Tele2 profits plummet on rising costs, taxation

Sweden’s Tele2 reported a 57% fall in net profit for the fourth quarter, to SEK565 million ($89 million), as rising costs and higher taxes ate into sales.

Revenues at the company – which operates across a number of European markets – rose by 3.9% to SEK11.3 billion.

“Tele2 [Stockholm, Sweden] continued to show sustainable revenue and subscriber growth during the fourth quarter of 2012, although profitability was below our expectations,” said Mats Granryd, the company’s president and chief executive.

Sweden’s Tele2 reported a 57% fall in net profit for the fourth quarter, to SEK565 million ($89 million), as rising costs and higher taxes ate into sales.

Revenues at the company – which operates across a number of European markets – rose by 3.9% to SEK11.3 billion.

“Tele2 [Stockholm, Sweden] continued to show sustainable revenue and subscriber growth during the fourth quarter of 2012, although profitability was below our expectations,” said Mats Granryd, the company’s president and chief executive.

One problem has been the need to subsidize smartphones, the usage of which is driving revenue growth in Sweden.

“Customers demand and consume even more services on mobile devices, and have caused competitors and vendors to subsidize handset sales excessively, thereby increasing operating costs,” said Granryd.

In Russia, its other main market, Tele2 turned in an impressive performance, growing revenues by 15%, to SEK3.4 billion, as it continued to pursue market share.

Even so, the aggressive push led to some “margin contraction”, in the words of the operator, with earnings before interest, tax, depreciation and amortisation (EBITDA) rising just 4%, to SEK1.2 billion.

Tele2 Russia expects to generate between SEK13.7 billion and SEK13.8 billion for 2013, compared with full-year revenues for 2012 of about SEK13 billion.

In Sweden, however, it expects revenues to fall from SEK12.7 billion in 2012 to between SEK10.1 billion and SEK10.3 billion in 2013.

The company recently picked up frequency licenses during an auction in the Netherlands, winning spectrum in the sought-after 800MHz band.

“This creates an excellent opportunity for us to fulfil in the country Tele2’s main business purpose, the development of mobile services on our own infrastructure, and be the new challenger in the 4G arena,” said Granryd. “Now the really hard work can start.”