TLTZF - Tele2 AB (publ) (TLTZF) Q3 2023 Earnings Call Transcript

2023-10-18 11:10:23 ET

Tele2 AB (publ) (TLTZF)

Q3 2023 Earnings Conference Call

October 18, 2023 04:00 AM ET

Company Participants

Kjell Johnsen - President & Group CEO

Charlotte Hansson - Executive VP & Group CFO

Hendrik De Groot - Executive VP & Chief Commercial Officer

Stefan Trampus - Executive Vice President

Conference Call Participants

Andrew Lee - Goldman Sachs

Jakob Bluestone - Exane BNP Paribas

Oscar Rönnkvist - ABG Sundal Collier

Maurice Patrick - Barclays Capital

Stefan Gauffin - DNB

Ondrej Cabejsek - UBS

Nick Lyall - Societe Generale

Siyi He - Citi

Fredrik Lithell - Handelsbanken Capital Markets

Erik Lindholm-Röjestål - SEB Enskilda

Adam Fox-Rumley - HSBC

Presentation

Operator

Good day, and thank you for standing by. Welcome to the Tele2 Q3 Interim Report 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Kjell Johnsen, CEO. Please go ahead.

Kjell Johnsen

Yes. Thank you very much, operator. Good morning, everyone and welcome to Tele2's report call for the third quarter of 2023. With me here in Kista today, I have Charlotte Hansson, our Group CFO; Hendrik De Groot, our Chief Commercial Officer; Stefan Trampus, our Head of B2B.

And then let's just move to the Slide 2. I'm very happy to see that our firm focus on top line growth once again paid off in the third quarter, which marks the 10th consecutive quarter of organic end-user service revenue growth for Tele2. When it comes to EBITDAaL growth, we’ve previously talked about the backend loaded 2023 due to phasing of back-book pricing, abating content cost headwinds and lower energy costs.

In the third quarter, we grew organic EBITDAaL by 3% admittedly supported by lower energy costs year-over-year. We are nevertheless optimistic about prospects to grow EBITDAaL meaningfully also in Q4, where we don't foresee any major year-over-year movements on energy costs. We're also happy about our strong cash generation in the third quarter.

Another important milestone was a favorable outcome of the Swedish spectrum auction where we secured spectrum in all the upper bands at reasonable costs. We [technical difficulty] well below the lower end of our target range. On a pro forma basis, including the second ordinary dividend tranche and the first installment of the spectrum, we're still only at 2.6x.

In the third quarter, we demonstrated innovation in our customer broadband segment. As we launched a broadband connection guarantee where we link our fixed and mobile connectivity for superior reliability and consequently high customer value based on our FMC capabilities.

In addition, we're very pleased to see positive developments in customer loyalty and churn for the Tele2 brand in Sweden, as we gradually moving away from various legacy limitations. In terms of sustainability, Tele2 was recently awarded for the most transparent sustainability reporting on Stockholm OMX Large Cap.

So with that, let's move to Page 3. So end-user service revenue grew by 3% organically driven by the Baltics and Sweden B2B. Underlying EBITDAaL grew by 3% as end-user service revenue growth, transformation savings and lower energy costs more than offset inflationary pressures.

We had a very strong equity free cash flow this quarter. The main driver for the year-over-year improvement was a significantly better working capital, followed by good growth in EBITDAaL. In Sweden B2C, we saw solid net impact of mobile postpaid and fixed broadband. End-user service revenue continue to grow slightly with increasing growth rates in fixed broadband and mobile postpaid, partly offset by increasing legacy headwinds.

Back-book pricing will contribute somewhat more in Q4 [technical difficulty] the full run rate. Sweden B2B delivered continued solid and broad based end-user service growth as growth in mobile end solutions continued to exceed decline in fixed legacy services. Our Baltic operations delivered yet another impressive quarter both in terms of top line and bottom line growth, and we continue to roll out 5G at high pace across our markets.

Let's move on to Swedish consumer on Slide 5. The overall consumer telecom market is demonstrating resilience in the face of inflationary pressure. Our mobile postpaid business saw solid net impact driven by the Tele2 brands, including family subscription. ASPU was flat year-over-year, but grew by a low single-digit when excluding dilution from free mobile broadband RGUs. In fixed broadband, we saw continued good RGU growth driven by FMC and lower churn alongside healthy ASPU growth supported by pricing. Our digital TV, cable and fiber business remain stable in the corner.

And then moving to Page 6. Mobile end-user service revenue grew slightly driven by somewhat improving postpaid growth, which more than offset another full quarter of prepaid registration effects. In fixed broadband, end-user service revenue growth reached 7%, thanks to both volume and a few growth. End-user service revenue for digital TV declined by 3% with largely stable face in cable and fiber and continue to decline in the legacy B2B business.

And then moving to B2B. We continue to execute on our successful B2B strategy and all customer segments are contributing to the solid end-user service revenue growth of 4%. Again, our growth area exceeded the decline in legacy services where our corporate decommissioning has approached 80% completion rate.

Mobile net intake amount of 4,000 RGUs in a seasonally slow Q3. Of two were slightly up year-over-year. The macroeconomic situation which we continue to monitor closely is affecting some of our customer groups more than others, but so far without significant impact on our business.

During the quarter, we have reclassified some RGUs previously reported in mobile to IoT subscriptions, which has led to a reduction in mobile RGUs and an increase in mobile after excluding IoT. The reclassification has also been done retroactively. The updated stated historical numbers are available in our Q3 excel file on the web.

And then let's move to Slide 8. So for Sweden, overall, end-user service revenue growth for the talk in Swedish operations ended up 2%, driven by continued solid performance in B2B and slightly improving performance in B2C. International roaming had a positive effect of SEK8 million year-over-year.

