Tele2 Quarterly Income Declines on Sweden Costs; Shares Fall

Tele2 AB, Sweden’s second-largest wireless provider, reported first-quarter earnings that missed estimates as the company spent more to retain customers in Sweden and Russia. The stock fell as much as 6.7 percent.

Net income declined 28 percent to 869 million kronor ($129 million), Stockholm-based Tele2 said in a statement. Analysts expected 1.09 billion kronor according to the average of 12 estimates compiled by Bloomberg. Revenue gained 9 percent to 10.5 billion kronor in line with estimates.

Tele2, which made its name as a prepaid provider, is trying to shift more customers to postpaid and data subscriptions while maintaining low prices. Earnings in Sweden were pared by marketing costs for postpaid offers as competitors stepped up competition, Tele2 said. The company also spent more on gaining customers in Russia, where the margin for earnings before interest, taxes, depreciation and amortization contracted to 35 percent. The company’s number of total subscribers gained 11 percent to 34.7 million, including 20.9 million in Russia.

“The message is that they’re prepared to sacrifice margins for faster top line growth,” said Andrew Hogley, a London-based analyst at Espirito Santo Investment Bank. “People were more concerned about the margin than excited about the faster growth.”

Shares Decline

Tele2 declined as much as 6.7 percent to 122.20 kronor, the biggest intraday decline in four months, and was trading down 5.3 percent at 123.90 kronor as of 11:00 a.m. in the Swedish capital.

The company reduced its full-year forecast for the margin of Swedish earnings before interest, taxes, depreciation, and amortization by three percentage points to 30 to 32 percent of sales. Tele2 raised its forecast for full-year mobile revenue in Sweden to 3 percent to 5 percent.

“Come what may, we’re going to defend the price points,” Chief Executive Officer Mats Granryd said in an interview. The company introduced a 10-gigabyte data package in Sweden with unlimited texting for 345 kronor to counter an offer from 3 Scandinavia, he said.

Tele2 last month demonstrated the technical feasibility of providing so-called fourth-generation mobile broadband service in Russia, its biggest market by subscribers, on its existing bandwidth. The company expects authorities to decide this year on whether to allow the spectrum reuse.

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