Telia Company AB

STO:TELIA

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the interim report January to September 2021 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today on Thursday, the 21st of October 2021.I would now like to hand the conference over to your speaker today, Andreas Joelsson. Please go ahead.

[Andreas Joelsson, Head of Investor Relations]

Good morning, everyone, and welcome to a very bright and sunny autumn day in Stockholm. With me in the room, as usual, I have our President and CEO, Allison Kirkby; our CFO, Per Christian Mørland. We have Erik Pers, our new member of the IR team that will take over once I leave next week. We have Anders Nilsson and myself. So IR's out number management, what could go wrong. We use the same drill as usual. So I hand over to Allison immediately to go through the Q3 presentation.

[Allison Kirkby, President & CEO]

Hi. Good morning, everyone. And yes, it's not just the boardroom that's full of people today. I'm glad to say that we're reporting from a Stockholm office where people are finally returning to the office after a long stretch of working from home. But moving to the quarter, we're reporting good progress on our journey to reinvent a better carrier with an expanded next-generation network, improved commercial momentum and accelerated structural cost takeout. Service revenues, as you've seen this morning, grew 2.3%, which is much more broad-based than last quarter with growth in 7 out of 8 units and across most of our important product segments with full subscriber growth as well as ARPU growth in most segments. EBITDA now carrying the expected higher content costs as well as an impact from pension saving declined 1.9%. Cash CapEx grew by 5% as we continue to modernize our 4G networks while also rolling out 5G. Cash flow remained strong, generating SEK 9 billion of operational free cash flow year-to-date, of which SEK 2.9 billion was generated in the third quarter. We're now clearly above the SEK 8.2 billion level needed for the minimum dividend. And looking at the structural part of OFCF, we've generated already SEK 7 billion year-to-date. Our Norwegian Finnish transaction expected to close before the end we have a pro forma leverage at the very low end of our targeted range, and even including the second tranche of the 2020 dividend due to be paid out in November, we expect to end the year at a slightly higher level than the 1.99x here, but still comfortable at the very low end of the 2 to 2.5 range. Our multiyear ambition to reinvent a Better Telia is progressing to plan. Here, we picked out a few highlights from the quarter. We've just this past week won several customer satisfaction awards in Sweden, EPSI awarded Telia, the best operator in the Enterprise segment for the 18th year in a row with an increased distance versus all our competitors. And Halebop was awarded the best in the Consumer segment for the 12 out of 14 years. In Norway, EPSI awarded 1 call the best consumer brand and within the Enterprise segment, we not only won first place with Phonero but also second place at Telia. Both these surveys are a good recognition for our renewed efforts to improve customer experience and are evidence of the quality position we have set for ourselves across our Q3. In the Consumer segment, we're seeing solid momentum in our conversion strategy. Sweden added 8,000 over households in the quarter, Norway 6,000 and Finland, 15,000, and sales are ahead of expectations on the high-value Swedish 5G+ mobile bundles, including Netflix and C More. Also in Sweden Consumer, the launch of Champions League and the associated campaigns started in LatAm has generated good engagement so far with overall brand consideration increasing and specialty for our TV offering. On C More, we've seen a 38% new store subscription increase versus last year, and we've seen subscribers growth of store subscriptions within our Telia Sweden IPTV customer base. We've also seen the viewing among our sports subscribers have been high for the routes that are being placed so far. And I hope you all stayed up to see Man United win and renewable get that goal in the 81th minute last night. Moving to Finland, where we're further ahead of the content with that debt strategy. We've seen a 170% year-on-year growth in joint Telia and C More customers, now over 210,000 providing us with a much better consideration towards Telia up 19 points and a lower churn of 7 points and improved value for money perception. In the Enterprise segment, we're reporting service revenue growth for the second consecutive quarter for the whole of Telia Group, with revenue growth in each of the enterprise segments in 5 of our 7 markets. Our enterprise strategy aims to reverse the declines of the past few years through combining connectivity alongside ICT solutions and security solutions, we call it the smart orchestrator. In the quarter, our role model was enhanced by deals that amplify our enterprise convergence and innovation strength. And specifically, we saw deals that combine data analytics, private networks and IoT solutions. And specifically, we signed our largest cloud analytics deal to date, where we'll provide the Finnish Road authority with insights on traffic for its entire road network. On private networks, we signed the largest private 5G enterprise mobile network to date in our region with a mining company, Agnico Eagle. And we've signed the deal to roll out our dedicated mobile network services for our major industrial projects in Sweden. And our IoT solutions, we've extended the deal we have in utilities with Stockholm exiting. And in real estate, we signed an 8-year contract with academics is 1 of Sweden's largest real estate company. We're really building vertical strength in the real estate and the transportation areas. In the TV & Media segment, we continue to experience high commercial share of viewing levels in both Sweden and Finland. Early in the quarter, admittedly in the quiet period for advertisers, we were somewhat hampered by the Summer Olympics being broadcast by our competitor. But in September, we recovered to previous high levels. Moving to our Connecting Everyone strategy pillar, 5G will continue in line with plan, and we retain our leadership in Sweden, Norway, Estonia and Lithuania. We continue to expand pop coverage now at 54% in Finland, 31% in Norway, and we've launched real 5G services to 25 Swedish cities so far. We remain the sole 5G supplier in Estonia, covering 17% of the population across 15 cities and out low was measured as the fastest 5G capital in the world by feed intelligence in July, which we believe is due to the 5G leadership we took and also early on. Also in Norway, the 5G spectrum auction concluded successfully. We increased our holdings in the 2.6 gigahertz band to 2x 30 megahertz and maintained our holding of 100 megahertz in the 2.6 gigahertz band. We also obtained our desired position in the spectrum band, further cementing our position as the only credible challenger in the Norwegian market. Turning to fiber. We've now surpassed the 1 million connected customer market in Sweden, taking our full fiber subscriber base to above 1.8 million across our footprint and an 8% growth. Worth noting is that we now only have roughly 200,000 xDSL