focused on network optimization, network performance. And this has resulted in a significant improvement on the NPS -- network NPS, and you see that on this slide, the -- how the customers are perceiving the quality in our network. And this is also resulting in our customers using more data. And as you also see on this slide, there we have an impressive 72% increase in data consumption compared then with a year ago. And the customers now are utilizing a much better network. In addition, we also re-ramped the distribution and increased the distribution reach. We have also focused on service quality and targeted direct sales. This has enabled us to continue to migrate prepaid customers into postpaid bundles. All this is then resulting in a 6% ARPU growth, a 3% sales and traffic growth, and at the same time, also bringing down the costs. So I'm very pleased with seeing how now the turnaround process is yielding some concrete results.Then to Myanmar. Very strong trends we saw in the third quarter is continuing in the fourth quarter. And as I said, we added 5 million new subscribers during 2019, an increase of 30%, giving us then a revenue growth of 15% in the quarter. I want to talk to the Myanmar management now. I'm very, very pleased with what you have been able to do. And this is really Telenor at its best. So when we put our focus to things, we deliver. And remember that the competition in the market has not changed. This is our ability, to really use our operating model and to improve performance. We are also focusing on continuing building out our data network, and 64% of our customers are now using data. So Myanmar is becoming similar to what we see here in the Nordic markets. And the average data usage now per customer is 4.3 gigabytes per month. However, we see that the strong data growth and the data usage is coming on the expense of voice, 4% reduction in voice minutes despite a 30% increase in number of subscribers. And the voice ARPU is declining with 25%, and the voice revenues are down 8%.Then I want to just take you back 3 years. 3 years ago, Jørgen and myself, we were standing here on the Capital Markets Day talking about what our strategy would be for the coming 3 years. And 13 quarters in a row now, we have been talking about growth, we have been talking about efficiency, we have been talking about simplification. We have been very focused on delivering on what we told you 3 years ago. And we have called that modernization of Telenor. It started with aligning the whole organization around the ambition that we talked about 3 years ago. And I'm quite pleased that we have been able to execute on this, that we have been able to bring down the OpEx systematically year by year and that we also have been able to increase CapEx efficiency through centralized procurement. In addition, we have simplified our portfolio. This is done both through exits but also with partnerships. And the reason for this is to make sure that we are putting our management focus, but also our financial resources, on where we think that the value can be created. And as you can see from the slide, we have been quite busy on the portfolio simplification process. This has then enabled us to now have a leaner, a simpler and a more efficient Telenor. This has also created flexibility, resulted in our ability to acquire DNA last year. What we plan to do the coming 3 years, you will hear more about in our Capital Markets Day in March 3.As a result of what we have done, we have also then created room to deliver on our dividend policy. And as you know, our dividend policy now for several years have been to grow the year-on-year growth in the ordinary dividend per share. So the Board is now then proposing an ordinary dividend of NOK 8.7 per share. This represent a 4% growth in the dividend per share. So it is a growth year-by-year as our dividend policy have said. It's then consistent with the policy. The dividend will, as it has been the last few years, be paid out in 2 tranches, in May and in October. And overall, this represent a dividend payment to our shareholders of NOK 12.4 billion.Let me close off with some of the real priorities we have for 2020. And I want to show you this to give you a little bit flavor on what the management focus is on. We will continue in 2020 to modernize Telenor. We will continue to focus on value creation, value creation for our customers and also value creation for our shareholders. In Norway, we will continue the modernization of the organization, the modernization of our infrastructure. We'll continue to focus on service deliveries to our customers to drive ARPU. And we want to focus on a continuous efficiency with digitalization of the customer journeys and the core business. In the Nordics, 5G is here for real in 2020. As I said, we have already launched 5G in Sweden, and we will launch 5G in Norway later this year. The first focus will be on capacity improvements and on fixed wireless access offers to our customers. But we have also now trialed out use cases for several other ways of using 5G. Other markets in our portfolio will come when we see that we have the ability to monetize 5G investments. In addition to that, on the Nordic cluster, we will strengthen the B2B across our Nordic operations, including the IoT solutions.Moving to Asia, we will continue the recovery process that they have started in dtac and Myanmar. We are in the midst of the turnaround plan now, and there is -- we have got off to a good start, but there is more to come. We will also put more focus on managing the business environment in what we call Emerging Asia. During 2019, we have seen increased challenges on the macro side: Bangladesh on regulatory issues and tax; in Pakistan, the macroeconomic situation and also tax; and there is a risk operating in this market. And this is a risk that we need to manage, and we will strengthen then the way we are going to handle this to reduce the risk exposure.Then we are going to launch a climate ambition. You will hear more about that in the Capital Markets Day. And we are in the midst now of detailing out the targets and our vision. This is also a part of the CEO Initiative that Telenor is a part of with 15 other CEOs in the Nordic regions.So with that, Jørgen, I'll leave it to you. Thank you.