Underlying EBITDAaL declined by 1%, as higher end-user service revenue continued transformation benefit and lower energy costs were more than offset by inflationary pressures and continued margin pressure from product mix changes as legacy services decline. Nevertheless, Q3 marks a clear improvement versus the previous couple of quarters. The cash conversion of 58% is reflecting group CapEx to sales of 14% during the last 12 months.

And then let's move to Baltics. The total number of Baltic mobile postpaid customers continued to increase in the quarter. Organic ASPU continue to grow at a healthy rate across markets. Thanks to our more for more strategy, price adjustments, and to some extent, prepaid to postpaid migrations.

And turning to the financials on next page. The overall volume and after growth generated a solid 9% organic end-user service revenue growth for the Baltics. Our top line, combined with lower energy costs has outpaced other inflationary pressures leading to a strong 15% organic growth in underlying EBITDAaL. Cash conversion remains at very high levels, thanks to strong underlying EBITDAaL despite continued significant CapEx run rates due to ongoing 5G rollouts.

And with that, I hand over to Charlotte for financials.

Charlotte Hansson

Thank you, Kjell, and good morning, everyone. Please turn to Page 13. First, a few comments on the Group P&L. In Q3, total revenue was flat organically whereas end-user service revenue grew slightly more than 3%. Our underlying EBITDA grew by 6% in SEK terms, while close to 4% organically. The underlying EBITDAaL grew by close to 3% organically as end-user service revenue growth, cost savings related to the finalized business transformation program and lower energy costs more than offset inflationary pressures and continued margin pressure from product mix changes as legacy services declined.

In Q3, we had SEK64 million tailwind from energy year-on-year, which included a final SEK25 million electricity support in Sweden. For Q4, we currently estimate a slight headwind from energy costs year-on-year. In Q3, we saw revenue increase of SEK11 million from international roaming year-on-year [technical difficulty] the same year-on-year increase as in Q2.

As you can see on the slide, our net financial items increased by SEK100 million year-on-year due to high interest rates both on loans and leases. And by Q3 we had a debt mix of 66% fixed rate and 34% floating rate. And with that follows that for every 1 percentage points rate hike by our Central Bank, our annualized financial expenses on loans increased by around SEK100 million.

So let's look at the cash flow on Slide 14. CapEx paid was slightly lower in Q3 compared to last year simply due to timing as our balance sheet CapEx was significantly higher than last year. Working capital continued to improve in Q3. It was mainly impacted by unusually high levels of accounts payable, which we expect to revert in Q4. And working capital remains the priority for us also going forward.

Net financial items paid increased due to high interest rates both on loans and leases. All in all, our equity free cash flow for Q3 ended as a strong SEK1.9 billion, some SEK500 million above last year's level. And over the last 12 months, we have generated SEK4.6 billion of equity free cash flow corresponding to SEK6.7 per share.

Please move to Slide 15 for [technical difficulty]. At the end of September, economic net debt amounted to SEK23.9 billion, representing a SEK1.8 billion decrease as compared to year end when it's going to do, despite the pay out or the first tranche of ordinary dividends. Leverage stood at 2.3x at the end of September, which is well below the lower end of our target range of 2.5x and 3x.

And as Kjell mentioned earlier, on a pro forma basis, including the second ordinary dividend tranche and the first installment of the spectrum, we're still only at 2.6x. The second tranche of the ordinary dividend was paid last week, and the first tranche of the spectrum will be paid later this month.

So let's move to Slide 16 for our financial outlook. Following the first 9 months of 2023, which has generated just 4% organic end-user service revenue growth and 1% organic underlying EBITDAaL growth, we reiterate our financial guidance for 2023 and our mid-term ambition. When it comes to this year's guidance, I'll just repeat what Kjell said earlier. We are optimistic about prospects to grow EBITDAaL meaningfully also in Q4.

We don't foresee any major year-over-year movements on energy costs. And our CapEx guidance to sales '24, '23 is below 14% and we are at 30% so far this year, year-to-date. Finally, in line with our standard practice, we will announce our 2024 financial guidance in relation to the full year 2023 results.

And with that, I handover to Kjell, to go through our key priorities going forward.

Kjell Johnsen

Thank you very much, Charlotte, and then let's turn to Slide 17. So in summary, our main objective remains to keep up our growth momentum, which in turn requires us to continue building 5G and [indiscernible] and to finalize the digital transformation, including our digital customer journeys. Our efficient cash flow profile and strong balance sheet allows for healthy shareholder remuneration while investing. We will also continue to lead in sustainability suggested by several reasons, impressive recognition.

So with that, I'd say thank you for this prepared statements. And then of course turn it over to the operator.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take the first question. One moment please -- from the line of Andrew Lee from Goldman Sachs. Please go ahead.

Andrew Lee

Good morning, Kjell and Charlotte. I had two questions. Firstly on Swedish EBITDAaL growth and then secondly on the dividend. On the Swedish EBITDAaL growth, you delivered your end-user service revenue growth of 2%. And most telcos would then expect to see higher EBITDAaL growth than that. You're still seeing declines and we will acknowledge it's been a turbulent year for costs given content, energy, et cetera.

But it's really difficult for investors to understand how to think about operational gearing. In 2024 and structurally going forward or as one investor put it, what's going on under the hood in terms of costs. So the question is like, should we expect operational gearing in Sweden, i.e. EBITDAaL growth greater than service revenue growth in 2024. And if not, why not?

And then the second question was just on dividend. Clearly as Charlotte you picked out, there's a phasing boost to free cash flow this quarter. But how confident are you in free cash flow coverage for your dividend plans going forward? Thank you.