customers remaining in Sweden, which supports our view that the drag from declining legacy revenues will become less and less ahead. As we now modernize 4G and roll out 5G, we're accelerating the shutdown of legacy, structural cost reduction related to these migrations amounted to SEK 120 million year-to-date, which is helping offset cost increases related to, for instance, an increased share of customers in Open City Networks. In addition, we're utilizing 3G to a lesser extent, having reduced traffic further in the quarter, now having only 25% of total voice traffic less in the network and only 3% of data traffic. Finally, we're on track to close the announced Tower transaction in Q4, which is only pending final and local in 1 market regulatory approval. We've already received clearance from the EU. And as we've stated before, the experience from this transaction has lessened with an appetite to do more elsewhere in our footprint, and we're actively preparing the next chance for a transaction in early '22. Moving to digital transformation, we're also on track. Our IT transformation is about optimizing the IT platform for you and optimizing the strategic partners we select. This quarter, we selected VMware as our strategic partner within cloud solutions aiming to scale and need to cloud infrastructure products, thereby gaining efficiencies. We've also selected PluralSight as our strategic partner to support our technology skill transformation. This quarter, we reduced IT cost by SEK 68 million, largely driven by the decommissioning of IT platforms further utilization of near shoring and our ongoing selection of strategic partners, which results in vendor consolidation. So far this year, we reduced IT cost by SEK 173 million. From a KPI perspective, we continue to see positive momentum in our digital transformation of products and processes. And year-to-date, we shut down more than 100 legacy systems and 50 product lines, leaving us well on track to remove up to 80% of our existing products by 2025. Amongst our people and our workforce planning, we're on track to deliver the 1,000 FTE MTC reduction commitment and 550 FTEs have already exited the company so far this year, and we reduced the number of consultants by around 200 despite increasing consultants for a short-term basis in our Swedish market. As in our free-to-air channels, we have transitioned towards offering our advertisers a higher value, more addressable set of customer targets via our digital platforms and building our inventory and ad tech platform accordingly. In the quarter, we saw an all-time high digital consumption, which has led to digital ad revenue growing 24%. On delivering sustainably, the transformation of Telia towards consistent and sustainable growth is progressing as planned. We are on track to deliver on the financial ambitions we've set out both for this year as well for the midterm and long term and we're building the foundations that will enable that. This is despite some headwinds that we faced this year, such as clearly the development in Finland. Cash generation to enable attractive shareholder remuneration remains strong, and our balance sheet is very strong looking at the end of the year and into '22. As you know, we now -- sustainability is thoroughly integrated into our business strategy to both inform and strengthen execution. And looking at the progress we've made in the quarter, I'd like to highlight a few things. First, we've been awarded the gold level recognition, top 5% among 75,000 companies globally, but our sustainability achievements by Ecovadis the world's largest provider of business sustainability ratings. And that's for our combined work across environment, labor rights, ethics and sustainable procurement. Secondly, having already hit zero carbon and our own footprint, we're making good progress on emission tracking of our total supply chain. Looking at the total emission levels and our entire value chain, the supply chain represents 85% and as such, we're very happy to see that our efforts to make our suppliers that signs based target has yielded results at 7 out of 10 of our largest CO2 emitters have either set or committed to set up targets. Certainly, our monitoring suggests that consumers rank as #1 or #2 in all our markets when asked about Telia's Association with strong privacy measures. And finally, I'd also like to refer back to the data insights and IoT deals I talked about earlier. These are perfect examples of how we can innovate around our core, tape creating products are good for our customers and good for society. On the back of crowd insight, which clearly was a big enabler to governments during the pandemic. We've just launched travel emission insights. Clearly enable municipalities to instantly get a view over the emissions generated from travel within a certain geographic area and will, in time, provide solutions on how to reduce emissions and the tracking of them. Our strength in IoT will clearly benefit us as 5G industrial use cases develop, providing us with further opportunity to monetize our 5G investments smarter than anyone else can in the region. Now to the markets and starting with Sweden, where as great a year return to growth. Despite the continued legacy headwinds, you can see here, service revenue actually reverts to go for the first time in almost 6 years. Yes, the increase is small, but it's broad-based and it's driven by both mobile and fixed and by both consumer and enterprise. All subsegments grew this quarter except interconnect and pure legacy segments. More importantly, you can see our underlying service revenue, excluding legacy ruling, grew by 3.5%, the strongest rate since we started calculated underlying in our revenue in this way. The Enterprise segment grew by 1%, with positive growth in mobile, and all but 1 Customer segment grew mid-single digits, with only SME declining low single digits but relatively stable to prior quarters despite continuing to carry a premium because of our quality position versus competition. In consumer, TV revenues grew at a healthy 10%, helped by strong sports content fiber grew 12% and mobile grew around 1%. Our cost base increased slightly as it was impacted by SEK 60 million of pension savings mostly noncash. So underlying EBITDA delivered a small growth in the quarter if we also exclude last year's one-offs. Moving to KPIs. The performance is solid with increases in mobile, broadband and TV customer bases as well as in ARPU. In mobile, we have positive net adds in both consumer and business with a slightly improved ARPU versus last year, mainly as a consequence of increased value-added service usage similar to the second quarter. We did see a slight increase in churn in the Consumer segment due to the price increases taken on share plan but this is compensated by lower B2B churn returning to the lower levels after the loss of a large public contract, which had a negative churn impact in Q1 and Q2. Broadband net adds returned to growth this quarter as the growth in fiber more than offset the copper decline even after adjusting for a small onetime adjustment to the base. And the fiber growth was generated both within our own network as well as within Open City networks. Likewise, the TV customer base continues to grow