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Thank you, Sigve, and good morning to everyone. Looking back at the fourth quarter, I'm pleased to see that we are continuing to deliver in accordance with our strategy, as also Sigve was pointing out. Quarterly performance we know will vary, but the direction and ambitions have been standing firm. Fourth quarter was a solid end to the year. We see 2% growth in subs and traffic. We see efficiency gains resulting in 6% OpEx reduction. And as a result of all this, we see EBITDA or operating result growing by some 5%. Highlight this quarter, driving this performance are the solid performance in Norway across mobile and fixed; it's the continued strong trends in Myanmar and Thailand.If we look at the group figures. Total revenues increased by NOK 3.7 billion, 18% compared to last year. 2/3 of this, NOK 2.4 billion, is due to the inclusion of DNA in our number. This quarter, we delivered an increase in organic subs and traffic revenues of 2%. We see solid performance during the quarter in Norway, both on growth in mobile, where ARPU increased by 4%, and in fixed. And as Sigve was saying, within fixed, we see that revenues from fiber and fixed wireless access is able actually to offset the copper-related decline. And this is the first quarter where we have the continued significant decline where we are actually able to generate then new forward-going revenue and more than compensate for the loss. Subs and traffic revenues growth in Myanmar coming in solid 15% for the quarter, driven by what we consider a fairly impressive uptake of 5 million customers during the year, as ARPU was down as a result of lower call volumes and also lower voice prices. Bangladesh delivered 5% growth in the quarter, driven by higher subscriber base. And in addition, the growth in Thailand was 3% in the quarter. And then as Sigve was saying, in Pakistan, the growth continue along the same lines as previous quarters. It's neither getting worse nor better right now. It's a decrease of 10% quarter compared to last year's quarter. And we believe it's a little bit difficult to see how things should change in the short term fundamentally, so we continue to focus on what we can address, which is, of course, sales, our distribution system and the efficiency improvements that we are carrying out in Pakistan.Sweden, tough competition in the B2B segment and recent campaigns aimed at B2C customer puts continued pressure on our business there and our revenue development this quarter. We see subs and traffic down 2% compared to last year. We ended the full year with organic subs and traffic revenue growth of 0.5%, which is in line with our guidance. I'm coming back to that later.If we then move to OpEx reductions. Our modernization and efficiency program is steadily progressing. Adjusted for the inclusion of DNA in our figures and here in our OpEx numbers, the OpEx base decreased by 6% in the quarter. And if we take a look at the categories of OpEx, there is an improvement within most areas, which is, of course, pleasing for us to see. The improvement in sales, marketing and commission is spread across almost all company. It's another sign of strength. While lower regulatory cost, of course, is related to reduced revenue share payments in Thailand that we have discussed before. Furthermore, the efficiency gains in other units is driving the improvement we see in other OpEx and salaries. And that is another quarter of strong performance within this area, and it's been very useful to create more efficiency in that part of our business.As mentioned in previous quarter, we see increased energy costs into '19, primarily related to Pakistan and the development of local currency, vis-à-vis dollar, a decline -- sharp decline in the currency. In addition, we also see some increase from larger network footprint. We are building out footprints and energy costs. And also, operation and maintenance cost is, hence, increasing due to that. If we look at the development by -- per business unit, we see solid cost improvements in Norway with minus 7%; Sweden, minus 5%; and Denmark, minus 7% in the quarter. And then, as I said, efficiency improvements within corporate functions following the latest initiative is yielding results according to expectations. And remember, we guided on NOK 0.5 billion down in 2020 compared to 2018. More than half of that has been delivered in '19, and we are very confident we will reach the guided numbers during this year.And for 2019, in total, we see NOK 0.3 billion or almost 1% in OpEx reduction, which is in line with our stated ambition of 1% to 3% OpEx reduction per year until 2020. If we adjust for the M&A costs related to DNA and the attempt in Asia of NOK 0.2 billion and also for the Bangladesh accounting correction we did last summer of NOK 0.3 billion, we deliver a 2% reduction underlying for the year. But it is the 1% we will communicate and focus on. It's great to see the operational efficiency momentum continuing in '19 and forcefully into '20. 5% organic EBITDA growth. Strong quarter again. The improvements were driven by revenue growth in Thailand and Myanmar, efficiency improvements then in corporate functions and this combination of revenue growth and efficiency improvements in Norway. Pakistan continues to put some pressure on the group's EBITDA development.Looking at the full year 2019, we end up with a negative growth of 3%, or 2% if we exclude the said M&A cost, as we did when we gave the guiding last summer. Negative development primarily a result of difficult situation in Pakistan, and remember, 3.5 months of payment to TOT for the 2.3 gigahertz spectrum, more than the previous year, approximately NOK 0.5 billion in value.Net income reported to equity holders of Telenor in the fourth quarter was NOK 1.9 billion. We see higher EBITDA then this year, followed by positive development in other items due to the settlement with CAT in Thailand last year. That was a value of NOK 2.6 billion. This is offset by discontinued operation as a result of provision for license fees, which is the industry case, NOK 1.7 billion in India, I will revert to that; and again, on partial disposal of the Microfinance Bank. Last year, we had an accounting gain when we invited in the partner we have, of NOK 1.8 billion last year.For the full year 2019, net income to equity holders was NOK 8.5 billion. That's a decrease of NOK 6.2 billion compared to the year before. Again, a result of reduced contribution from our discontinued operation in Central and Eastern Europe last year of NOK 3.7 billion, remember, we sold out on Central Eastern Europe; and as mentioned, for the fourth quarter, the gain related to the Microfinance