Telia Company AB (publ)

Good morning, everyone, and very welcome to the presentation of Telia Company's third quarter results for 2020. With me, I have our CEO and President, Allison Kirkby; and our CFO, Per Christian Morland.

And we will do, as usual, Allison starts, then PC takes over, and then we have a Q&A session in the end. So please, Allison.

Good morning, everyone, and welcome to our latest results on this slightly hazy day in Stockholm. As you will have seen this morning, our third quarter was again better than we expected.

COVID-19 impacts were somewhat lower. Advertising income improved sequentially.

Admittedly, there have been some sports-related cost that will be phased into the fourth quarter due to delays in scheduling, but we do continue to mitigate some of the COVID impact through proactive OpEx reduction. All in all, it was another good quarter.

Reported service revenues grew by 2.2% in the quarter as we've not yet closed the Bonnier acquisition at this time last year, can you believe that? But on a like-for-like basis, we declined by 4.8%.

COVID explains 2/3 of the decline, around SEK600 million. Legacy products in Sweden and lower distribution revenues in the TV segment explains the rest.

Mobile subscriber revenues represent more than 40% of our total. And as you can see, they declined 6% on a reported basis.

But if you exclude the impact from foreign exchange movements, the decline was 2.8%. This is in line with the level we had in the last quarter and still clearly impacted by dramatically reduced roaming, which is down 85% year-on-year.

Excluding roaming, again, we are flat year-on-year, which is broadly the same outcome for EBITDA, flat at around SEK8.2 billion. On a like-for-like basis, we declined 0.6%, but excluding the COVID impact of300 million, the underlying growth was roughly 2%, which is fairly similar to last quarter.

And that underlying growth was basically driven by a 3% reduction in OpEx and some phasing of sports content into the fourth quarter. Cash generation continues to be strong.

We have now generated SEK9.2 billion year-to-date, putting us on track to deliver within the upper range of our previously communicated range for the year of SEK9.5 billion to SEK10.5 billion. And that is all being generated by extra EBITDA contribution.

If you compare it to last year, clearly, we have significantly lower contributions from working capital. This time last year, we were already ahead by SEK2.2 billion.

So when you look at EBITDA minus CapEx, we generated SEK4.6 billion in the quarter, and we're up SEK1 billion year-to-date, the main driver being lower CapEx due to lower execution pace, probably some of that due to corona delays, but especially fiber in Sweden. And working capital only gave us a minor contribution in the quarter.

Since our last report, we have made good progress on some of the immediate strategic priorities that I identify on my arrival at Telia just over five months ago. Connectivity is our core business and network leadership is a core strength.

It's, therefore, reassuring to see mobile subscriber revenues remaining stable ex roaming and broadband growing by around 1%, despite us no longer having the full year-on-year benefits from last year's price increases in Sweden. Our customers should always expect Telia to deliver the highest quality, most reliable and most secure network, whether it's mobile or fixed infrastructure.

And I'm, therefore, delighted to be able to announce that we have entered into two new strategic partnerships, one with Ericsson and one with Nokia, to provide superior network experiences on both our 4G and 5G network to Telia's 10 million mobile customers in Sweden, Finland and Estonia, adding to the network swap we have already started in Norway. The agreements we signed just this morning have empowered us to lead the way in building the digital infrastructure for the future and accelerate the availability of new digital experience and platforms for our customers to enjoy.

This starts a multiyear investment in our network, ramping up in 2021, but not dramatically so. These networks will not only support the development of the economies in the region, but they will also fully support our daring goals and vision as they will be 5x more efficient than our previous network and will be powered by 100% renewable energy.

Currently, we are live with 5G networks in Sweden, Finland and Norway, with Denmark soon to follow. In Sweden, we will cover 20 cities by the end of the quarter.

In Finland, we already cover 25% of the population. And in Norway, we started the rollout already last year and cover some 40% of the populations of Oslo and Trondheim so far.

On convergence, we've merged the GET brand into Telia and launched the new Telia daring challenger converged brand proposition in Norway in mid-September. This is a major milestone for revenue and cost synergies to accrue from going forward.

We have also launched an attractive premium sports package in Sweden, and we are experiencing good progress in cross-selling access on the back of the sports package. And that -- remember, that was the justification for us acquiring the TV media business last year.

Improved brand perception and improved customer experiences will be key to regaining commercial and top line momentum as we look forward across the group. Hence, the appointment of Per Carleö as our new Group Brand Director this morning is very exciting.

Per has more than 25 years experience in brand building and was most recently Marketing Director of Volvo Sweden, another iconic and purpose-driven Swedish brand, and he was the man behind the Made by Sweden campaign. He will be part of our group executive management team and will start on January 1.

For the quarter, it was also great to see the results from the latest Swedish Quality Index, the SKI index, where Telia once again took the number one spot, both among B2C customers through Halebop as well as amongst B2B customers through Telia. On cost takeout, we reduced external OpEx by another 3% in the quarter.