by 6% year-on-year and ARPU for both broadband and TV grew as well by 3% and 4%, respectively. Encouragingly, these strong trends are supported by attract sports content as we increasingly become the aggregator and home and entertainment with our wide range of entertainment for from C More from Viaplay and now as of September average asking release. Moving to Finland, continues to be a tough market for us but the revenue did improve sequentially and it's nearly stability around the SEK 3 billion level per quarter. Both the consumer and business segments were largely stable on revenues on a like-for-like basis, supported by 5G and the start of this fourth season on TV. TV revenue grew by a healthy 6.5% and mobile revenue was stable, and our B2B datacom business turned to growth for the first time in over 2 years. We did, however, see declines in our legacy fixed broadband and telephony products. In an overall tough environment, though there are some bright spots. We're seeing TV growing positively and is access of content products, 5G continues to come with an uplift in ARPU of more than EUR 3 in consumer and the premium is even larger for enterprise. And with a 5G customer base just shy of 150,000 subs by the end of the quarter, we're continuing to roll out and upgrade to 5G at pace. Beyond the revenue challenges, we did have some increased pension costs impacting EBITDA, resulting in a 4.5% decline. From a KPI perspective, the mobile subscriber base is growing, but it is driven by enterprise where we had customers in the public sector, although a lower ARPU, which down likes the overall ARPU. Positively, churn has continued to reduce, and it is looking like 5G could help us sustain this positive trend on churn. Now just to give you an update on our turnaround efforts, they are very much focused on value versus volume commercial strategy alongside structural cost takeout. Specifically, we're restoring our brand and network perception to improve value for money perception and the early signs are positive. Secondly, we're expanding 5G pop coverage, increasing our potential to migrate more customers to 5G. And when we combine 5G with content from C More, we see much improved consideration and reduced churn. Third, we're shifting to our own channel by exiting expensive third-party channels that encourage churn. And fourth, for shifting sales incentives to our value versus volume focused incentive scheme and have stopped our historical practice of pursuing subsiding costs. And finally, we are in a process to restructure our workforce to be finalized during quarter 4. In summary, we now have a plan and we're executing on it. Yet, it will take a few more quarters, but we're very confident that the turnaround will come, and it will have a material impact going forward. Moving to Norway, service revenues are reverse to positive clarity again, despite that were still burdened by the ICE national roaming agreement, although as you can see, is sequentially lower this quarter at SEK 55 million. Underlying momentum has continued to improve, but the Enterprise segment growing at a very healthy 3.4% pace driven by mobile and the Consumer segment now growing 2.3%, driven by both mobile and broadband. With stability in our consumer customer base, we're aiming for this growth to continue as we have now implemented speed-based pricing in our premium unlimited offerings under Telia X. And at the same time, we continue to see great strength in the Enterprise segment, both through Phonero and Telia. New customers such as the Norwegian Postal Service will start to migrate over to us during the next few quarters. Churn in both segments have been broadly stable in the quarter and ARPU has grown due to value-added services who are specifically insurance, VAS represented just over half of the year-on-year of redevelopment that you're seeing here. And OpEx declined by 3.6%, which helped us could not fully mitigate the lower revenues from the wholesale contract leading to a small EBITDA decline. Moving to what we call our led markets, the trends remain very strong in our Baltic operations. In Lithuania, service revenue growth accelerated to 8.1% with EBITDA falling and growing 9.3%. This quarter, our mobile trends particularly stand out growing above 10%. But fixed is also stronger than in prior quarters, growing just shy of 7%. The Consumer segment remains the main revenue driver, but we're also seeing entered -- the Enterprise segment grow too. In Estonia, both service revenue and EBITDA grew by 6%. And just as in Lithuania, the Consumer segment was the main driver that the Enterprise segment is not far behind and both segments showing growth in both mobile and fixed services. As we said in Q2, the Danish service revenue is stabilizing and even turned to a growth of 2.2% in the quarter. However, this was driven by interconnect enrolling, which came with limited or no gross margin. To drive further improvement and sustainable Danish revenue and EBITDA growth, we have changed management during the quarter where [indiscernible], a telco inspector, who has been advising us on our strategy since the turn of the year and someone I have known for many years to stepping in as acting CEO until we have a permanent solution in place. The costs are impacted by a noncash balance sheet cleanout and excluding this EBITDA is broadly unchanged year-on-year. And finally, to TV and Media, service revenue grew 15.4% from both growth in advertising and pay. Advertising continues to recover, albeit at a slower pace than previous quarters as the recovery did already start in Q3 last year at 12% but driven in no small part by a 24% increase in digital ad revenue. Pay grew by over 20%, helped by stronger sports content. And looking back over 24 months, revenue in TV and Media is almost at to pre-pandemic levels. As you know, an expected content costs are increasing with both the euros and Champions League effect in the quarter, which clearly affects our EBITDA and content costs will ramp up further in the fourth quarter as we take a full quarter of Champions League and incur the usual fourth quarter of effective through just content. Our C More subscriber base grew 20% in both Sweden and Finland and in addition, it was a transfer of 60,000 customers from Finland to TV and Media unit, so that we ended at 560,000 and 275,000 customers, respectively. I'm sure you're all curious about Champions League. It's early days, but we have indeed besides the already mentioned positive impact on Swedish TV subscribers, a positive subscriber uptake on the back of it, recovering the outflow of sports subscribers after the Euros, which ended at the beginning of the quarter. All in all, sports-related subscriptions have increased by 40% year-on-year. These movements are, however, masked by the fluctuations of the lower ARPU nonsports subscriber base. But despite this, revenue is growing positively. We've now embarked into a multiyear feed of a stronger content offering and we'll be monitoring the different aspects in which Champions League impact our business both on IPTV on streaming, but more importantly, on the attachment to our access products that ultimately drive convergence and customer lifetime value. So now, PC, I'm going to hand over to you on the financials.