Bank reduced ownership share on our side last year; and a provision related then to Telenor India this quarter. In addition, we also had a tax income expense in Norway of a tax case of NOK 2.5 billion in 2019.Let me see. There we go. Free cash flow before M&A, it was negative NOK 8.7 billion as a result of payment of NOK 12.1 billion related to the mandatory tender offer for the remaining shares in DNA. Free cash flow before M&A activities was NOK 0.6 billion, at the same level as last year. Lower CapEx and also license payments in the quarter was offset by the tax payment of NOK 2.5 billion in Norway. And remember then, if we go and look at the year, 2018 was a very good cash-generating year for Telenor, free cash flow of almost NOK 12 billion. There are certain elements having negative cash flow impact then this year, as you see from the graph: tax element in Norway as we talked about, NOK 2.5 billion; settlement with CAT of NOK 2.6 billion, we have mentioned that; and we also paid NOK 2 billion in a license deposit in Pakistan.I'm struggling a little bit with the batteries. There we go. There are a few special items that I want to highlight for this quarter. I will start with India. In India, there is an -- has been for a long time, an ongoing dispute between the industry and Department of Telecommunications on how to calculate the basis for license fees all the way back from 2005 until now. It is the so-called adjusted growth revenue. This is the basis for calculation of revenue share for license fees. Telenor is exposed to this dispute through our guarantees to the acquirer of our Indian assets, Bharti. In October, the Indian Supreme Court ruled in favor of the Department of Telecommunication, I think it's fair to say, to a large surprise for the industry in India. There are still uncertainties regarding how this will end. There seemed to be a lot of activity on the ground in India still in this case. But as a consequence of the Supreme Court ruling, we have decided to increase the provisions in fourth quarter by NOK 1.7 billion.In Bangladesh, the regulator has conducted an information system and audit of Grameenphone for the years 1997 until 2014. In April last year, Grameenphone received a demand notice from the regulator of NOK 8.9 billion to the regulator, to BTRC, and NOK 4.4 billion related to already solved cases, the way we see it, and other sub judice matters, i.e., being in court matters with the NBR, the Board of Revenue, the tax authorities in Bangladesh. For both these elements of the claim, it is more or less so that 1/4 of the claim is the underlying disputed items and 3/4 of the claim is penalties and interests also because of the long period for the audit and the findings. Grameenphone find these claims unjustified, and Telenor agrees with the conclusion of Grameenphone. As of now, there has been no merit-based discussion before any judicial or regulatory forum that involves, should we say, a determination as to the validity of the claims based on the disputed audit report. There are several important elements in all this which we are disagreeing on and which is creating uncertainty for Grameenphone and for its owners. The errors in the audit, the inclusion of already solved cases and cases already in the court system and the lack of response from relevant authorities creates a significant uncertainty over the validity and outcome of the dispute. The fact in this case has not changed, the way we see it. There is no provision made in the quarter. However, given the uncertainty of the situation, it's difficult to predict the outcome and time line going forward. And I will ask you all please to refer to Note 6 where we have a fairly comprehensive discussion of the situation.In Pakistan, the management of the Microfinance Bank, which is a joint venture and associated company of Telenor, we are not consolidating the company, we are a joint owner of it together with Ant Financial. They, last autumn, discovered cases of irregularities in its loan portfolio. Both employees as well as agents seem to be on the wrong side in these irregularities. An evaluation of the matter is currently being conducted and will continue in 2020, beside solving and improving the circumstances. As part of this evaluation, management has conducted, should I say, a scrutiny of the entire loan portfolio through what we call an expected credit loss model. The expected credit loss model and calculations covers provisions for both lending irregularities and other potential losses in the portfolio. To cover for a potential loss, NOK 0.5 billion has been recognized in the fourth quarter 2019. The matter is still being evaluated, and we regard this as a robust provision. Then let us talk about leverage. As you know, we will move over to IFRS 16 from 2020. And as such, the leverage target set at the beginning of 2019 needs to be revisited. On a pre-IFRS standard, we had a leverage range of 1.5 to 2x net debt versus EBITDA. Changing both the EBITDA and liabilities to the IFRS 16 standard has an impact of 0.3x on the leverage ratio. We have chosen to keep our current practice of not including license obligations and rather take the net debt impact when the license is paid for. The license obligation are reported separately. We are quite thorough in the reporting on that and would have an additional 0.3x impact on the ratio. By technically translating the leverage target from adding the lease impact of IFRS 16, and hence, maintaining our leverage policy, we end up with a new leverage range of 1.8 to 2.3x net debt to EBITDA. As mentioned, we believe we delivered a solid set of results for the fourth quarter, and we end the full year in accordance with the financial guidance. Going into 2020, we expect organic growth in subs and traffic revenues of 0% to 2%. We expect organic EBITDA to grow between 2% and 4%. And we are guiding on CapEx, excluding licenses to sale, around 15%, including the 5G program that Sigve was alluding to for Norway and Finland in the first part.Then let's wrap up. Last quarter, we planned to have a Capital Markets Day actually today. But some of you gave us the feedback that you had busy days and there were more telcos reporting these days. I thought it was only us. So we have moved the Capital Markets Day to the 3rd of March. We will give you, as Sigve said, an update on strategy in the coming years, some financial ambitions for the medium term. We hope you show up, and we will give you lunch.Sigve, should we do a Q&A?