Kjell Johnsen

So I can start on the second one. So based on what we see now, we are pretty confident about the ability to continue with shareholder remuneration, I mean, the dividend, that there's nothing in the model that shouldn't give us the opportunity to be a strong provider of shareholder remuneration. Even in these relatively turbulent times with high inflation, you can see that while it can be fluctuations quarter-over-quarter, we're still delivering a cash flow that supports the -- a high-level of investment in the business as well as the CapEx and the dividend, the payment for the spectrum that is also coming this month, this October. So I think that's a pretty strong position we're in. And I do think that there was some uncertainty about it, one, quarterback, because we said that we will invest to meet our regulatory obligations in 2024 and '25. And that is now behind us in my view.

And then we can take different steps at the EBITDA versus revenue development. I think Hendrik and the team have done a big job on moving pricing, in particular, in the broadband area, we're starting to see more and more effective that in the third, and also even more in the fourth quarter coming in. So that area, I think, on the broadband side is pretty strong. And we are lifting pricing, we're doing very well in terms of developing the two brands with lower churn and loyalty. And that's going to be important for us to continue having operational leverage. So lots of things coming in at the same time with high activity level as well as the inflation. And of course, the effects coming in now at the tail end of the year. That's why you haven't seen the operational level -- leverage up to now. Do you want to add?

Charlotte Hansson

Just add, when it comes to the content, as we talked about contents and [indiscernible] now, it's been annualized as well. So we don't see that headwind going forward. And but of course, we do have some of the legacy product still with us. But on the other hand, we're also looking at what we've talked about many times as well how we can really make things more efficient and talking about the expansion costs as well. If there are other ways that we can actually handle this with the transformation that we're now doing. So in that sense, we are optimistic for the future. So maybe Hendrik want to add something or ….

Andrew Lee

Can I just can ask a quick follow-up or just on that question, then see, you've got high activity levels and inflation continue kind of drags on margins. But -- and legacy is not -- headwind is not going away. So those are the negatives. And then the positives are your revenues are growing. And increasingly, so it seems, plus you've got efficiencies. So how does that the positives outweigh the negatives for 2024 or [indiscernible] you may not want to answer, answer specifically for 2024. But should we be seeing operation, operational gearing, EBITDA growth higher than revenue growth shortly? Or should we expect that on a medium term basis?

Kjell Johnsen

So like Charlotte said on page 16, we will come with the guidance, of course in February. But I think it's important to look at what are the -- some of the drivers in the market. When you looked at the numbers, you'll see that things are moving very well on the broadband arena. If I should comment on what's happening in the mobile side, then by my case, there is too much activity around external retail, we're going to work ourselves out of that. And we do see signs that customers are more interested in convergence solutions. There is, I think, a secular trend towards that. That's going to be with us for several years. And we need to make sure that that happens in a smooth way because feeding external retail is just dragging up costs and not necessarily even promoting customer loyalty. So there are some parts of the model in the Swedish market that we need to work ourselves out of as one of the leading operators in the market. That's going to be an important element going forward.

Andrew Lee

Okay, thank you.

Operator

Thank you. We will now take the next question from the line of Jakob Bluestone from Exane BNP Paribas. Go ahead.

Jakob Bluestone

Hi, good morning. Thanks for taking the questions. I've got two questions as well. Firstly, I was wondering if you could maybe comment a little bit on the outcome of the spectrum auction and how that impacted any parts of your thinking [indiscernible] just over a 100 megahertz of spectrum. Was that more or less than you expected? And how should we think about your CapEx as a result of that? And also, the cost itself was perhaps a little lower than perhaps expected, does that maybe give you a bit more confidence around the cash returns that you're just talking about? And then secondly, a question just around your cash flow. You highlighted that you had lower or unusually high levels of accounts payable, which was what boosted your working capital. Could you maybe just give us a sense of how much of a reversal should we see from that? And also, there's a gap between your CapEx page and your CapEx booked. So again, is that something that's going to reverse in Q4? So just to help us understand a little bit more what's going on in terms of some of the cash flow items? Thank you.

Kjell Johnsen

Yes. I can take the first one and then Charlotte the other two maybe. So on the spectrum, we landed where we expected. That's a very short summary of it. And we got very good spectrum, both in mid band and in the 900. And then of course, you can always ask a question. So why is this what you expected? Well, it's very simple. Because today, if you look at how we're building our networks, we are using 2x 10 and 900 to build 4G and 5G. We're using 5 for 3G and 5 for 2G and we're going to close down 2G and 3G. So that's how it's going to work. And then you have to see in the context of that we also have other spectrum, low band 700, which was acquired at a much higher price some years ago, 700, 800. So the portfolio is good. And when we make our CapEx plans, this is fully aligned what we had expected to do. So that's pretty much stuck on spectrum. I think the pricing shows that there was a fairly rational approach to it. So I think it's where we expect it to be [indiscernible].

Charlotte Hansson

Yes, so then just a comment on the cash flow. And as we highlighted also here initially, that the accounts payable are unusually high, and we are expecting them to revert to some extent. It's always difficult to say exactly how much, but we are expecting somewhere in the region of a couple of hundreds. And so that’s -- this is what we see right now anyway. When it comes to the CapEx page, what we book is always the amount of work that we've done. And then that's not always in line with the payments, of course. So we expected to pay more in Q4 out of that. I think that's the normal procedure and when it comes to the accounting [indiscernible].

Jakob Bluestone

Thank you.

Operator

Thank you. We will now take the next question from the line of Oscar Rönnkvist from ABG Sundal Collier. Please go ahead.

Oscar Rönnkvist

Thanks. Good morning, Kjell and Charlotte. Thanks for taking my questions. So just as the first one, I just wanted to get a sense of Sweden. Sweden certainly improved sequentially in terms of organic EBITDA growth, but just can you remind us of the year-over-year comps in Q4? The energy would be a slight headwind year-over-year coming from a tailwind now in Q3, obviously. And you also mentioned something on the content cost headwind, and if that is completely gone. If you could share some comments on that. Thank you.