And we've now appointed a Head of Transformation, joining us from the Hutchison Group and complementing Rainer, our COO. Both have a great track record of transforming and creating agile, cost-efficient digital telcos.

On capital allocation, just two weeks ago, we announced the divestment of Telia Carrier to Polhem Infra with an enterprise value of SEK9.45 billion, crystallizing significant value for our shareholders from the customer relationship and digital infrastructure that are being built up in the carrier business unit over many years. As a result of this transaction and the divestment of our holding in Turkcell, which we expect to receive the proceeds from in the coming days, we have reinstated our 2019 dividend back to SEK2.45 per share, and we're now truly focused on the Nordic and Baltic region going forward.

An EGM for approving the additional dividend is now set for the second of December. As pleased as I am on the progress so far, there clearly are still gaps to fill.

And as a team, we are working extremely hard at this time to create the plans that will deliver sustainable top and bottom line progress going forward. And as I said previously, we look forward to sharing those with you alongside meeting the new group effective management team with our fourth quarter results at the end of January.

So let's now look at the progress in our business units during the last quarter and let's first go to Sweden. Sweden remained relatively stable in the quarter despite clear COVID impact, service revenues declined by SEK270 million, 2/3 of which are from legacy products and 1/3 from lower roaming due to COVID.

If we break this down, as there are many moving parts, and let's start with mobile. We saw flattish mobile subscriber revenues, excluding roaming, with B2C growing close to a percentage point despite lapsing price effect.

B2B declined but with a better trend than in the second quarter and it was basically 2.6%, ex-roaming. The main reason for the improved trend in B2B is that Q2 2019 was positively impacted by installation revenues related to IoT projects.

On the fixed side, we saw similar trends in fixed telephony and broadband, while TV improved as prices came back to normal levels due to the return of live sports. Business solutions were back to normal levels after Q2 that was impacted by exceptionally good CPE revenues.

And we were also, as expected, impacted by a SEK43 million decline in onetime installation fees related to fiber connections and are now down 38% year-to-date, in line with the guidance we have given for the year of a 30% to 40% decline. This quarter, service revenues were also impacted by less activity and infrastructure-related projects, which we believe is COVID-related.

So to simplify, mobile is okay, broadband and TV are stable, and then there is a bit less revenue support from various low-margin revenue streams in the quarter. Looking at costs, we reduced OpEx by 4%, which is very good, but there are like structural cost reductions, however, this quarter as they mainly come from lower marketing spend and a variety of smaller items, albeit we do have less one-offs this quarter than we had in the second quarter.

In Q4 and within our guidance, we will be more active in marketing, and we expect some increased costs related to improving customer support in our call centers. Adding this to the fact that a good part of the accelerated service revenue decline versus the second quarter was related to low-margin revenues, we limited the EBITDA decline to 1.8% or minus 1% ex COVID, which is only around SEK32 million.

From a subscriber and ARPU perspective, we've added mobile subscribers with 17,000 postpaid, and we're flat on prepaid. And encouragingly, ARPU continued to grow.

On broadband, total subscribers reduced due to legacy churn, but fiber subs increased by 17,000, slightly ahead of the pace we had in Q2, and we saw a good development on ARPU. The TV trends are distorted this quarter as we've corrected the subscriber base during a systems migration, and therefore, ARPUs are also affected by this correction.

On convergence, we followed up a fairly strong second quarter by adding another 5,000 customers to our base of nearly 3,000. In addition to good fiber progress, commercially, we've seen further success in the Open City Networks in the consumer segment and in the public segment of B2B, where we have won or retained important long-term contracts with Stockholm Stack and the Transport Agency.

Looking forward, you will see us focus very much on convergence to drive more for more and customer loyalty and in the commercialization of 5G to support our network quality leadership position. New advertising is already on air, Samla mer or Collect more, basically highlighting the benefits of having several or all services provided by us.

5G advertising will also ramp up now as we'll be live in 23 cities during the quarter. This investment into new campaigns and some increased staffing in our call centers to improve customer experience means that OpEx will increase, but for good reasons, in the fourth quarter.

And of course, we are delighted that the 5G spectrum option is planned to finally start on November 10. Moving to Finland now, the only country that I've actually been able to visit in person, besides Sweden, during my first five months as CEO here.

And I must say, the Telia Finland team are extremely proud of their new homegrown leader and are reenergized for the new direction coming from the Telia Group. But market activity increased once again in Finland as society opened up during the summer.

Heavy campaigning, including high-value vouchers and aggressive cold calling from the market leader were reintroduced, which increased churn. Within that, though, we did manage to add mobile customers during this climate, but mainly in the end-to-end prepaid segment.

In the quarter, total service revenues declined by roughly a SEK140 million, mainly explained by COVID, but also legacy declines and lower fiber installation revenues, which were exceptionally high in Q3 last year. The impact from lower TV revenues was not severe in the second quarter, driven by important sports events such as Formula 1 resuming in the quarter.