[Per Christian Morland, Executive VP & Group CFO]

Thank you, Allison. Let me quickly summarize the financials, starting with service revenue. As you are right, we see the growth of 2.3% broken down by units and markets. And as mentioned, we have growth in all the markets in Finland driven by growth in all key product categories. On the left-hand side, you see the same growth split by segment. And as you can see, also covered by Allison, we have a solid growth momentum, both in our Consumer segment and also in our Enterprise segment in the third quarter. Year-to-date, after 9 months behind us, we have recorded a service revenue growth of 1.0% and are well on track to deliver our outlook for the year for flat to slight growth. If we move to OpEx, starting from the last versus last year, total OpEx increased by 1.1% or SEK 61 million. In Q3 this year, we have more than SEK 200 million of structural cost efficiencies, mainly driven by the 750 fewer resources, combined with significant IT-related savings. However, in the quarter, this is more than offset by pension facing effects combined with inflationary pressure, mainly from salary inflation. Moving to the right and take a look at the cost development by category, resource costs increased by SEK 134 million versus last year. The reduction of 750 resources has given us more than SEK 100 million of savings in the quarter with resource reductions more or less in all units and functions. This is, however, this quarter, offset by 3 main factors: First, dimension effect from pension facing impact in the quarter more than SEK 100 million, with a significant part of this being the effect relating to last year. Second, salary inflation effect of around SEK 100 million, slightly higher than the regular quarterly average. And thirdly, also from the temporary investments we have done in Sweden customer service to protect and develop our customer experience. Marketing costs are flat in the quarter, where some increased activity level is offset by marketing efficiencies in many of our markets. Going forward, we expect to see more efficiencies from our transformation program on marketing costs, but of course, the reported costs will vary depending on the quarterly activity level. Within other OpEx, we have solid reduction driven by the mentioned SEK 68 million lower IT costs from the transformation initiatives related to deferring vendor consolidation, system cost decommissioning and increased use of common products and platform. Year-to-date, we are down 0.7% or SEK 135 million, in line with our plans. With a reduction of 750 resources after 9 months, we are well on track to reduce total resources by 1,000 during this year. This will both secure a good result for this year, but more importantly, secured a strong run rate going into 2022. And to summarize, we are well on track versus our plan and have good visibility how to reduce OpEx of SEK 2 billion by '23 and SEK 4 billion by 2025. If we move to EBITDA at the right-hand side, we can see the total EBITDA decline of 1.9%, broken down by market and units were the main reason for the decline is, as mentioned, Sweden impacted by pension pacing, Finland hurt by lower revenues and pension and TV & Media impacted by increased content costs offsetting the service revenue growth. After 9 months behind us, we have recorded an EBITDA growth of 0.8%. If we look at the full year, we expect to end 2021 at the lower hand of the flat to slight growth outlook range. The main reasons for this are mainly due to the lower-than-expected performance in Finland, combined with effect from a slower rebound of the non-EU roaming. As Allison mentioned, we see positive signs in Finland already. And the global roaming is hopefully starting to return a bit during first half of next year. On CapEx, starting from the right. As expected, we see an increase in mobile network sales related to the ongoing mobile network modernization and 5-year rollout in all our markets. Fixed investments are a bit down due to less fiber-related investments in Sweden, while we see a slight increase in the quarter within product development and IT due to some key transformation-related investments in Q3. As we can see on the left side, total cash CapEx on a rolling 12-month basis has increased to SEK 13.6 billion or 15.4% of net sales. Cash CapEx will increase further in Q4, both from higher planned activity levels, but also from the delayed effect of completed activities due to our long payment terms. It's worth to note that the ongoing global supply chain situation is starting to impact our business and therefore, could have some delay effects on the CapEx levels going forward. However, so far, we have been able to mitigate this relatively well. All in all, we are on track with our investment agenda. And given the expected increase in cash CapEx in Q4, we expect to land around SEK 15 billion in cash effect in the middle of the targeted range. Moving to cash flow. Starting from the right, we have reported a total cash flow of SEK 2.9 billion in the quarter, down from last year. This is a combined effect of lower EBITDA, a slightly higher CapEx and a slight negative contribution of working capital in the quarter. On a rolling 12-month basis, we see solid cash flow at SEK 11.9 billion, somewhat reduced from last quarter, and excluding contribution of working capital, we are on a rolling 12-month basis at SEK 7.5 billion, in line with our expectations. After 9 months, we now have generated a solid SEK 9 billion of cash flow, well above and needed SEK 8.2 billion to cover the minimum dividend commitment. And we are on track from '22 onwards to cover the minimum dividend commitment with cash flow excluding working capital contribution. On net debt and leverage, as mentioned, we have reduced our leverage by almost SEK 3 billion driven by operations. If we take the Q3 results and as expected proceeds from the Tower transaction, pro forma leverage is at 1.99. But keep in mind that we have SEK 4.1 billion to be paid out in dividend during Q4. We expect by end of '21 that this will put us at the lower end of the targeted range. On outlook for '21, after 9 months of the year behind us and with our financials well within the targeted range, we reiterate the outlook for the year. As mentioned, we expect EBITDA for the year to be at the lower end of the outlook range with cash CapEx expected to be in the middle of the range, around SEK 15 billion. On the midterm ambition, given the solid top line momentum we see, the ramp-up of the structural cost agenda and the clear plans on how to turn around our low-performing units, we are well on track on our midterm ambition. And with that, I hand back to you, Allison to summarize the presentation before we go into Q&A.