Charlotte Hansson

Yes, I can talk to that. When it comes to the energy there will be a slight tailwind and in power in the region that we've seen in the previous quarters for Q1, Q2. So that's what we're expecting. It's only a headwind with that we're having here in Q3. When it comes to the content costs, I mentioned that it will now be fully annualized in Q4. So we don't see any impact from that in this year, in Q4.

Oscar Rönnkvist

Perfect. Thank you. Then just my second question would be on where you are on the price increases, because obviously it was pretty high activity in the quarter. But just can you remind us on where you are on the price increases, and if we should expect the further support in Q4? Thanks.

Hendrik De Groot

Yes, Oscar, its Hendrik. I can take that question. As you've seen on our broadband services, most of the price increases are in the result as we speak. And we've also alluded to that in earlier calls, so that's -- that most of that was executed on -- in Q2. The mobile price increases are following, running in parallel but following a little bit. So some of those price increases are in the third quarter. But you'll see the four components coming in on the fourth quarter. So there's still a bit to come. And in particular, just to highlight mobile price increases are executed across our two brands, Tele2 and Comviq and Tele2 was done earlier with back book price increase or a new portfolio and for Comviq we've introduced for September a new front book, and we're also doing back book to front book on Comviq for part of the customer base that is not in a binding contract. So that's -- that will come through in the fourth quarter.

Oscar Rönnkvist

Understood. Thank you very much. That’s all for me.

Operator

Thank you. We will now take the next question from the line of Maurice Patrick from Barclays. Please go ahead.

Q - Maurice Patrick

Yes. Hi, guys. Hopefully you can hear me okay. Kjell, I mean, thank you for the comments on pricing that you just made. I was just curious to understand a bit more around customer reactions, the price increases you are generally putting through, are you seeing increases in share when that happens? Are you driving sort of greater [indiscernible] and is complaining, what's your customer reaction to the price increases? Maybe it's becoming a norm getting wider inflation, very helpful. Thank you.

Kjell Johnsen

Yes, Maurice. On pricing, customer reactions indeed, as you say, we do pricing, of course, on a regular basis, although one could say this year given of course, also inflationary pressures and the overall situation in the market with our pricing has been more substantial. We, of course, always see that the customers do react. Now in relation to the level of price increases that we have not seen any more deeper reactions from the customers, in general. So it has been pretty much in line with what we normally expect to see. In that sense, therefore, you would -- it's a positive. And what's also quite interesting, actually, is that across our services, and in particular, also on the fixed side, we’ve seen actually that although we've done the pricing, but we have the situation in the market where people are more careful. But -- and also more careful with making switches that we've seen actually churn being lower versus previous years. So we have a bit more of a higher pricing activity comes in the end with a lower churn. And that's sort of quite interesting in the end, but of course, there's always pricing reaction on the customer base.

Q - Maurice Patrick

Great. If I can just ask a quick follow-up, I think in the past you've talked about the strategy to narrow the discounts in pricing to Telia and the investment that's been needed in the brand to and the network to get. I just wonder what your current thinking on that is? Thank you.

Kjell Johnsen

Sure. That's a trajectory we're definitely on. And over the last period, I mean, 1 or 2 years, we have subsequently done a lot around the discounting mechanics. One on the ATL side, but also on BTL and Safe desk [ph]. So we have basically been raising -- rising the floor in terms of the Safe desk discounts that we're giving. And as you probably have seen in the market, we've also been raising the campaign price levels. We of course, are always -- we always need to balance what we do in the market in a four player market. And also this year we see that, in particular, on the lower end of the market there's quite a lot of, I would say, campaign activity, of course, attending to a customer segment of this in search of valuable deals. So it is a [technical difficulty] but it's clearly that we are driving a value agenda.

Q - Maurice Patrick

That's great. Thank you.

Operator

Thank you. We will now take the next question from the line of Stefan Gauffin from DNB. Please go ahead.

Stefan Gauffin

Yes. Hello, and thanks for taking my questions. I'm following up on Maurice's question. So despite high inflationary environment, you have continued to report very solid revenue growth in the Baltics. And this is primarily driven by [indiscernible] the growth. But in the report you mentioned there is some pressure on the consumer now due to inflation and interest rate increases. So do you continue to see support for further price increases coming into 2024 in the Baltics? And then the second question, just noticing that you're reporting an EBITDA decline in Estonia. And I'm a bit surprised by that, given that you should have seen rather strong tailwind from lower energy cost in the quarter. So could you please explain why you're seeing pressure on the EBITDA margin in Estonia.

Kjell Johnsen

So let's just overall talk a bit about the Baltics. And -- we are very pleased, of course, with the overall numbers. We see the effect still being there somewhat of the price increases in Latvia that they did twice last year. And, of course, [indiscernible] doing a really good job here. And that comes through both at top line and at EBITDA clearly helped by energy costs. And I've been saying to you for the last year and a half, 2 years that, of course, we cannot expect these kinds of growth rates to go on in perpetuity. So we will have growth in the Baltics overall. But, of course, the numbers that we've seen over the last couple of quarters have been outstanding. So that's kind of -- and [indiscernible] Estonia numbers.

Charlotte Hansson

Yes, we talked about the energy in Estonia, but we don't really see a tailwind there because we do, remember, we had a lot of hedges in Estonia that ran out earlier this year and this is very favorable. I think that's one of the main explanation.

Stefan Gauffin

Okay. That's perfect. Thank you.

Operator

Thank you. We will now take the next question from the line of Ondrej Cabejsek from UBS. Please go ahead.

Ondrej Cabejsek

Hi. Thank you for the presentation and taking my questions. So I wanted to pull up on the auction. First question is, you were basically going into the auction with the lowest kind of megahertz per subscriber ratio in the market, but your stated goal as well as [indiscernible] to become the 5G leader in Sweden. I think part of the reason why the auction turned out to be very rational is that you lost some megahertz in the end compared to the previous days. So I was just wondering how the approach to just voluntarily I guess, losing I think it was 14 megahertz of spectrum reconciled with the kind of longer term strategy of being -- medium term strategy of being the 5G leader in Sweden. That's one question.