[Sigve Brekke, President & CEO]

Yes. Yes. We will now open up for questions from the audience here at Fornebu. So please.

[Fredrik Thoresen, Portfolio Manager]

Fredrik Thoresen with Storebrand. First of all, Sigve, you mentioned in your opening remarks the ambition to reduce the risk with regards to your Asian exposure. Can you share some thoughts as to how you may address this and go about this in 2020 and also, if it's possible, to provide some more color on CapEx guidance of 15% to sales? I mean how would you kind of address the need to, yes, further expand your fiber footprint in the Nordics, and also 4G densification, you already mentioned your plans on 5G.

[Sigve Brekke, President & CEO]

Yes. On your first question, what I said was that we will strengthen our ability to work closer with stakeholders in these markets. I cannot give you more details on how we are going to do that. And as a part of our purpose, we also say empowering societies, meaning that we see that the best defense that we have is to be seen as a relevant player in actually growing and changing these societies. So we may add some new programs to what we do on this area already, also to work together with the government in a better way. So -- and this is especially in Pakistan and in Bangladesh but also in Myanmar. Those will be the 3 markets that we will see how we actually can be more present, where -- how we can be more seen as someone that is helping these governments to grow their societies, and with that, also reduce our risk exposure. I don't want to go more into details on that. On the CapEx part?

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

15% revenue. So first of all, let's recap. We said in '17, and we have said and we have delivered on plus/minus 15% throughout this period. And we have done that with, to a certain extent, a growing portfolio and growing investment space in general. You will see that the significant build-out in Thailand related to a fairly efficient spectrum exercise obviously are hitting these numbers. Norway is on top historically on investment levels due to maintaining the 4G network while we are building out fiber significantly. And now we are then embarking, as Sigve said, on 5G for Norway and for Finland. We have managed this also because we have planned a lot. We have prioritized. We have become more efficient and better in building out. And obviously, our procurement strength has developed very nicely thanks to, among others, Ruza here on the front bench. And what we are saying now is that we -- for next year, where we are guiding today, we are saying we will maintain that with unprecedented speed on fiber in Norway and with the 5G development. And that is, of course, because we have a portfolio where we can fit it in and make it work in total. But we are still developing our networks in Thailand. We are still doing other things in the other countries. We will give guiding on the longer term at Capital Markets Day. But you should think that we are very keen to be efficient in our deployment of capital in Telenor.