That said, the start of the ice hockey season was pushed into the fourth quarter, and we, therefore, discontinue with discounts on our premium sports pay-TV packages during the quarter. As of October, pricing is now back to normal levels.

On mobile, we had a slightly weaker underlying performance, excluding COVID, compared to the second quarter, mainly as a consequence of lower ARPUs in a competitive B2B segment, especially in public and lower segment. Broadband revenues continued to decline in the quarter, and ARPU is diluted from an increasing share of customers within low-ARPU MDUs.

As I mentioned, we were also impacted by less fiber connection installation fees, which were significantly higher in the third quarter. And I think we should expect that as the second wave of COVID continues, fiber installation will likely remain weak in the fourth quarter, too.

EBITDA remained flat on a like-for-like basis. COGS were reduced mainly as we did not have any cost for Liiga.

And excluding COVID impact, EBITDA grew by just under 5%, which is very similar to the second quarter. As I said, we now have 25% population coverage within our 5G network, and we will strengthen this position further through our new agreement with Nokia, for the rollout of 5G and our modernized network will increase speed, capacity and performance.

Improved network quality is critical to improved customer experience and the turnaround of our Finnish mobile business as we look forward. In Norway, the underlying trends remain fairly unchanged, but that doesn't mean that it hasn't been an uneventful quarter.

First of all, as I mentioned on a previous slide, we have merged GET into Telia, the first step to launch Telia as a daring challenger in Norway and to better commercialize convergence. Secondly, we have renegotiated the NRA with Ice, something we had to do as a result of a change in regulation.

We're pleased with the new contract, given the circumstances, and also pleased to sign a roaming contract with NextGenTel for fixed wireless access. The latter starts immediately, and the former will, as we previously announced, be effective as of the 1st of January.

On the revenue side, there are no real trend shifts in consumer mobile. OneCall continues to perform well, while the Telia brand is still in decline.

That said, within our Telia X proposition, we are seeing a high number of upgrades, lower churn and positive ARPU development. Our reported ARPU still shows a decline, but excluding COVID-related roaming, ARPU is actually up by 2.4%.

On broadband, we're continuing to grow the base, but there has, during the last year, been a mix shift within the base with more MDUs and less SDUs and a higher share of customers coming to us through partners, which has resulted in an ARPU dilution. The same can be applied to the TV ARPU, which has been impacted by partners with lower ARPUs and less premium sports packages.

On the B2B side, our mobile business continues to be strong and stable, ex COVID, in the quarter. EBITDA overall was flat for the quarter, but adjusted for COVID-19, it did grow around 2.4%.

And as we mentioned in Q3 last year, we were impacted positively by some special items in that quarter. Moving then to the LED market and the Baltic region continues to show great resilience and even strength in its operation.

This is the region where we have been most successful in our convergence strategy and where we can clearly see the benefit from the accrued loyalty that comes with convergence. Mobile ARPU growth in Lithuania, excluding the COVID roaming impact, was close to 10% and in Estonia, close to 7%.

And both countries grew their broadband ARPUs by around 1.5 percentage points. The highlight of the quarter was clearly Lithuania.

Admittedly, service revenues had a drag from a deliberate reduction of low-margin transit revenues and we had the impact of COVID. So we were, therefore, flat in the quarter.

However, adjusting for these two factors, core revenues grew by 4%. And although headline service revenues were flat, EBITDA in Lithuania was the highest since the merger between Teo and Omnitel back in 2017.

Estonia was pretty stable at both the service revenue and EBITDA level, including the COVID impact. In Denmark, we continue to see a good development of mobile subscriber intake, especially in the Call me brand.

Service revenues are down more than 8%, but heavily impacted by COVID, and excluding these lower roaming revenues, were down 2.3%, a slight improvement from Q2 as we refocus our business towards mobile and restructure our cost base. EBITDA is also down 2.3%, but actually up 11.8%, if you exclude the roaming impact, supported partly by lower IT costs and partly related to a reversal of a higher-than-required bank debt provision.

Looking forward, we need to radically simplify our product and service portfolio and rebase our cost structure in order to be a stronger challenger in this market that, as far as I'm concerned, now have far too many operators and brands, considering the size of the population. Then moving on to TV and Media, which has clearly been the unit mostly impacted by the coronavirus pandemic, but we are seeing gradually improving trends.

On free-to-air, we continue to increase our commercial share of viewing, up 1.5 percentage points year-on-year despite some tough comparisons in Q3 last year. If you recall, the FIFA Women's World Cup had Sweden making it all the way to the bronze medal game, and that went all the way into July.

In Finland, we maintained our commercial share of viewing just above 40%. All in all, advertising revenues improved sequentially and were down 12% in the quarter versus 31% in the prior quarter.

Interest from advertisers is gradually improving, and we got a strong reception to some of the new formats such as the Swedish drama Top Dog. However, we should be cautious about our optimism considering the ongoing uncertainty of the economic outlook for so many parts of society as COVID infection rates rise again.