And then perhaps on your net debt to EBITDA ratio. So you have received -- previously you had [indiscernible] 2.7, 2.8. Now the guidance is to be at the very low end of the 2.5x to 3x. I was wondering with taking into consideration things like CapEx sales implicitly being higher than before, at least for the medium term. Interest rates impacting the cash flow as well. And the fact that I think the previous ratio was constructed with the assumption that from this year onwards you're going to be getting the Netherlands dividend. If you're firmly kind of committed to just being at a very low end, is there a situation in which we see the ratio move down by 3.2 range overall or can we expect 2.5 as a target, but still having that ratio for the medium term. Thank you.

Kjell Johnsen

On this the policy on that is what it is until it's communicated in any kind of different ways. So it's 2.5 to 3, but we were very, very clear that after selling in Netherlands, it would be likely that we over an extended period of time would go beyond 2.8. And if we would do that, it will probably be because we will require something that would be accretive to EBITDA give us a cash flow. So we're not changing anything here. But I think it has been very prudent for us to be in the lower end, so that we came into the auction with and coming into this period of uncertainty with a strong balance sheet, and now it is as strong as it's ever been. That gives us strategic flexibility. If there's anything -- if there's something that we think is really a good thing to do [technical difficulty] in terms of building shareholder value in the medium and longer term, then we have the flexibility to do that.

I'm not saying to you that we will always be at the lower end of it, of course. Now when we pay the dividend and the spectrum like we have said pro forma we would have 2.6. We still have some headroom. And I think that means that many of our shareholders who are very keen to have a stable dividend that they can rely on, are happy to see us not being completely at the upper end, especially in turbulent times like this. So I think we're trying to find that balance in a good way. And the evidence that we have in front of us now kind of indicates that it works well. And yes, the 5G leaders, ambition is definitely there. And that goes to the strengthening of the model because we are now running a geo split with [indiscernible] in Net4Mobility. That's manageable complexity, we're okay with that. It's divided into four areas. In addition, we run Sunab with Telia, which is the 3G network, which is a completely different setup. And the one part that we don't speak very often about, we speak about 5G radio station, we talk about spectrum, where we're also doing a massive upgrade of our entire core, which is going to be the newest core in the markets.

So when we come out of this, we will have the scale efficiency of having everything in one network, we will have a brand new core that we can use in the markets. And of course, every single base station will be new. That is not necessarily the case for our main competitor. So we have an opportunity to build that position. And I am very confident that within the framework that we have outlined to shareholders and more than everyone, we have the opportunity to build that network.

The spectrum that we have bought, is enough for us. We have 700, 800, 900. We have mid band, we have a full package of C band. And we have already reached more than well over 40% coverage only in C band. So the user experience is really, really good. And I would like to say one thing to you that people often misunderstand. They look at tests that can be even very good test, like open signals and others. And then they see who's got the fastest download speeds, I think that's automatically the best one. No, it's not always. So it can be the one who is not using 5G for what it should be, a broadband product where you differentiate on speed. So if you want to throw out all the goodies, then you can be good in a measurement like that. What we are doing is that we are monetizing, 5G. And if you go and buy the subscription with us, that gives you the full speed, you will get the best view in the market.

Ondrej Cabejsek

Thank you, Kjell. I have one follow-up on the leverage ratio, maybe ask a different way, under what circumstances would you be comfortable and getting back to the 2.7, 2.8? Is that purely macro driven, or what’s kind of bottom up things have been changing? So in terms of for example, the cutbacks coming down to 10% or EBITDA reaccelerating from a single-digit? Or is it a combination of both the macro and kind of the bottom up? Thank you.

Kjell Johnsen

I think the most likely scenario would be if we do some kind of not to being bolt on acquisition that generates an EBITDA and cash flow that we temporarily would increase. So I guess we're not switching over to ask me about extraordinary. So we can leave that for now. So first of all, we want to be very stable in terms of people's expectations for dividends. And then of course, we can be -- we can from time to time look at things that can develop our business further. That doesn't have to be CapEx.

Ondrej Cabejsek

Thank you. And because you keeps talking about M&A, is there something in particular? So one final question is something in particular that you are kind of referring to be it. I know, cybersecurity or anything like that would be kind of bolt on that you were referring to?

Kjell Johnsen

And I should -- I've been saying this, maybe not the last couple of quarters. But for over the last 2.5, 3 years, we've had this question very often. Is there anything we were thinking about doing and we said that if we would do something, you'd probably be in the broadband area that could also be in the Baltics. If we -- in the Baltics we are primarily a mobile centric operator that deliver services. If we see options there or in Sweden, that helps us in becoming a converged player, an FMC leader in either of these markets. That is something that fits to our profile. But that's all I'm saying. It's the same thing I've been saying for many quarters before.

Ondrej Cabejsek

Got it. Thank you very much.

Operator

Thank you. We will now take the next question from the line of Nick Lyall from Societe Generale. Please go ahead.

Nick Lyall

Yes, good morning, guys. This is Nick at [indiscernible]. Can I just ask one on postpaid ARPU, please. I mean Hendrik's made some comments on pricing already. But why is it would the price rise is going through over the last couple of quarters, that postpaid are pretty still, so weak. I mean, is there any other factors in there? For example, economic comments you've mentioned, that is there any spin down because it doesn't seem that people are spinning down brands given you comments on Tele3 churn being so solid? Or is it may be that the low end of the market pricing is affecting you a bit more in the blended ASPU number than we can see. Could you maybe give us a little bit of a sort of talk through as to why the postpaid ARPU numbers not responding maybe in the way it should be, or maybe the way we expected, given some of the price rises, please. Thank you.