[Sigve Brekke, President & CEO]

Just add to what Jørgen is saying. There has been a lot of focus on our OpEx efficiency. We have also tried to talk about our CapEx efficiency and we mentioned Ruza and her team. And I think that we are in a good place now when it comes to both the way we have set up the global procurement company and can utilize scale to bring down prices, but also the way we are working with all the different vendors. And that's why we are able to maintain both the same CapEx-to-sales ratio with more. So it's a little bit more-for-less approach. So we talked about this, I think, in Q1 or Q2 last year on how we systematically have been driving down both the unit prices, but also the way to operate our networks.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Next question in the center, please. Go ahead.

[Frank Maaø, Analyst]

Frank Maaø of DNB. So just to build on the last comment, Sigve, the relationship between actually CapEx investments and OpEx reductions. You have actually had this quarter, even though you had great OpEx reductions of 6%, still absolute nominal year-on-year increase in operations and maintenance elements of the OpEx and also the energy costs, of course, driven by both the network expansion in Asia but also energy prices, I would presume. So what can you do on the CapEx side to drive improvements in those 2 elements, the operations and maintenance and energy efficiency? Perhaps, there are some investments you actually need to take which would be good ROI, and I hope you plan to do them.

[Sigve Brekke, President & CEO]

Yes. What we are doing in this area is a couple of things. We have talked about the, what we call, the concept of the common delivery center where we basically are outsourcing with partners to utilize scale that the partners have to drive both the network and our IT infrastructure more efficient. We also use this then and the scale that the partners have to automate services, and with that, both give a better customer experience but also drive down costs. And I think we talked about that last year also, how this outsourcing managed services agreements with partners, both on IT and network, how that systematically is driving down the cost with the optimization.We are also investing in alternative energy. We are investing in solar panels, for example, in the Emerging Asia portfolio, to then try to then bring down the energy cost and especially the diesel costs to fuel our base stations. And we're going to talk a little more about that part also when we are coming back on our climate ambition, how we can systematically take down the CO2 emissions, and at the same time, reduce cost. But I will actually welcome you to have a chat with Ruza to get some more details, insights on this, and because we think that we are in forefront in the industry in the way we are thinking about this optimization and this partnership model to drive down costs systematically, especially in the area of operation and on energy consumption.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Okay. Any more questions in the audience? No? Moving then to the questions from the conference call participants. Moderator, may we have the first question, please?

[Operator]

Yes. We'll now take our first question from Peter Nielsen from ABG.

[Peter-Kurt Nielsen]

Two questions, please. Firstly, Norway, another strong quarter in Norway both on revenues and on OpEx. You've spoken a bit about it. It looks like most of your OpEx reductions are coming from sales and marketing and other factors. Can I just add, how are you progressing with the structure and modernization initiatives? The sunsetting of the copper network, you said, how is that progressing? Is it going smoothly? Have you run into any unforeseen problems? And how should we view the profile, sort of the benefits to be seen to come from this going forward, please? And along the same lines, my second question relates to the new passive infrastructure company you've set up in Norway, which I find quite interesting. Can you talk a bit about what you expect to achieve from this and why you've set up this company?

[Sigve Brekke, President & CEO]