[Allison Kirkby, President & CEO]

Thanks, PC. So to basically summarize the quarter, I'd say we are delivering on our plan. We're proud that our commercial position took a step forward in the quarter with the expanded next-generation network for fiber and 5G and new enhanced content and digital services being added. The momentum in almost all markets and all key product segments are strong, including in our largest market, Sweden, where, as I've said, we've seen service revenue acceleration for several quarters now and getting closer to that sustainable and consistent EBITDA growth, too. Our transformation is building the foundations for sustained structural customer experience and cost advantage, which is helping to mitigate some but not all of the recent headwinds. Furthermore, our ambitions to crystallize value from our assets are on track that the Tower transaction expects to close next quarter as previously communicated and more will follow. But the Tower transaction we announced is putting us already at the low end of the leverage range as we move into next year. Our outlook are flat to low single-digit growth in both revenue and EBITDA remains. And as PC just said, we'll be at the lower end of that range on EBITDA this year and CapEx will be in the mid part of that range. So we're finally on our way out of the pandemic and moving forward with even more confidence on our transformation journey to reinvent a Better Telia. We do believe that the pandemic has strengthened our role in society and cemented the need for ubiquitous connectivity seamlessly combined with the best digital services provided by the most trusted provider. And as a result, we are really looking forward to playing an ever more important role in our customers' lives in the post-pandemic world and for our improved market and structural position to generate consistently attractive shareholder returns for our owners. Let's put questions.

[Andreas Joelsson, Head of Investor Relations]

Operator, can we have the first question, please?

[Operator]

Certainly. Your first question comes from the line of Maurice Patrick from Barclays.

[Maurice Graham Patrick, Managing Director]

Maybe a question on TV & Media and some of the puts and takes for 2022. I believe Allison, you said -- I think it was at the 2Q, you're happy with consensus around SEK 900 million for EBITDA for 2021. I mean that would imply sort of quite low for the fourth quarter, I guess that's your point around the Champions League. I mean, there has -- has TV & Media got back to its old run rate yet what are the puts and takes in terms of costs and revenues for next year, can EBITDA grow in that division? Linked to that is, will the for benefit from the Champions League we've seen mostly in TV & Media? Or should we see some comfort in the opcos like in Sweden as well?

[Allison Kirkby, President & CEO]

Thank you, Maurice. So yes, we've been saying -- and I think we've definitely said last quarter, EBITDA should be much more than SEK 900 million for the year. And that's basically what we've been guiding to this year this morning. The different puts and takes are, clearly, we are very happy with the return of the ad business. And we are actually all, as I said there, almost back to 2019 levels when you look at Q3. So the return of the ad piece very positive and even more positive with a bigger mix moving into digital ad revenues now, where you get more of a premium and clearly, that's the future. So good progress there. In terms of EBITDA development, that will have to next year consume the full -- a full year of Champions League, which we've not had this year. So that will clearly have an impact on TV & Media EBITDA next year. But where do we expect benefits to approve? We expect benefits to continue to accrue on C More. We expect benefits to continue to accrue on the Telia IPTV, which where we're actually really delighted on how that's developing at the moment. And what we will also continue expect to accrue is improved convergence and reduced churn as we see attachment to our access products. And that comes over time because some of the subscribers that want to come to us to get Telia are today locked into contracts with other providers that will diminish over time as well. So I'd expect next year because we'll be consuming our whole year of the cost of Champions League that you won't see much EBITDA development in the TV & Media sector, but you will start to see it coming through in our core Swedish and Finnish telco businesses.

[Maurice Graham Patrick, Managing Director]

Very clear. Thank you, Allison.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Maurice.

[Allison Kirkby, President & CEO]

And I think, Maurice, if you see in Sweden in the quarter, 12% fiber development, mobile still growing 1%, TV up 10%. There's clearly an impact there of everything we're doing, not just Champions League, and I'm really hoping for more of that next year, particularly with reducing legacy headwinds.

[Andreas Joelsson, Head of Investor Relations]

Almost got 2 answers there, Maurice, on 1 question. That's a new one. Next question please.

[Operator]

Your next question comes from the line of Ondrej Cabejšek from UBS.

[Ondrej Cabejšek]

I guess Finland is a bit difficult. So if I can have a couple of questions there, please. So first of all, you're now saying that you're targeting the turnaround in 2022. Is there any kind of more specific timing with respect to that. Second, if you could remind us of some of the progress you've made and what to do from your point of view before the business likes to perform as you wish or at least in line with the market. And then finally, and I guess most importantly, regardless of your specific issues in Finland, is there some kind of -- can you kind of rule out any kind of pricing disruption, especially in 5G and the consumer that would be kind of pegged through to turn this business around. And specifically, I'm asking because some of your peers are kind of pointing to media specifically in the Enterprise segment being a bit more aggressive. So is this something that you can rule out in the Consumer segment?

[Allison Kirkby, President & CEO]

Ondrej, were you focused on Finland there or overall? It was Finland, sorry, I missed that?

[Ondrej Cabejšek]

Specific. All 3 of them. Yes.