Hendrik De Groot

Yes, Nick, happy to do that. If you look at the postpaid ARPU, I think the first one is the commentary also made in the presentation. And that is that we have over the last year, we have launched a broadband product that we launched together with a mobile backup. And that Mobile Backup was delivered through an MBB and we zero rated at MBB. And this was basically a precursor to the product that we've just launched now, at the end of the summer, with the connection guarantee whereby we basically truly converge fixed and mobile networking into the router of the consumer. And with that the mobile component is still there, but it doesn't become a reported RGU, which is basically a product component. And that's the first -- so over the last year, we have, let's say, this free MBB sort of into the mix, and they have been suppressing the ASPU a little bit. And if you take over the last quarter, we said low single-digit, but with the pricing coming in, if you exclude the MBB component, this was a SEK4 or 2% difference. On the [indiscernible] just give you a little bit of color. And that I think is -- and that will now abate because we have now launched of course, the full product that we've always envisaged. And therefore, the free MBB components will sort of unwind over next period. I think that's a big one.

The second item to just maybe highlight is that we have on the pricing as we said before, you can see on the broadband that the four component of pricing is in also in the ASPU and that the mobile pricing sort of rolls out over Q3 and Q4. So there's still an element of pricing for this year to come in, so that’s a second element that is still sort of, I think underlying building the ASPU to get not fully seen all the effects. And I think thirdly, just to mention is that when you look at pricing and our ASPU you need to look at it across two brands, as you mentioned, and also across the mix of the composition of the services. So we have seen very good traction on our unlimited portfolio. And as you know, we're keeping -- we're holding the price point. So 399 is the price point in the market as Kjell said. We [indiscernible] in 5G.

And we also are very successful with combine it in an FMC context. So which means that it's quite an attractive proposition in the market to combine our unlimited proposition in the context of 5G with family. And we've seen that there's quite a lot of demand on family and family comes in at a little bit of a lower ASPU. So whilst that's helping the volume, it of course it doesn't come at the full, let's say in at the full ASPU. So this would be I think three components to just highlight what's happening with the ASPU. Underlying again there's absolute growth in there. I think the main factor is the free MBB here, not all the pricing is in yet and we see a very good traction on our unlimited portfolio with 50% plus of our total Tele2 base now on unlimited price plans and then with family.

Nick Lyall

Great. Thanks, Hendrik. So it doesn't sound like too much to worry about the comments about the low end of the market directly affecting the ASPU is the other factors at the moment that you should be thinking about first.

Hendrik De Groot

Yes, you're right. So we did launch the new price book on Comviq also to just see what's happening in the market. We see of course and you can just look on the web who is doing what in terms of campaigns but there's a lot of on the no frills site, a lot of very aggressive down spinning, I would say into the campaign pricing. I don't see that affecting us directly. Comviq is a, I would say, a sort of premium sub brand. So we do have a way more stable customer base. But to make sure that we're not getting too much damage on the very low end, we -- with the new portfolio and to introduce also a new SEK110 price point in the market just to make sure that we are in place still at the very low end of the market. But for now, I think we're good. I think the main thing that we are a little bit seeing in the market is you can see the total operating revenues is that the handset market is still down by a factor of 15% to 20% in the third quarter. Customers are a little bit more mindful of their purchases. That's one side.

But then of course, if you look at the iPhone launch, we've seen a rebound again. So it's interesting to see if the market is mindful -- is careful. But if the right thing does come along like the new iPhone, then there is a pent up demand again. So that's, I think, sort of the lay of the land a little bit, Nick.

Nick Lyall

Great. Thanks, Hendrik. Thanks very much.

Operator

Thank you. We will now take the next question from the line of Siyi He from Citi. Please go ahead.

Siyi He

Hello. Hi. Good morning. Thank you for taking my questions. I have two, please. And the first question is on the Swedish B2B mobile. We've seen that the net adds mobile has been coming down over the last few quarters and also it's below the previous year's run rate. So I wondering if you can talk about the competitive environment in the Swedish B2B market, because it seems that all operators are focusing on the SME growth at the moment. And also if you expect some of the reacceleration for Tele2 in the B2B going forward? And the second question is the value of thoughts around pricing for next year. This quarter we're seeing some of your competitors putting through some pretty big price increases on TV. But at the same time, your salary increases and your inflation on costs probably is going to spill over to next year and the inflation is coming down gradually in Sweden. So with all these kind of factors in place, I would want to get your idea of how do you think our pricing grew. So next year, do you think that you can still maintain the current magnitude that you put through for 2023? Thank you.

Kjell Johnsen

Right. Siyi, thank you. [Indiscernible] so we'll go on answering that B2B question. I mean, if we look at the B2B development, I'm happy to see yet another quarter of growth. This is the 9th quarter in a row where we have solid growth for mobile. And we have a good mix and that's what we're looking at. Looking at a good mix of volume and price. There are some levers that we could drive in regards to go after volume. But we want to be prudent and have a long view and a long-term perspective on raising [ph] profit and growth -- profitable growth in the market. And those levers that were careful of driving is commission in the market in external markets, or external partners. We see that we are lower on the external commission level than the competition. And that's where we want to be and I think we are confident that we have the right capabilities in place in regards to win a customer's [indiscernible] or network. Also, recently we get a confirmation of our work and customer experience where we ended up first in the Swedish market from [technical difficulty] index, which is a good testimonial on how we drive customer experience.

