Mobile services

Tele2's Shares Soar on Strong Q1

Shares in Tele2 have risen as much as 6.4% in Stockholm after the Swedish telco flagged impressive growth in sales and profits for the first three months of 2017 and stuck by guidance that mobile service revenues will increase this year.

The quarterly performance was boosted by Tele2's $352 million acquisition of the Swedish subsidiary of Denmark's TDC in June last year but also helped by mobile gains in several other markets, including the Netherlands, Kazakhstan and the Baltics.

Tele2 AB (Nasdaq: TLTO) has continued to grow at the expense of bigger rivals in some of its most important markets, attributing the success partly to investments in higher-speed mobile network technologies.

Overall sales were up 22% in the first quarter, to about 7.9 billion Swedish kronor ($900 million), compared with the year-earlier period, and rose by 3% on a "like-for-like" basis, said Tele2. Those improvements fed through to the bottom line, with net profit up 18%, to SEK401 million ($46 million).

Tele2 expects to generate sales of between SEK31 billion ($3.5 billion) and SEK32 billion ($3.6 billion) for the full year, up from SEK28.3 billion ($3.2 billion) in 2016. It is also guiding for earnings (before interest, tax, depreciation and amortization) of between SEK5.9 billion ($670 million) and SEK6.2 billion ($700 million), compared with SEK5.3 billion ($600 million) last year.

Unlike a number of European operators, the Swedish telco has no plans to reduce capital expenditure this year. According to its latest guidance, it will spend between SEK3.8 billion ($430 million) and SEK4.1 billion ($470 million) in 2017, having invested about SEK3.8 billion ($430 million) in capex in 2016.

While much of the spending has been going toward the rollout of higher-speed 4G networks, Tele2 is also investing about SEK1 billion ($110 million) over a three-year period in a program to increase productivity.

From 2018, that program is expected to generate operational cost savings of about SEK1 billion a year ($110 million).

CEO Allison Kirkby said the latest guidance took into account the likely impact of new roaming regulations that will come into force this summer.

"Looking forward, much of the growth initiatives and infrastructure investments for 2017 lie ahead of us, and revenues and costs will be negatively affected by the new roaming regulation in the second half of the year," she said in a company statement. "Our 2017 full year guidance reflects these factors."

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On an individual market basis, Tele2 had its takeover of TDC's Swedish subsidiary to thank for revenue growth in Sweden, which accounts for about one half of total sales. Revenues there were up 29% as Tele2 warned investors that competition "remained intensive" in the quarter and promised to launch new commercial offers between April and June.

Elsewhere in Europe, Tele2 also reported sales growth in the Baltic countries, where it has been focused on growing its share of the mobile broadband market, and in the Netherlands.

Tele2's aggressive rollout of an LTE-Advanced network has undoubtedly put pressure on Dutch rivals including KPN Telecom NV (NYSE: KPN), Vodafone Netherlands and T-Mobile Netherlands . In its earnings report, Tele2 said the Dutch market was "characterized by downward mobile price movements by our competitors" in the first three months of the year.

As in Sweden, M&A activity fueled sales growth in Kazakhstan in the first quarter, with revenues up 59%, to SEK649 million ($74 million). Tele2 last year competed a merger of its Kazakh mobile business with that of state-backed Altel and said the market has subsequently benefited from "higher pricing levels."

The story was less encouraging in Austria and Germany, where Tele2 blamed revenue declines on customer losses. Tele2 said it was shifting its focus to the enterprise segment of the Austrian market.

Austria and Germany together account for just 6% of overall revenues.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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