[Allison Kirkby, President & CEO]

Yes. Very clearly, yes, we have a multipronged turnaround in Finland planned. And just to be clear, we don't need to take market share in Finland to turn around this business. We do need to grow at the same rate as the market leader, monetize 5G at the same rate as the and that along the structural interventions that we're making on our cost base, on our channels and on our go-to-market will enable us to grow at the same way as a lease. So it's not a value their volume-focused strategy. What we've discovered is we peel the onion in Finland is both by dependency on third-party channels that encourage churn and our own sales incentive model that was just pursuing soft to any cost we were being irrational in the Consumer segment. We are stopping that as of now. So that we are seeing good traction as we're starting to shift the perception of the brand on the back of 5G rollout. We're seeing good traction to 5G and the churn of 5G is lower. So it is very much a value versus volume focused strategy in the Consumer segment. In the Enterprise segment, we've seen a return to growth in our core datacom business. And just as we're seeing in Sweden, our breadth of services beyond connectivity are really becoming attractive to the large public and key account sector was signed -- as I said, we signed the biggest enterprise mobile network deal in the region in Finland during the last quarter, really attaching IoT services and those kind of services help us minimize the ARPU dilution that can happen when you have irrational players in the market and help us the whole market share. We think we're holding market share in the Enterprise segment. And clearly, that's our intention going as well. Does that answer your question on Finland?

[Ondrej Cabejšek]

Yes. And maybe just if you could be a bit more specific in terms of when exactly in 2022, you would expect the turnaround to occur?

[Allison Kirkby, President & CEO]

I think it's more likely the second half than the first half, Ondrej, to be honest. We need a few more quarters because as we pull out third-party external retail and move to value versus volume that obviously has an impact. And as I said, we are actively talking to the unions regarding changes in restructuring in the workforce that will happen starting Q4.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Ondrej. [Operator Instructions] Next question please.

[Operator]

Your next question comes from the line of Terence Tsui from Morgan Stanley.

[Terence Mun-Sion Tsui]

I'll just stick to the 1 question regarding the comments that you made earlier around Towers and fiber. Just specifically interested on your thoughts on the assets in Sweden. You obviously got quite a high price in the sound of towers in Norway and Finland. So the market is clearly quite hot. But maybe you can just talk about some of the potential disadvantage you could see from any deal or doing any deal in Sweden as well please?

[Allison Kirkby, President & CEO]

Clearly, I don't see any disadvantage in doing Tower deals at all when we keep majority control and working with a partner such as Brookfield and Alecta. Alecta, that are very long term in nature and Brookfield bringing real competence being the biggest owner and operator of Towers in the world. So as we said at our Capital Markets Day, we have just over 9,000 concrete and steel towers. We have 3x that if you include all of the sites Norway and Finland accounted for just around half of our Tower footprint and Sweden make up a chunk of the balance of that, not all of it, but a chunk of it. And we -- as I said, we are proactively preparing the next tranche for a similar transaction and would love to get similar multiples, and we hope to be able to do something in early '22. So in terms of fiber, we have a great footprint of fiber already. But clearly, we have some white spaces, and we have some opportunities, particularly where you see like the Swedish government really keen to coinvest in rural fiber. So we will clearly be looking at where we can partner with others to fill out our white space of fiber footprint in the coming quarters and years as well. And the fact there's so much interest in that area, we don't need to do it all ourselves now if we can find great partners with a very long-term view, and we've been good partners for us in our fiber strategy. So lots more to do in the infrastructure area and excited about the potential there.

[Andreas Joelsson, Head of Investor Relations]

Thanks a lot, Terence. May we have the next question.

[Operator]

Your next question comes from the line of Stefan Gauffin from DNB Bank.

[Stefan Gauffin, Analyst]

Yes. I have a question regarding the B2B market in Sweden. Tele2 alluded to that there has been some stabilization in the pricing of -- on the corporate side in Sweden. And I just wonder if you agree to this picture, so that the B2B market could see a good recovery going forward.

[Allison Kirkby, President & CEO]

Yes, I would agree to that position. We saw a relatively stable quarter. And as I said, we actually saw low to mid-single-digit growth in all segments apart from SME. The SME segment still remains very competitive. And a key competitor has been quite aggressive at times. So there's always 1 that's more aggressive any 1 quarter. But I'd say in totality, it's pretty stable. And even in the SME sector where we carry a real premium on ARPU we are seeing stability with low single-digit declines, which has been very consistent for the last couple of quarters. So yes, I'd say it was a fairly stable quarter from a competitive point of view in the Enterprise segment.

[Andreas Joelsson, Head of Investor Relations]

Very good, Stefan. Thanks a lot. Next question please.

[Operator]

Your next question comes from the line of Peter Nielsen from ABG.

[Peter Kurt Nielsen, Lead Analyst]

I had 2 questions, but Ondrej stick to these options. I'll stick to the second one. This obviously, OpEx reductions is an important part of your 3- to 5-year plan going forward. We seem to be entering an environment with an accelerating and increasing inflation. Could you talk a bit about how and where you see that impact in Telia and how you see new opportunities for mitigating that, including passing on some of those costs to your customers. Any color here would be appreciated on your sort of medium-term view.

[Allison Kirkby, President & CEO]

Yes. So clearly, we've built in -- we built in Telia inflation into our plan. So that was always built in over the 3- to 5-year period. And that SEK 2 billion is a net ambition. We are seeing a bit of inflationary pressure on energy. We don't -- we hedge the majority. But clearly, with spot pick -- spot pricing going up we're seeing a little bit of an impact there. But we try to pass that on as much as for example, our data centers, we passed on any inflationary pressure there. And clearly, as we see continued inflation -- and where we see inflationary pressure on devices and equipment, we pass that on. And we will be monitoring the situation over the coming months as we create our plan for '22 onwards, we're looking at if there is going to be inflation pressure, what can we do from a pricing point of view. But at this point, all manageable. And based on our strategy to consolidate the number of products, platforms and partners that we have, we will use that strategy to leverage scale and mitigate some of the headwinds as well. And that's something we can do because of the scale of the business we have throughout the region and because we started with a very fragmented set of partners as well. And that's not just helping us from a cost mitigation point of view, it's also helping us from a supply point of view at the moment. And I'm very happy that our network providers are giving us all the support we need so that we can see our 5G rollout on track despite clearly the supply chain pressures, which at the moment, we just need to get much more forward-looking forecast to our suppliers.