The second thing is that we are a bit prudent on [indiscernible] its price, we only go after the right customers and winning price. And we'll look at the developments that you were alluding to with lower margin or lower volumes, I would say it depends on larger customers. So the swings between the quarters is very much dependent on larger customers coming in. So all in all, I would say we are happy with the mix that we have now with the price and also volume. And, yes, that's the strategy we have going forward. From a competitive perspective, I would say, in SME segment and [indiscernible] segments, we've seen competition being aggressive on both commission, but also on price. So I can confirm that. But it's not elevating, as such, I would say. And if you look at the largest segments, I would say that our biggest competitor in that segments have responsible approach in the market to pricing as well. So with all that said, I feel confident in the capabilities that we have to continue to be in a good position in the mobile domain basically. Hope that answers your questions, Siyi.

Hendrik De Groot

Let me pick up on your second question. On pricing and outlook next year, what I can sort of share in thoughts and then he also mentioned TV. I think a couple of thoughts here just to reflect on. So first of all on TV and content, I think what we're generally seeing in the market that we're sort of starting to hit ceilings of how content can be monetized in the market. If you take what it takes sports rights or other integrated packages, and of course, we see the difficulties that we're the experience in the market also with some of these players there. So, I think gone on over pricing levels here, as always a reality check in the market to be done, and price rises and particularly on the content side, I think, again, are sort of peak levels.

Secondly, if you look at price rise on front books, you always need to compare them then again with the campaign price [technical difficulty]. Although front book prices may be right -- maybe put up, if campaign prices are still quite low, the only thing you create is quite a big bill shock. And I think just earlier in the [indiscernible] that we want to get out of these [indiscernible] and have fair and responsible price levels in the market. I do believe, though, that if we look forward that the market and the way I think also consumers most easily translate to our pricing is that they relate their life to how inflation is moving, right. So looking through the lens of inflation at the way we price and the way we take our fair and responsible is certainly on our thoughts as we move forward. And whilst we have done a fair amount of pricing this year around back book to front book, it is also true that our front books, in particular on mobile, and on TV have not been changed this year. Okay.

Operator

Thank you. We will now take the next question from the line of Fredrik Lithell from Handelsbanken. Please go ahead.

Fredrik Lithell

Thank you. A lot of questions have been answered, of course, just wanted maybe Charlotte, if you could update us on the debt portfolio and what refinancing situation we have in front of us the coming quarters, maybe just to refresh on that a little bit. I would like to ask Hendrik and Stefan Stefan on sort of the abilities you will get and that you're getting in 5G and also 5G core that you're rolling out to a speed in terms of fixed wireless access, for example, if there are any possibilities there and also then on private networks, including slicing and Stefan, what you see there for possibilities. I know we've talked about that before, but maybe if there's some kind of update.

Charlotte Hansson

Yes, just Kjell just briefly say something about the debt portfolio that we have and I think we are in a good position right now. We have some things running out in Q2, next year, April and May. And we already started discussions regarding this. So not bigger amounts that we've seen in the past, I think that we've done quite a lot this year. So we are happy where we are standing right now.

Stefan Trampus

Yes, and I will keep it short due to time. Stefan here. So I mean, there are many capabilities beyond what we're seeing at the moment that we're utilizing for driving 5G deployment and all the benefits that we see that we get out of it. But from a B2B perspective, I'd say there are some standards in place. But there are more to come in future releases of the mobile technology, both in regards to quality, efficiency, [indiscernible] saying thing, et cetera. And all of that is, I would say quite exciting from a technical perspective. What I will find more interesting is really customer adoption and use the technology in customer solutions. We have identified several use cases that we believe have a good potential to add customer value for them. And it's been digital airspace, augmented reality, media broadcasting, 5G indoor, there are several areas that we were looking at. How fast they come to life, though, is dependent on both technology adoption for and process adoption, I would say among operators in general, but also customers. And I would say it will take some time, couple of years time before we see a big uptake in the market dependent on.

Fredrik Lithell

Yes, thank you.

Kjell Johnsen

[Indiscernible] one or two more questions.

Operator

Thank you. We will now take the next question from the line of Erik Lindholm-Röjestål from SEB Enskilda. Please go ahead.

Erik Lindholm-Röjestål

Yes. Good morning. Thank you for taking my questions. So two questions from me, if I may. Starting off on the energy [ph] you mentioned. You have a view here on fourth quarter of energy being maybe flat to a slight headwind in Q4. And then sort of looking at spot prices it would [indiscernible] would have quite nice tailwind also in Q4. So if this is the sort of hedge driven or what is driving this? And then the second question, just you mentioned the mix impact here in Sweden from legacy decline. Is it possible to quantify this on EBITDA in Sweden? And how would you look at it into the next year perhaps? Thank you.

Charlotte Hansson

I can [indiscernible] comment on the energy and what we've had it's not -- we don’t expect it to be flat more in line with what we've seen in Q2 and somewhere in that region. So a slight headwind anyway. And the reason being that we have some good hedges coming into the year [indiscernible] Estonia that it's a small country. But I think that in Q3 last year all the energy costs were increasing, so we're more on par with that. So that's why we're seeing a slight headwind going forward.

Kjell Johnsen

To super quick on the legacy because we're running out of time, I mean, depending on what you call legacy, for example, the corporate decommissioning we are now at 80% of it, so it's mostly done. If we want to call it legacy or not, we had this prepaid registration that changes the landscape. So obviously, in Sweden, like every other country that I've seen, that also leads to some people not topping up, some of them go into postpaid, and some of them more or less disappearing [ph] from the market. So there's -- there are some of these elements that represent an element of leakage and other TV sites while we have been the innovator of the market by pairing linear with streaming and the Viaplay deal we did. That was still within in particular the DDT area be some people who basically stopped being customers that technology gradually winds down. That is just something that you can change on some of these things.

Erik Lindholm-Röjestål

All right. Thank you.

Operator

Thank you. We will now take the next question from the line of [indiscernible]. Please go ahead.