Yes. I can take the first part, and then you can take the infrastructure company. Now on the first part, I think the copper project is -- it's now into the implementation phase. I think it has -- you used the word smooth, I wouldn't say that. It's a lot of challenges. And the Norwegian management team has actually now visited every local communities during the year and broken down almost every household to see what will be the replacement product when we then take away the copper. .So we now have started -- we are done with the planning phase, and we have now started the implementation phase. And I'm very pleased now to see that we are able to have the speed on the new fiber connections that we have. We have been struggling a little bit with that, if I go back a year. But during '19, we got that speed up and we got the necessary suppliers also to help us. So that is going to continue into 2020. And we also see that the other replacement product on the utilizing 4G as the fixed wireless access, as I said, we have 18,000 customers now. We see that this is really a good solution out in more remote areas where we have excess capacity in the network. And then so we -- this is going smoothly. And I think, when we announced this program, we talked about 2 things. We talked about the cost reductions. And currently, it cost us around NOK 1.2 billion to run the legacy network. Not all of that will be washed out because there will be costs also on the replacement products. But we also talked about the ability then to upsell because a copper customer in Norway today have typically 10, 20 megabit per second speed in the network. What we can offer fiber, of course, but also on the 4G and later the 5G fixed wireless product, it's a significant better customer experience. So we use that opportunity to also upsell, and with that, increase revenue. So overall, I think this is going well.The other part of your question was more the general OpEx agenda. We are modernizing the organization. We are digitalizing the customer journeys. We -- and we are also digitalizing our infrastructure. So these 3 elements enable us to bring down costs. More and more people are buying from us digitally. More and more people are solving their problems digitally. More and more people -- and with that, we can cut commission costs. We can cut call center costs. But we also see now that when we start attacking the IT legacy and also automating the network operation, there are significant cost reduction coming out of that as well. So it's a combination of all this. And this program is not done. We have -- we are in the midst of this modernization process. So that's why we think that we will continue with this into 2020 as well.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Peter, passive infrastructure, you're right. We have then merged from 3 operating units due to history and legacy reasons and now into 1 operating unit on passive infrastructure in Norway. And as we have said before, it's always good to get attention and focus on important parts of the business. This -- the intention here was to increase focus on it and see if we could develop it further. And the first steps are then to bring it together to be sharper in the way we operate this passive infrastructure and also to be better at -- on Telenor Norway's request and order actually, of course, because Telenor Norway is going to continue to own the active part of the infrastructure. So on their request, build out this part hopefully better than we have done before, simply as part as our improvement program. .So far, early, so far, we are concentrating on the industrial must-haves and doing this the right way. But I'm very excited that we are where we are now.

[Operator]

We'll now take our question from Maurice Patrick from Barclays.

[Maurice Graham Patrick, Managing Director]

Maurice here. Just a quick question on the fixed wireless access, which you referred to a number of times in the presentation. If I'm not wrong, you said it would be a remote solution in Norway, and you talked about launching in Finland near Helsinki. I mean do you see FWA as a principally rural tool? I got the impression in Finland, given the amount of spectrum and quality, it could probably be a larger portion of total broadband than maybe in Norway. So thoughts on the market opportunity from fixed wireless access.

[Sigve Brekke, President & CEO]

Yes, Maurice. Good question. Not -- what I referred to on the more rural areas in Norway was because we are currently using only the 4G to do this. And we see that out in more less dense populated areas, we have excess capacity in the network. That's why we can offer these solutions in Norway. So it's both in remote areas where people live, but it's not least also in the more cabin type of areas where people travel for a weekend. So that excess capacity they have in Norway, it's perfect for this solution. And there is a much better return on an investment here than to roll out fiber in those areas. .But when it comes to 5G, that's different. And in Finland, with the capacity we have in the network on 5G then we can also do this in more urban areas. That's why we are testing this out now in Helsinki itself. And that's also why we are going to look at that in Norway, if the 5G position we have with the amount of spectrum we have, if this also can be a solution in the more urban areas. But -- so that's testing out a little bit going forward. And then we are quite systematic now on actually calculating the return on where should it be fiber and where should it be these type of solutions.

[Operator]

Our next question comes from Terence Tsui from Morgan Stanley.

[Terence Mun-Sion Tsui]

Just on the topic of portfolio simplification, I think in the past, that you mentioned it could be interesting to maybe create like an Asia-listed vehicle for all of your assets in Southeast Asia. I'm just wondering if this is still how you're thinking and whether you've made any progress towards realizing that.

[Sigve Brekke, President & CEO]

Terence, no, I don't think we said that. We did say that India, the potential Axiata deal, it would have ended up with a listed entity. Unfortunately, we were not able to conclude that, as you know. And we -- so as we stand right now, we will -- of course we will be looking at the potential opportunities, but we have now no more comments on this as of now.

[Operator]

We will take our next question from Johanna Ahlqvist from SEB.

[Johanna Ahlqvist, Analyst]

Two questions, if I may. The first one relates to buybacks and if you see -- I know that you have made quite significant provisions in the quarter, but still, the net debt to EBITDA is at 1.8. And if I do the math, just adding the provision, it would add 0.1 to your net debt to EBITDA relationship. So I'm just wondering, given the fact that you expect EBITDA to grow 2% to 4% 2020, don't you see a room for buybacks? Or should we just forget about that? That's the first question.And the second question relates to Sweden. You continue to struggle a bit in the Swedish market, and I'm just wondering what is the turnaround plan here really?

