TeliaSonera's Cautious 2013 Outlook

Sweden's TeliaSonera released its Q412 and FY12 results, showing stable top and bottom lines. While annual revenues declined in Europe mobility operations and Europe broadband operations , this was offset by strong growth of 14% in TeliaSonera's Eurasia results. Despite difficulties in operating environments across Central Asian markets, the se less developed markets offer strong growth potential and continued opportunities for expansion. BMI believes the company's brighter outlook for 2013 reflects more stability in its Eurasian markets and opportunities to capitalise on network upgrades in its mature European markets.

TeliaSonera's Central Asian operations benefited from a rocky ride for Russia's MTS in Uzbekistan, strong growth for private operators in Tajikistan and the overall lower mobile penetration rates in its markets. TeliaSonera's experience in its more mature Western European markets has benefited its Eurasian operations, with LTE launches already in Moldova, Tajikistan and Uzbekistan, and plans for piloting the technology in Kazakhstan and Nepal. Given the weaknesses in the fixed-line markets of these countries, BMI believes there is strong growth potential for mobile broadband solutions.

Eurasia Outperforms, But Outlook Not So Clear
TeliaSonera Subscriptions (000) (LHS) & Y-o-Y Revenue Growth (%) (RHS)

However, Central Asian markets remain difficult. BMI 's Risk/Reward Ratings give low scores for industry risk as the regulatory and business environments can be difficult for private players. New developments such as the launch of mobile number portability in Azerbaijan and another attempt to privatise Kyrgyz Mobile Company will increase competition and put pressure on existing operators to protect their subscriber bases.

While we identify opportunities in the mobile broadband arena, rolling out infrastructure is costly , particularly given the size of the countries and return on investment is likely to be slow , with limited demand for internet services at present. While we foresee strong growth in broadband across TeliaSonera's Eurasia markets, the service will remain a small proportion of the market's total. It is important to note that Eurasia still only accounts for 19% of the company's total sales, while its European mobility remains responsible for 48% of income. Nevertheless, Eurasia has grown from 15% of sales in 2010, capturing its share from Europe broadband income.

BMI believes TeliaSonera will remain an important player in Central Asian markets and the region will continue to contribute to revenue growth. TeliaSonera's outlook for 2013 sees flat growth in local currency for net sales and an improvem ent to EB I T DA margins. Slower declines in Europe mobility ARPUs and growth in Europe broadband ARPUs are positive signs for the company's potential for growth. TeliaSonera's broadband operations in Europe saw the sharpest decline in revenues in 2012, but positive ARPU trends suggest there is scope for greater stability in 2013 and beyond. This will , however , be countered by BMI 's estimates that ARPU will continue to decrease in Eurasian markets as these are more heavily prepaid focused , and trends suggest the markets have not yet reached maturity. We believe growth will remain fastest for operations in Eurasia, but steady performances from European operations will continue to underpin TeliaSonera's position.


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