Global Insight Perspective | |
Significance | Growth in Ukraine is impressive given the high penetration level, while annual growth in Pakistan reached the triple-digit level. |
Implications | The costs of network capacity expansion in Asia have kept capex high and dented EBITDA. |
Outlook | Telenor's projections of similar capex levels in 2008 indicate that Asia will remain a focus for investment. |
Telenor has reported that in 2007 its earnings before interest, tax, depreciation and amortisation (EBITDA) before other income and expenses rose 10.2% year-on-year (y/y) to 35.358 billion Norwegian kronor (US$6.537 billion). The pro forma full-year results assume the consolidation of Ukrainian mobile operator Kyivstar, whose results were only actually consolidated in the fourth quarter of 2007, following the partial resolution of a legal row with Altimo (see Ukraine: 4 December 2007: Alfa Backs Down in Kyivstar Feud as Prospects Grow for VimpelCom-Golden Telecom Deal). Telenor's full-year revenue rose 15.3% y/y to 105.021 billion kronor, and its adjusted operating profit rose 13.0% y/y to 20.642 billion kronor. Capital expenditure was up 16.0% y/y to 22.079 billion kronor.
Outlook and Implications
Kyivstar Provides A Boost: Telenor has undoubtedly been boosted by the consolidation of Kyivstar, Ukraine's leading operator by subscriber numbers. The operator's subscriber numbers rose 9.7% y/y to 23.604 million, helping to drive revenue in the country up 14.8% y/y to 12.582 billion kronor, and operating profit up 13.6% y/y to 5.564 billion kronor. Kyivstar's subscriber growth is particularly impressive given the conditions in Ukraine's mobile market, where high penetration has limited the scope for organic growth. The country's second-largest operator, MTS Ukraine, reported subscriber growth of just 0.02% in 2007, adding only 4,000 subscribers over 12 months (see CIS: 30 January 2008: MTS Reports Russian Subscriber Growth During 2007 as Ukrainian Uptake Flatlines). Kyivstar has also managed to stabilise previously free-falling ARPU at US$8.3 in the fourth quarter, having seen it dip to US$6.8 in the first quarter. Increasing voice traffic is also a notable achievement, given the limited room for subscriber growth. Sustained subscriber growth will be difficult to achieve in 2008, but Telenor will hope that Kyivstar maintains its trend of increasing voice traffic.
Subscriber Growth and High Capex in Asia: Telenor's Asian assets have, as expected, delivered strong subscriber growth. The mobile markets of Thailand, Malaysia, Bangladesh and Pakistan experienced annual growth of 33%, 21%, 53% and 119%, respectively, with almost 8 million additions in Pakistan, including 2 million in the fourth quarter. Notably, pre-paid subscribers accounted for over 95% of Bangladeshi subscribers and 99% of Pakistani subscribers, indicating the low spending power of subscribers. While revenues grew, capex increased by over 50% y/y in both of these growing markets, driven by the costs of network capacity expansion. As a result, annual operating profit dropped. Telenor has projected that capital expenditure will remain at around 20% of revenues in 2008, again driven by expansion in its emerging Asian markets.
Telenor Less Successful in Nordic Mobile Markets: Telenor's performances in its domestic Nordic markets have been less spectacular. Revenues and subscriber numbers from mobile operations in Norway decreased, and the company president and chief executive officer, Jon Fredrik Baksaas, has warned, in a press release, of "cost efficiency measures", claiming that the cost base from Norwegian mobile operations is unsustainable. Telenor's Swedish mobile unit experienced slower subscriber growth in 2007. Operating loss increased and ARPU levels decreased due to a reduction in interconnect charges as well as the competitive market environment. In Denmark, Telenor's mobile revenues, operating profit and subscriber numbers were boosted by the acquisitions of Tele2's unit in the second quarter.