[Andreas Joelsson, Head of Investor Relations]

Peter, I know your first question was why we only highlighted Man United. So congrats on the jump win in the last as well.

[Allison Kirkby, President & CEO]

Yes. But it'll be normal, Andreas.

[Andreas Joelsson, Head of Investor Relations]

Yes, I know. Yes, I know. Per plays tonight, by the way. Next question, operator.

[Operator]

Your next question comes from the line of Roman Arbuzov from JPMorgan.

[Roman Arbuzov, Analyst]

I wanted to go back to the question of Finland turnaround. So I appreciate its work in progress and to require a few more quarters. And thank you for your earlier comments, Allison, on what needs to be done. Do you think it does all come down to mostly distribution and the go-to-market strategy. And when I look at your results, it looks like you are building up your 5G base. So there's clearly some upselling going on. You're not really losing market share, your postpaid customer base has been growing for a number of quarters. So the ARPU is not really firing up. Can that be down to maybe back-end systems and how you manage your existing customer base? And things like data analytics, are targeting something along those lines? Or do you think it's more of a distribution and branding question? Just additional color there, that would be helpful.

[Allison Kirkby, President & CEO]

Well, it's market position, it's network position, brand position on the back of the main distribution go-to-market and much more modern day tools to drive the business. So it's kind of all of that. But you're right, if Elisa can get EUR 1 uplift from 5G, there is no reason that we can do that considering the market position we have as well, if we are changing the perception of the network, which we are, we have proof points. If we're changing the perception of the brand, still to do work on the brand, but our CMO, who started out fixing Denmark is sub Sweden is now off to Finland now, that is work in progress. But all of the -- what we are doing to build a data analytics capability for the group is being prioritized for Finland at the moment. And so the more we move into our own channels, the more we'll be able to use the customer -- we're calling it a customer value management boost, we're really pushing ahead in Finland first for the whole group to see how that can really improve cross-sell, upsell and convergence in general. So it is a distribution and go-to-market, also focus. We are -- and that's more -- we're getting rid of some distractions around the edges that have been built up, whether it be eSports or gaming in the Consumer segment or in the Enterprise segment, we're getting out of alarm businesses and other smaller periphery businesses that were built up over the years. So focus, distribution, go-to-market analytics and then really going after the workforce and the cost structure.

[Roman Arbuzov, Analyst]

Got it. By the way, Elisa explained that it's as much as EUR 3 or for 5G uplift plenty for play store.

[Allison Kirkby, President & CEO]

And that's what we're getting. We're getting 3 in the consumer and more than 3 in enterprise. But if you look at Elisa's ARPU over the last year, it's gone up by 1%. So that's what I'm referring to. They've probably got at least double the 5G customers that we have, and they've already got an extra EUR 1 on their ARPU. But clearly, was there much more to go after. But even EUR 1 from now makes a big difference, and if we're going after structural cost interventions as well.

[Andreas Joelsson, Head of Investor Relations]

Thanks a lot, Roman. Next question please.

[Operator]

Next question comes from the line of Ulrich Rathe from Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

Starting more technical question on the pension -- area of pension. There has been a source of volatility for the quarters in the third quarter again. So 3 subquestions in particular, maybe to address the first 1 is what is the nature of this for the course phasing. It sounds to me that it's actually more like one-offs, but could you explain what you mean here by phasing. Could you talk about pension reimbursement to be expected in the fourth quarter in the prior 2 years in the fourth quarter, whether that's coming again and then what amount, whether it's possible to comment on that then in the IR e-mail this morning, there's sort of a comment that you are aiming to improve the accounting. Could you just comment on what would improve and how old margin improve?

[Per Christian Morland, Executive VP & Group CFO]

Yes, I'll try to address those questions. So just to remind, last year, we reported an OpEx reduction of SEK 180 million, where 2/3 of that was nonstructural on phasing. So a big part of what we are reporting this year is relating to last year. And last year, there was some different kind of technical effects hitting in a positive way in the third quarter. On top of that, we also have some, as we mentioned, some phasing effects from this year. And what is coming from is there are some, let's say, onetime effects, which is hitting this quarter that's kind of a long to other quarters this year and last year. And on the improvement, I mean, what we are doing now, we have changed the way we accrue for pension to avoid having this noise on the numbers. And the result of that is we're kind of getting a double cost because we are carrying -- the onetime charge in addition that we're now doing a more proper accrual on the pension cost and more specifically, is related to salary inflation and also on bonuses as a very technical part. So overall, these cardboard effects mostly belong to Q3, where a big part of it is Q3 last year, and there are some effects for Q3 this year. On the second question around reimbursement, we are looking into what room we have for pension reimbursement. I'm not going to guide anything more than that at this point. And then I think I covered the third question in my first answer.

[Allison Kirkby, President & CEO]

So yes, you could say it's a one-off because it was a big negative last year and a big positives year. But moving forward we're trying to kind of smooth this out and there's no bad news in there.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Ulrich. I think we have 4 questions left. So let's speed up and see if we can fit all in. Next question, please.

[Operator]

Next question comes from the line of Steve Malcom from Redburn.

[Stephen Paul Malcolm, Research Analyst]

I hope you can hear me okay. Just a question on balance sheet and return on capital. Of course, the balance sheet looks in very good shape. You've got the dividend clearly coming out and people understand that, but still be in good shape, the tariff goes close. And can you just update us on your thinking on returning sort of excess capital through buybacks to shareholders and maybe the timing and the sort of the puts and takes on that and why you wouldn't return excess capital, I guess, would it if you weren't to do that with full year results, would that be because you see opportunities elsewhere to reinvest because maybe some concerns about the outlook. How should we read any decisions not to return first half.