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Johanna, thanks for your question. First, a technical comment. So 1.8 or 2.1 in the new range is in the mid or higher mid part of the guiding range. So it's basically over time a good place to be. We don't see a need for going up or down or to make more efficient balance sheet for that reason alone. So it's in the guiding range. That being said, the Board has concluded to recommend to the annual meeting that we increase the dividend according to our policy, 4%, which is a 5% yield. So it's a good development in the ordinary dividend, and that is the Board's recommendation.

[Sigve Brekke, President & CEO]

On Sweden, you used the word struggling. I wouldn't use that word. As I said, we see that there is a very tough competition now on the business segment, the B2B segment. And I think traditionally, we have been quite high on that segment, if I compare with the market position we have in Sweden now. So in this segment, we see that the B2B customers are more looking at the price offers than they are looking at more integrated offers as, for example, we are delivering in Norway. So that's where we are being hit. However, we also see that on the consumer segment there are some offers out in the market now, which we need to deal with. So -- but as we do in Telenor, when we see that there are issues in our market, we are turning around operations. And that we do in Sweden as well. That's what we have been doing in Thailand. That's what we have been doing in Myanmar. And now we are really discussing with the Swedish management team how can we then adjust our own model also and the way our competitive offers to reality.

[Operator]

We will now take our next question from Roman Arbuzov from JPMorgan. [Operator Instructions] We will now proceed and take the next question from Andrew Lee from Goldman Sachs.

[Andrew J. Lee, Equity Analyst]

I had a question on the Norwegian regulatory backdrop, particularly for your fixed outlook for returns. So it's really interesting this acceleration and prospects of copper switch-off. There's some potentially kind of negative press updates over the past weeks and months just on the regulators' approach to fiber regulation and enforced wholesale access. I wonder if you could just give us your current views on how much visibility you have on your ability to make returns in a fiber world, especially post the copper switch-off.And then just second question, it looks in terms of your guidance, at least for 2020, like there's no real underlying waning of your scope for cutting costs. But do you think that outside of 2020 that the scope to continue that 1% to 3% OpEx reduction is still possible?

[Sigve Brekke, President & CEO]

Yes. On your first question, there is already wholesale regulations on fixed in Norway. We have that on the copper and we also have that on fixed. So -- I'm so sorry, on fiber. So I don't see that, that will change. And we need to offer wholesale to customers that would like to utilize our fiber. .However, we are making a case to the government regarding fiber regulation because we have a 23%, 24% market share now in fiber. It's actually increasing due to the speed we have now in the rollout. But we are being regulated as we would have had a dominant market position on fiber, which we don't. So there are regional fiber players now which has a much, much higher market share in the region where they operate. And there has been some signals from the government that they will look into that. But for us, that will be a potential upside. So I don't really see -- and I don't really see any concerns on any change in regulation when we are switching off copper and then investing in the fixed wireless product and in the fiber.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Short comment on cost. There is a continued ambition of 1% to 3% improvement in the cost base also extended into -- or going into 2020, according to the original guidance and prognosis. So that is included in the guiding that we give in our thinking.

[Sigve Brekke, President & CEO]

We kind of got the hang of it, no, the cost? We got the hang of it.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Yes. We don't let it go, do we?

[Sigve Brekke, President & CEO]

No, we don't.

[Operator]

We'll now take our next question from Henrik Herbst from Crédit Suisse.

[Henrik Herbst, Research Analyst]

Just wondering, I mean, regarding DNA, I guess you've been asked quite a few times of what you can change in how DNA [ were ]. But in the end, you've moved sort of Jukka Leinonen [ up ] to take over Nordic sort of segment at Telenor. So I guess my question is, what can you sort of learn from DNA, do you think, now that you've been involved for a little while at least? And I guess, what do you think [ you can ] bring in particular to the Swedish business which, as you put it, have become a little bit more competitive?