Looking at the pay-TV operations for -- which for this unit only relates to C More direct customers and fees from other operators that we sell C More DTC, we turned the trend in OTT subscriber intake in both Sweden and Finland during the quarter and in both sports and nonsports subscriptions. So TV revenues are down 12% due to lower wholesale revenues as one of our partners decided to offer its customers less channels, and we also see some negative impact on Rosebank, albeit less than we had feared.

Yes, we still experienced negative COVID impacts. And as a result, total service revenue is down 13%, clearly better than the 32% we saw in Q2.

The trend is better than expected and also results in a better-than-expected EBITDA at around SEK250 million in the quarter. It's worth noting that some of our content costs that we expected in Q3 have been phased into the fourth quarter as some sports events such as Formula 1 races, UEFA Nations League have been pushed into Q4.

Besides this, content costs are always substantially higher in Q4 than in Q3. And also, you should expect that linear costs from Finland go into the TV and Media unit this year.

To conclude, given the stronger-than-expected performance in Q3, we are now raising the outlook for TV and Media for the year and now expect EBITDA to be above SEK500 million, with a slightly positive EBITDA in the fourth quarter. To note, by the end of the quarter, we also came to an agreement with Telenor, enabling Telenor to stream the TV4 linear channels also on its streaming server.

By that, I'd now like to hand over to PC to take you through the group financials.

Thank you, Allison. It's great to be here and to present the group results for the third quarter of 2020.

I hope to meet you all soon. On the financials for the group, let me start with service revenue.

Allison has already explained the country-specific, so let me break down service revenues by product. The service revenues for the group declined by 4.8% in the quarter, which is an improvement from last quarter, mainly as we saw less impact from COVID.

Excluding the SEK600 million COVID impact, the decline was 2.2%. The SEK600 million COVID effect is mainly driven by declining roaming revenues from less traveling of around SEK400 million as well as lower advertising revenues and other TV-related revenues.

Our mobile service revenue declined by roughly SEK50 million, excluding COVID, which is entirely related to lower interconnect fees. Our mobile subscriber revenues, i.e., revenues we generate directly from our own end users were flat in the quarter.

And this is despite that we have lasting effects from the price adjustments that we did in the Swedish market as of Q3 2019. If we take out the COVID-related roaming impact, all countries except Denmark show an ARPU growth year-over-year.

Program revenues are growing, but slightly less than the previous quarter. Sweden is still in growth territory, supported by the DSL price increase implemented in the fourth quarter of 2019.

We see growth in all countries except for Finland and Norway. And in Norway, we plan to implement broadband price increase during the fourth quarter.

TV revenues are down from lower carrier fees from a loss of an important sports right in Sweden and lower TV revenues in Norway. Other is mainly legacy revenues, basically fixed telephony and lower onetime charges for fiber connections in Sweden and Finland.

Turning to EBITDA. We see a COVID impact of SEK300 million in the quarter driven by lower advertising revenues and lower contribution from roaming.

We expect a similar impact from COVID in Q3 as in Q3 -- excuse me, Q4 as in Q3. Naturally, this could change, should the situation worsen again and planned sports events be postponed or canceled.

The roaming impact is expected to remain as long as traveling is limited as today. Please note that Q1 next year also will be tough year-over-year as most of the roaming impact only starts from Q2 this year.

The underlying EBITDA improvement of 2% is from lower total costs that more than offset the underlying pressure on service revenue. In Q3, we see lower costs mainly from lower content costs and also lower cost to operate our networks.

In addition, we reduced our external OpEx by another 2.9% in the quarter of SEK180 million, partly from COVID-related measures and impact, partly from structural improvements and partly from pacing. The decline on group level is mainly driven by reductions in Sweden, TV and Media and group functions.

Total resource costs are down by roughly SEK50 million related to the reduced FTEs offsetting annual salary inflation. Marketing, sales and acquisition costs are down around SEK30 million from lower activity levels partly due to COVID.

Other cost reductions includes lower travel expenses, lower IT costs and also lower bad debt. We reiterate the message from the previous quarter that roughly 1/3 of the total cost reduction should be seen as a structural.

In Q4, as Allison mentioned, we will have a relatively high cost as we will spend more marketing also on customer support. Cash CapEx reached SEK3 billion in the quarter, resulting in a rolling 12-month level just north of SEK13 billion.

As you can see from the slide, we have reduced cash CapEx during the year, which is best explained by some delay in activities due to the pandemic as well as lower fiber rollout. The main region contributing to the decline is Sweden, while we see an increase in Finland related to mobile network investments, both in coverage and capacity.

As Allison mentioned before, this has resulted in a 25% 5G population coverage in Finland. As usual, due to seasonality, we expect CapEx levels to come up from the Q3 levels in the fourth quarter.

Our operational cash flow over the last 12 months amounts to SEK10.2 billion. We have come down from the peak of roughly SEK13 billion, mainly driven by lower contribution from working capital but also some impact from higher interest costs and paid taxes.