[Allison Kirkby, President & CEO]

Well, I think our capital allocation policy is very clear for the year. It's a minimum of SEK 2 per share dividend, and we want that to grow in line with our EBITDA going forward. You're right. We're right at the low end of the 2 to 2.5 range. We're still in the 2 to 2.5 range. So whilst we're in that, I wouldn't expect the Board to change anything. But clearly, if we were to do any more for example, Tower transactions, that would obviously have to trigger the Board to look at an excess capital return. And I'm sure they would lay out the pros and cons of buybacks versus extraordinary dividend at that time. But that's not really a dialogue but we do have a very shareholder-friendly Chairman and there's no incentive for us to go below the 2 to 2.5 range. So -- and in terms of -- we've laid out our CapEx investments for the coming years, we don't see any immediate major acquisition needs I think if anything, if we were to have cash that tickets below the 2, that would clearly our Board would consider a return to shareholders.

[Stephen Paul Malcolm, Research Analyst]

It's still very a reminder whether that's through buybacks or a special dividend at this stage.

[Allison Kirkby, President & CEO]

Yes, I think that's something for the board to really discuss alongside our midterm outlook could we get together in January. That would have consult the shareholders as well.

[Andreas Joelsson, Head of Investor Relations]

Thanks a lot, Steve. Next question please?

[Operator]

Your next question comes from the line of Siyi He from Citigroup.

[Siyi He, Vice President]

Just I have a question on the -- how we think about your midterm EBITDA trajectory. I think today's guidance change suggests that there will be probably about 7%, 8% EBITDA growth required over the next 2 years. And during the call, you made a comment about higher content costs and also Finland might not return to growth until the second half of 2022. So I was wondering, should we think about the delivery of your 3-year EBITDA growth targets to be more of a back-end loaded. Is that for the right way to think about it?

[Allison Kirkby, President & CEO]

No. We are very comfortable with our low to mid-single-digit outlook that we gave for the period. And some of the -- we're starting the Finland turnaround that will start to benefit us next year. Roaming will start to return, and we'll start to get more and more benefits from the transformation program. So very much on track, and we fix our guidance and are confident in that.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Siyi. May we have the next question please?

[Operator]

Your next question comes from the line of Abhilash Mohapatra from Berenberg.

[Abhilash Mohapatra, Analyst]

Yes. Sorry to come back to Finland again. I think it's fair to say that past management teams have also talked about sort of going ahead with the value versus volume approach in Finland. I guess my question is, what is different this time? Is it just that under new management, you'll be more sort of disciplined in your approach in Finland? Or is it simply that the 5G sort of opportunity you see a chance to essentially grow service revenues by being sort of more rational on competition?

[Allison Kirkby, President & CEO]

Yes. I think the past management teams have never been there long enough to actually deliver any discipline or focus. So what's different this time? Yes, we've got the opportunity of 5G and we've got the opportunity of content and I really do believe we got a management team that's really getting to the root of the problem in Finland and starting to turn that around, and we'll certainly be able to leverage the group transformation towards common product platforms, processes and partners. And that's what gives me the confidence. PC has been around a little bit longer than me, do you want to comment, PC.

[Per Christian Morland, Executive VP & Group CFO]

No, it also goes in the focus of execution, right? So build the capabilities and we actually executed the strategy in itself is not rocket science, but is actually making sure that we deliver on it.

[Allison Kirkby, President & CEO]

And we have a much more robust integrated strategy planning process now that cascades all the way down to country and functional plan, something that didn't exist earlier before.

[Andreas Joelsson, Head of Investor Relations]

Thank you, Abhilash. We have 1 more question in line. So I think we take that and then we end.

[Allison Kirkby, President & CEO]

And this -- and by the way, this is the last ever question for Andreas, who's the Head of IR of Telia on his 20th set of results. So make it a special question.

[Operator]

Your question comes from the line of Adam Fox-Rumley from HSBC.

[Adam M. Fox-Rumley]

Well, my pleasure. There's actually a bit of a follow-up to that last one, I'm afraid. But I wanted to ask a little bit about the balance between group level policies and how they feed down into the countries. So 1 thing specifically like pricing and the balance of gross adds and churn. How much of that is really coming from the center and implemented locally. What is locally focused and is then monitored from the center? Because a lot of the conversations, I think, we're having around Finland in particular, over the last few quarters seem to suggest that maybe oversight wasn't quite where it could have been. And I'd just really like to hear how that's changed basically.

[Allison Kirkby, President & CEO]

Yes. So great question. We -- it is the local markets on their go-to-market strategy, which includes pricing, growth adds, go-to-market, everything that they are overseen by group and what we set the targets and the ambitions. Rainer equips the countries with the product platforms and partners they need to take to market. And then we were -- and then by getting the transparency on the plans from the countries at a group level, we're able to scrutinize challenge, support and get a much better understanding of the feasibility of the plan relative to the targets that we're setting. So it's a real mix of top-down and bottom-up and a collective ownership for the plan in the end between group and local markets. Thank you. And on that note, I would like to end the call today by saying thank you, Andreas, for 20 fantastic quarters. I know they've not always been good, you didn't yet turn around Finland, but we wish you all the best in your future career. You're going back to the dark side, but I know you'll put a dial on it as soon as you can.

[Andreas Joelsson, Head of Investor Relations]

And I look forward to what's been turned around from the dark side. Thanks a lot, everyone. That concludes the call for the Q3 report. Have a very nice day and reach out if there is anything you want to ask more. Erik is dying to take calls, and have a nice day. Take care.