[Sigve Brekke, President & CEO]

That's a good question. Well, let me just repeat what DNA can learn from us first, and that is the synergies we have been talking about. It's on the B2B relatively. That's where DNA are the weakest. So we are trying to learn from what we do in Norway. And as I said in my intro, we already launched the first Nordic Connect, so the first B2B product. The other one was on procurement to utilize our global scale, and the third one was about roaming or traffic in the Nordic regions. And we are implementing in all those 3 areas.But to your question, I think what DNA has been able to do quite successfully is coming from almost nothing and then really having this attackish mindset that I talked about, positioning themselves in a market as being very customer-friendly and have this challenger position in their brand and also in the way they operate. And in Sweden, we are now #3 after Tele2 acquired Com Hem. So it's about the same position we should have in Sweden. Also, this is a challenger, attacker's mindset and this very, very customer-centric way of operating. So it's in those 2 areas, I think, that we can learn from DNA and bring with us to Sweden but also to Denmark and also some of it to Norway.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Should we also add that right now, in addition to what you're saying, right now is, of course, a critical time in an acquisition. It's when you start integrating. So Jukka and his team is also very focused on making that integration as smoothly as -- and customer- and market-focused as possible and working with the group on that. And we hope and believe we can create a successful integration out of this. There are a lot of bad examples in industries. But that is our main focus now, of course.

[Sigve Brekke, President & CEO]

And that's also, as you said, I decided to bring Jukka into my management team, the group executive management team, with both heading DNA, but also then taking a Nordic cluster responsibility to make sure that we find the right balance in that transition.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

I think we have room for 2 more questions. So, moderator, please go ahead.

[Operator]

We will now take our next question from Henriette Trondsen from Arctic Securities.

[Henriette Trondsen, Research Analyst]

Two questions, if I may. First, on the upcoming Thailand spectrum auction in the middle of February. What are you thinking about the current indicated prices? I don't know if you can answer that, but any color on the upcoming auction and your thoughts there would be helpful.And also secondly, can you share some more color on what you are doing to improve the performance in Pakistan and also an update on your spectrum renewal here?

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Henriette, we would love to help, of course, but on the first question, we cannot. It's a very competitive situation. It's an auction. It's getting close. And we don't want to offer any comments. And I'm sorry for that, but please understand.

[Sigve Brekke, President & CEO]

So what we are thinking is that we are thinking. On Pakistan. No, it's -- I think I talked about this in the third quarter also. So the macroeconomic situation, we don't know when that will be improved because it's a combination of currency effects with the high inflation and consumer prices going up such that the ability to pay for the consumers are less. .So we are then taking that into our operating model and basically doing 2 things: one is to, in a very granular way, go in and see where there are potential pockets of growth. And what I mean by pockets of growth is to utilize our distribution strength and our network strength in areas where we see that we can add more customers. And that's exactly why we were able to grow the customer base with 1 million in the quarter, with going into this granular pockets of growth.And the other part, it's on the cost, to see how we can then even more aggressively bring down the costs, that being on the infrastructure side, that being on -- in our operation and that also being on sales and marketing, including commission costs. So those are the 2 things that we are doing. And of course, learning from Myanmar, learning from Bangladesh, where we also have quite successfully done both these 2 things, granularly drive revenues and systematically take down costs.

[Operator]

We'll now take our next question from Usman Ghazi from Berenberg.

[Usman Ghazi, Analyst]

I just wanted to come back on your commentary on wanting to reduce the risk exposure in South Asia, on whether -- and it's a broad question so I know you can't get into specifics. But I mean you mentioned being more vocal about the impact that you make to the society in these markets. And I was just wondering whether your actions here would just be -- is it just about being -- more marketing around that concept? Or are you thinking more strategically about more local management or something else around ownership? Or -- just to get an idea of how significant this commentary could be rather than it being more just about communication.

[Sigve Brekke, President & CEO]

Well, first of all, I didn't say Southeast Asia. I said the emerging part of Southeast Asia. So it's basically Pakistan, Bangladesh and somewhat also Myanmar. Now it doesn't -- it's -- don't read too much into this in terms of structures and all that. It is basically to make sure that we have people on the ground that we are able to communicate with the government and the local stakeholders and also to then, even better, look at programs where we can see that we are and include -- also somewhat that it's really seeing that we are empowering society such that we are helping governments with their digital agenda, for example, that we are connecting people to data opportunities and so on and so forth. So I don't want to go more into details on it, but it is -- the reason I mentioned it is that we see that these risks have increased during 2019 and then we have to do something to handle it.

[Jørgen C. Arentz Rostrup, Executive VP & CFO]

Okay. That concludes this quarterly presentation. Thank you very much for attending here at Fornebu, and thank you very much to you at the conference call as well. Thank you.