For the fourth quarter, we generated SEK3.7 billion in cash flow, roughly SEK1 billion below the level in Q3 2019. And with slight growth on reported EBITDA, the main reason for the decline is lower contribution from working capital of SEK0.8 billion.

We also pay more in interest cost this quarter as we benefited from a onetime effect in Q3 2019. We stick to the same outlook as we have provided before regarding working capital.

It will contribute less in '20 versus '19, and you should not expect the same contribution coming year as we have enjoyed during the most recent year. I would like to take the opportunity to remind you that the Q4 last year had a second repayment related to pension of around SEK400 million, and this has also SEK100 million positive effect on the Swedish EBITDA.

We have come down in leverage during the quarter, mainly as a result of the solid EBITDA generation, but also from the relatively low level of CapEx, which we have discussed before. Worth noting is that we have a drag on the leverage from FX changes on our debt portfolio and lease liabilities, mainly from the euro.

We end the quarter at a net debt-to-EBITDA of 2.55x, which is down from the reported level of 2.64x at the end of Q2. However, as this is if you accept at end of Q3, it's important to see the leverage impact from the transactions we have done, which are not yet reflected in this number.

As you know, we have made two larger transactions over the summer and autumn. First, we sold our stake in Turkcell Holding for USD 530 million.

And just a few weeks ago, we divested Telia Carrier to Polhem for SEK9.45 billion. We have not yet received the proceeds from these transactions, but should we add them, the effective tranche of dividend due later in October, plus the proposed additional dividend of SEK0.65, we are at a pro forma leverage of 2.30x compared to the reported 2.55x.

So after a period of increasing leverage following share buyback, the acquisition of GET and Bonnier Broadcasting and the impact from implementing IFRS 16, we are now deleveraging and strengthening our balance sheet to a more comfortable level. And by that, I give the word back to you, Allison.

Thanks, PC, and it's really great to have you on board. So having had another good quarter with more visibility into the balance of the year and COVID, we have updated our outlook this morning for 2020.

The impact from COVID on our EBITDA this quarter amounted to around SEK300 million in Q3, and we expect a similar impact in the fourth quarter. If you recall, we previously anticipated a quarterly SEK500 million burden.

As a consequence, we now see that our EBITDA in the second half will be stronger than in the first half and expect to reach an adjusted EBITDA of around SEK30.5 billion for the full year 2020. This EBITDA improvement will also impact our operational free cash flow, and so we believe we will end the year in the upper end of the previously stated range of SEK9.5 billion to SEK10.5 billion.

As you also know, we aim to have a leverage that supports an A- to BBB+ credit rating. This likely means a leverage of 2.25 to 2.5x.

So therefore, the current level and the anticipated proceeds from Turkcell Holding and Telia Carrier gave the Board comfort to propose to reinstall the original 2019 dividend by adding SEK0.65 per share. The second dividend payment will take place now at the end of October, and the final SEK0.65 is likely to be paid in December after the EGM, which is planned for the second of December.

So to summarize, it was another good and busy quarter, delivering ahead of our financial expectations, while we deliver on our strategic priorities. I'm particularly pleased at the continued resilience of our telco businesses and the sequential improvement in TV and Media.

While mitigating the impact on our business, I'm also hugely proud of how we continue to support society throughout the pandemic, keeping them connected, informed, educated and entertained. Our support to the elderly and the smaller, less digital end of the SME segment are great examples of Telia helping reduce the inequalities that are arising from this horrible pandemic.

And I'm delighted with the new partnerships that we're now striking with Ericsson in Sweden and Nokia in Finland to accelerate the digitalization of the Nordics and the Baltics on the back of 5G, and we are ready to move quickly on that. That being said, I'm acutely aware that commercial and therefore, top line momentum is simply not good enough relative to our cost base.

Hence, we need to get on and simplify and transform so that we can consistently and reliably improve customer experience and shareholder value going forward, too. So our short-term priorities are pretty much in line with what I said last quarter.

We need to improve customer experience. Connectivity will be upgraded, leveraging 5G and gigabit fleet broadband strength, giving us the platform for future monetization opportunity.

Convergence is key, both within our media assets in B2C and in ICT and security assets in B2B. On our cost base, we are ruthlessly scrutinizing what we do and how we operate to identify how to close the gap versus best-in-class peers.

And on capital allocation, as I showed with you on the Carrier decision, we are establishing a more rigorous approach to capital allocation going forward. My aim remains to restore Telia to a thought leader that outperforms the industry by delivering superior customer experiences, superior business results and superior shareholder returns.

And I'm very much looking forward to sharing the plans that will deliver those to you in January, alongside some of the new members of the GEM team. And on that note, I think it's now time for Q&A.

So operator, could we please have the first question?

Maurice here. So I guess a question on growth and pricing.

I mean you hinted around -- not hinted, you said you saw prices in Norway broadband in Q4. There's been all of the commentary around 5G as a price-premium potential in markets like Finland.

Just your sort of wider thoughts around the ability to drive revenue growth through price outside those two examples, I mean is 5G going to be the driver of ARPU growth and price increases, further thoughts on broadband in Sweden or Germany.