Unidentified Analyst

Hi, everyone. Good morning. Thanks for taking the questions. Just a quick one, I think we've talked a lot about consumer sentiment sort of demand for various products. But just on the Viaplay packages, you said that households are being more careful with every source in the report. I mean, are you seeing any effects on the Viaplay packages that are taking? Any softer demand there, especially after the price rises which was some time ago, but were quite large. And then second question is on the spectrum auction. I sort of hear everything you're saying about the auction going, as you expected, and coming out having spent what you plan to, but you have lost a bit of spectrum, I think specifically 10 megahertz with 900. I’m just wondering what will if anything, be the network impacts of that? Will consumers feel anything different on the network? Do you do expect any impact?

Kjell Johnsen

So let me take the last one. I think I’ve said it already. I mean, we have 2x 20 now. We use 2x 10 of that for 4G and 5G. And we often speak about the 5G, which is very, very important. And that's going to give us a lot of new capacity. At this time, as we are building 5G, we're also totally upgrading the 4G capacities. So that is an important from a coverage perspective also. So that will remain as it is, those 2x 10 will deliver 4G and 5G. And then we will be shutting down over time now 2G and 3G. That's just what every market will do. So we will remain with the same spectrum that we're using today with a much more efficient network to utilize those 2x 10 megahertz.

Hendrik De Groot

And on Viaplay, the situation is like it is the overall mix, I think is still in a good shape that we're seeing in the market, which means that we have a good uptake on the middle and higher packages. The higher packages are somewhat promoted, though. But I think that's a good trajectory we're seeing. You can also see on our core DTT, we have a plus 2K net index. So there's I think still good traction on the [indiscernible] shall outlines the boxer based on DTT that's sort of the legacy that is declining, of course also as Viaplay inside. And just one thing to comment is that, last year we of course had a bit of a tailwind from the Telia and Viaplay standoff. And some of that will roll out over this -- the customers will come out of that and some, of course will probably go back to Telia now, but that is a smaller effect. But overall, I think we're good on the Viaplay packages.

Unidentified Analyst

Okay. Thanks very much, both.

Operator

Thank you. We will now take the next question from the line of Adam Fox-Rumley from HSBC. Please go ahead.

Adam Fox-Rumley

Hello, everyone. Thanks for taking the questions. I just had a couple of follow-up points really. I was interested in Charlotte's comments that convergent -- you're seeing a bit more demand for convergence. And you kind of touched on it a few of the answers. But I was wondering if you could kind of categorize what was really driving that interest? Is it price, or is it product? It sounds like it maybe a little bit early for product to be the really driving factor at this stage. And then there was the question on the external retail mix. I wonder if you could talk about the time it might take to rebalance that channel. Are we really talking about driving sales online rather than to your own shops? And if so, has the IT work or been kind of completed in the background to get you ready to push [indiscernible] in that place? Thank you.

Kjell Johnsen

Yes, I think when we talked about the first point on the convergence, Stefan mentioned the Swedish Quality Index and one of the findings that we can see there is that there is an increasing interest towards converged quality product. And I think you're absolutely right. This is something that's going to take time before the whole market or there will be a late majority that probably wants to do this in 5 years or 7 years. But we think it's important sometimes to just see the right trends. In my first CEO job, in 2009, we correctly predicted a substantial demand for pre to post migration. And in a way that made us the heroes of the market for the next 2 years. So spotting the trend sometimes is super important. I think there is going to be a direction towards convergence in the Swedish market in the next 2 years. And I think that there will be fewer and fewer who are interested in this campaign driven markets where you get 70% -- you get 90% discount for 3, 4 or 5 months, and then you go back to an original price plan. This is really not in the customers long-term interest to have this kind of pumped to market and often it leads to lower happiness over time. This is my personal opinion on it. I think the timing is right for us now to focus on convergence, which is a good segue to the next part, which is what's going to happen to retail because that kind of interlinked with that. Maybe Hendrik you want to say a few words.

Hendrik De Groot

Well, absolutely, Kjell, and was it -- it is about spotting the trend and being on it. We are already executing on it, given the product we just launched. And I think to get ready to converge products it takes a while, because a lot of components technically and on the IT needs to come together. But that's why we're very happy with the connection guarantee, which is a truly automatic fall back onto the mobile network. And that's really a key sort of innovation, I would think. The -- we have already quite a bit of our teammates in the right order, right. Let's just remind you that Comviq, for example, mainly the main channel is digital. And of our fixed [indiscernible] quite a lot already goes through our own and channels as well, the key thing here is to get out of this mobile rotation in the market. And that's of course, also where I would say FMC will bite in terms of the customer and their loyalty, and also in terms of the orientation towards their own channels. And an introduction, for example of [indiscernible] bind -- of a handset binding that we've just introduced now in our own channels will, it's all a building block towards moving away to a more solid state customer base, our own channels and increasingly digital.

Kjell Johnsen

Way to go.

Adam Fox-Rumley

Thank you.

Operator

Thank you. I would now like to turn the conference back to Kjell Johnsen for final remarks.

Kjell Johnsen

Thank you very much. So I'd like to just say thank you to all of you for taking the time to have [indiscernible] with us today. It's always good to get your questions that make us think from all kinds of different angles. I think some of the discussions we had at the end here highlight some of the key strengths of Tele2 for the longer run. One is the convergence discussion, where we are in a very good position. The main component -- the main competitor also has many of these assets. But I do think that we can create a segment of the market that will be growing for many years to come. And we'll take away some of the -- move some of the value creation to a segment with more stability and less of these actions and campaigns.

And I also think that this quarter shows the efficiency of our model, where we have shared spectrum, shared networks, giving us a good cash flow on a strong balance sheet. And then of course, in terms of the longer term prospects of this company, it's important to keep up the growth momentum. We made 10 quarters so that's double-digit and now we want to keep building on that. So thank you for your time.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Tele2 AB (publ) (TLTZF) Q3 2023 Earnings Call Transcript