Clearly, we are investing in our networks, both mobile and fixed at the moment. And we have an ambition that once those networks are more broadly out in the population, with the appropriate handset to support the new experiences, that as the market leader, we will be trying to find some monetization opportunities to lead pricing in the market, Maurice.

But it's tricky on 5G at the moment to lead pricing when the network coverage is so limited. So that's why we're delighted that there's now no longer any delays to the 5G spectrum in Sweden.

We're delighted. We've already got plans to be in 20 Swedish cities by the end of the quarter.

And we already have the plans in place, with Ericsson as our strategic partner in Sweden, to start modernizing and upgrading the networks to give great network experiences that we can monetize fairly quickly. So that's the mobile side.

On the fixed side, clearly, there has been some delays in broadband pricing this year. Norway, you mentioned.

That was a combination of COVID and also a combination of -- we had some TV disputes in Norway, but we're ready to take broadband pricing in Norway now. Due -- Sweden, we're already taking some pricing on fiber.

But we will clearly be looking as we drive more for more, higher speeds, better coverage, better data, better entertainment packages to look for more pricing opportunities during the course of 2021.

It's Roman Arbuzov from JPMorgan. My question is on 5G rollout, Huawei and CapEx spending.

Given the announcement from the regulator yesterday about the Huawei ban and given that Telia is less exposed to Huawei than your competitors, how might this influence your thinking and 5G rollout plans? And I guess the context within which I'm asking this question is that I think the Swedish telco industry has been somewhat reluctant to really go full speed in 5G historically because of the necessary investments and also the improvement business model.

So might this kind of considerably influence your thinking and force you to go much, much faster? And what would that mean for your CapEx outlook as well for you?

The decision by PTS has no implications for our plans, yesterday, Roman. It's great that we're going to have a spectrum.

The auction kicks off on November 10, and that is planned in our forecasting for this year. As you said, we are less exposed to Huawei because our strategic partners for our mobile networks here in Sweden have been Ericsson and Nokia for many years.

And now we're announcing a unique partnership with Ericsson here in Sweden to modernize our 4G network and upgrade to 5G. So yesterday's decision has no impact on our plans, clearly, and as I've said, as we modernize our networks and upgrade to 5G, that will mean that CapEx will increase next year, but not dramatically so.

CapEx actually declined this year. And as I also said on the last -- we -- 5G brings a more efficient, higher-speed network that will, over time, bring commercial benefits for both consumers and enterprises.

And as the market leader, we aim to be at the forefront of the innovations that we take to the market and the monetization of those innovations as well.

Yes. To just continue on the CapEx side, you state that there will be a multiyear investment in the networks, ramping up in 2021.

And you also talked about network modernization in Sweden, where you've had Ericsson before. Are you still looking at swapping out the old network when you roll out 5G?

And can you give some more details in relation to how we should consider CapEx in the coming years on a group level?

Yes. Stefan, it was always in our plans to start to modernize our 4G networks and build a 5G stand-alone network.

So yes, there will be some swapping out of both Nokia and old Ericsson equipment over the coming years. We will do that in a phased way and in a sensible way.

And whilst CapEx was down this year, it will go up next year, but not dramatically so. And I'll give you -- I can't say much more than that, Stefan, because I want be able to give the full growth story alongside our fourth quarter results, and then we'll give guidance on both EBITDA development over the coming year and CapEx investments.

And now we have a very solid balance sheet with pro forma leverage of 2.3x. I think we're in a strong position to bring a growth story to you at the end of January, which also incorporates CapEx investment.

Yes. Regarding balance sheet, if I could just ask.

Yesterday, Tele2 stated that they were pragmatic relating to owning infrastructure and looking for opportunities to realize financial value. You recently divested the Carrier business.

Are you looking for more deals where you can realize value from your infrastructure ownership?

I would never comment on any further M&As, Stefan. But clearly, we have shown through the Carrier transaction that we sit on a highly valuable digital infrastructure.

And I am, of course, monitoring some of the developments that are going on in the industry at the moment regarding ownership of passive infrastructure. So it's certainly something that we're looking into.

But I would never disclose any of that directly.

I had a question around the dividend, please. It's great that you've been able to restore the original dividend proposed in 2019 of SEK2.45.

I'm just thinking going forward, should we be thinking of this as like the base level on which you discuss as you consider the dividend outlook for the future, or should we be looking at excluding the additional SEK0.65?

Well, clearly, existing policy is to return 80% of operational free cash flow to shareholders in the form of a dividend. And that was the policy for 2019.

That was pulled back a bit at the beginning of the COVID crisis. And with all of the new visibility on the business, the underlying business improving better than expectations, and the recent transactions, it's given the Board the confidence to restore that 80% of last year's operational free cash flow.

At this time, the Board has not restated that policy. We will come out in January, alongside our fourth quarter results, with whatever decision the Board take at that point in time.

All I want to say is looking forward, I would like to exclude the working capital piece from the definition going forward and look much more so at true equity free cash flow generation, excluding working capital. And that's one of the key revisions that I'll probably want talk about going forward.

But I need to take that to my Board alongside my final year results. But the policy still stands at the moment, 80% of operational free cash flow being returned to shareholders.

Great. And just a quick clarification, you highlighted the working capital being a bit slower in future years.

Can you just give a bit more color on that, please?

Yes. I can comment on that.

We have, over the last couple of years, released quite big savings from working capital. And 2019 was a very strong year.

We are still positive contribution from working capital in 2020, but it is contributing less than last year. And if you look forward, we don't expect the same positive contribution.

There are still opportunities that we will work on, both on payment terms on when we get money from our customers, inventory and so on. But there will be less effects than what we have seen in the past.

Yes. And I've got a couple of questions just on the cost base, if that's okay.

I just want to try to dig into the -- some of your programming cost a little bit. I understand when you updated the guidance back in April, you clearly had a view on what your sports programming cost would be that stage.

Sitting here today, are those sports programming costs a bit less than you thought they'd be? Have you had rebates sort of help EBITDA?

Just need to sort of understand where you're coming out for the year against what your original expectations were and how much of the TV and Media sort of upgrade is due to that phasing of costs. And then just looking at the sort of adjusted EBITDA with COVID, as you try and put that back into next year, is it really fair to say that the hit is SEK300 million?

Or are those sort of offsetting cost measures that you've been able to take that are temporary will come back? I'm thinking about travel in particular, maybe sort of particularly subdued marketing cost, just as we try and think about the numbers next year.

And just finally, on total cost. I think you said that 1/3 of the cost reduction is structural, which implies that 2/3 is not.

So can you just sort of give us some color on what the 2/3 that's not structural of the 2.9% reduction comes from in Q3?

Steve, a lot of questions in there for one question, but we'll try and get through them. I'll take the EBITDA and roaming questions and then pass over to PC on some of the cost questions.

The impacts of COVID now are roughly roaming and the depressed advertising revenues in the TV and Media segment. We're trying to isolate it to that only, of course.

There seems to be some delays in B2B project spending by some of our customers. But we're just -- we're not including that in the COVID impact because it's difficult to define whether it's COVID or whether it's just a rephasing into next year.

But the way we look at it at the moment, until travel gets back and advertisers are confident on their outlook again, I think this SEK300 million per quarter is safe to assume for Q4 and probably Q1. I don't know what will happen beyond the spring, but I think that is a fair assumption to make at this point in time.

And then clearly, if the economies change as a result of prolonged COVID, then we might see other impacts. But we don't see that today.

And I think what you -- you probably look at many international telcos. What you're seeing is the Nordics and the Baltics economies are much less affected by COVID than countries like the U.K.

and Southern Europe. So once we're out of COVID, and I do think the Nordics and Baltics economies will turn around much more rapidly and that should be very positive for our businesses and you also won't see the same economic implications on consumer spending that you might see in other markets as well.

On the cost, yes, 1/3 are structural, 1/3 are kind of COVID-related and 1/3 are marketing. I don't expect travel to go back to the way it was.

And PC, maybe you'd want to build a little bit more on that and the sport programming question.

Yes. Just quickly on the cost first.

The -- we are, of course, helped in the quarter by some costs, as I mentioned, as like traveling and also lower activity levels in some areas of our business. One of the areas where we get a positive from COVID, that cost goes away.

We are also impacted by some delays on our cost initiatives, and that is also going into the total equation. And then as I mentioned in the quarter, there are also some pacing issues.

So what we are working on now is to build an even stronger plan going forward. Make sure that we can execute on that to increase the portion of the structural cost takeout.

But we'll come back to that more when we meet in January. On the programming cost, I would say, of course, that is impacted by the COVID situation.

Some delays, some movements between quarters this year, some shifts into next year and also some cancellations that happened. So -- but in general, there are no major changes on the total cost structure.

I just had a question on Swedish costs into Q4. Just maybe get some more detail on the thinking behind the increased marketing spend you're expecting in Q4.

And why do you feel the need to spend that? And in which particular areas of the Swedish market segments will you be allocating those costs to?

That would be great.

Yes, there -- how we're thinking about marketing, we have been underspending relative to competition and relative to our market share, probably for the last two quarters. But we've got a lot to shout about now, and we want to market that, both 5G being more broadly available across Sweden and our new TV packages as well and really establishing that collect more from Telia as a campaign.

Also, the Swedes are one of the biggest per capita iPhone lovers in the world. And clearly, we want to take advantage of the new iPhone 12 that has been launched now.

And certainly, presales are very high. So there's good commercial and product reasons for us to be increasing our marketing in the fourth quarter.

And just as a follow-up, is the intention to actually take a bit of share in the fourth quarter? I know it's probably a bit quite a short-term question.

Or was it just that there's no...

We -- it's very much focused on pushing convergence and having more converged customers that, as you know, are more loyal and tend to be more premium in nature as well. And it's also to commercialize 5G and prepare for improved customer perception on that product, so we can look at pricing into the future behind that.

So that's very much at the premium end of the market that we're investing in our marketing because others have been investing more than us in recent quarters.

I had a question on growth actually. And Allison, you mentioned it in relation to some of your network investment.

So the specific question was on the scope for Swedish growth over the next year or two. You summarized it earlier on in the presentation as mobile, okay; broadband and TV, stable.

I just wondered about your legacy headwinds. What are you seeing there?

Do these continue as usual? And what's the outlook for those to maybe allow you to grow in Sweden for the first time in a while?

Yes. Well, if I recall, I think they were -- we were aiming to get back to growth in Sweden this year, but COVID killed that.

So that is certainly our ambition once we're out of COVID, Andrew, to get back to growth. We've now lapped all of the big price increases we took in 2019.

So it's time for us to be looking at the next round of pricing as well. Hence, why we're investing in our network, we're investing in content and we're investing in good customer experiences so that we'll get a good basis to price from going forward.

But the Swedish team are desperate to get back to top line growth and let's discuss that further when we're together in January.

Just a quick one on content differentiation, please, Allison. What exactly do you mean by that for Sweden, please?

I know we've seen some C More discounts creeping into Finland for mobile subs. So is it something, rather than thinking of big price increases on broadband, would you actually be starting to think about discounting content heavily to try and get the Swedish share up?

Because you've got a problem there as broadband matures and pushes over to fiber. So could you mention what this differentiation and how you might push content?

And then secondly, if you are discounting the content, where would that discount come? Would it come in the Swedish business, for example, or back in TV and Media EBITDA?

We have a more-for-more strategy. So content differentiation is not going to be about just giving away content for a bit cheaper, it's about being able to aggregate all of the best content and be giving unique experiences that perhaps other operators or other TV platforms won't be able to offer, and then looking at how we combine that with our great network.

So I think that I'd rather look at some of the clever things that we are doing around second-screen experiences, deep 5G immersive experiences that they're able to do for their customers that nobody else will be able to get, and that's what we are aiming to do with some of the sports propositions that we bring into the market later in 2021. It's not about discount.

Discounting might buy as a bit of customer base over the short term, but over the long term, it will be much more about unique content and unique experiences that build on both of our network technologies and our unique entertainment assets.

Two quick questions, please. Firstly, Allison, much talk about the network modernization, et cetera.

Can I just ask, is this purely related to the mobile networks in the Nordic area? Or are you also seeing modernization and improvements in other areas of the network?

And then can I just ask, Allison, you're doing well on the OpEx side also in Sweden. The whole transformation program, I believe this year was supposed to be quite crucial, the transformation, the move to new IT systems.

We haven't heard that much about it. Has that progressed in line with plans?

Or are you running perhaps slightly behind schedule here? An update here would be useful.

Thank you, Peter. Thanks for the questions.

In terms of network modernization, we're focused on mobile only at the moment. Yes, we've still got results from 3.1 upgrade going on in Norway, but that was already in those plans.

So it's very much a mobile 4G modernization that we're talking about and 5G upgrades. In terms of OpEx, yes, the short-term benefits that we expected from the IT consolidation work is still delivering, and delivering to plan.

So I think since the launch of that program, it's been something like SEK260 million benefits generated cumulatively. The transformation program is going to look way beyond IT though, and it's going to be looking throughout our organization, particularly looking at group costs.

Some of the archaic systems and processes that support our operations and really building up towards creating a much more digital telco of the future. Much more agile, much more nimble, and that's why I brought in Rainer Deutschmann from his Reliance Jio experiences.

And he's now being complemented by a Head of Transformation that comes from Hutchison, which, as you know, is very good at running low-cost agile operations with a customer experience focus.

I just want to get back to your commentary about Q4 costs being higher in Sweden. I know obviously you'll talk more about 2021 in January, but obviously, I guess, the reposition back towards more convergence and growth takes a bit of time.

Should we, therefore, view these higher marketing costs and customer care cost as recurring a bit more beyond Q4 as well as anything you'd be able to say on that?

I think let's just focus on Q4 at the moment, Keval. As I said, there are specific reasons why we're increasing the marketing in the quarter.

Because we've got new 5G coverage to show about with the new TV packages to show about, and we have -- we really want to drive the more for more. So we do expect it to be revenue-generating marketing and we'll only invest further into the fourth -- into next year in that if it proves to be turning around the top line momentum of the business.

So that's all I'd like to say at the moment. As I also said in one of the earlier questions, we need to get Sweden back to growth again.

And some of that growth will be driven by changing the brand perception and reestablishing ourselves as the network leader so that we can drive a premium experience and drive pricing in the marketplace.

Thank you, Keval, and thank you, everyone, for participating. I know that there are more questions in line, but please reach out to either me or Anders during the day, and we will take care of those.

And by that, we conclude the Q3 2020 Telia Company presentation. Thanks a lot.