Norway Telecommunications Report Q2 2012

BMI's Norway Telecommunications Report for Q212 contains the latest forecasts covering the country'smobile subscriber market and monthly blended ARPUs, as well as the fixed-line, broadband, internet and3G markets through to 2016. Our forecasts remain largely unchanged this quarter, although there have beenchanges made to YE11 estimates where operator data have been made available. However, the analysis ofunderlying trends underpinning our forecast scenarios remain unchanged in the Q212 update as we continueto believe they represent an accurate picture of how Norway's different telecoms market sectors areprogressing.

Based on the available data from operators TeliaSonera and Telenor, as well as Tele2, BMI estimatesNorway had about 5.869mn mobile subscribers at the end of Q411 and a penetration rate of around 119%.This figure is higher than our previous estimate, derived from strong net additions by Tele2 in Q311 andTelenor in Q411. The market and operators rebounded following a weak Q410 and Q111, with net additionsof 169,000 subscriptions in Q311, surpassing the achievement seen in Q211, and there were a further26,000 net additions in Q411. Despite the uptick in subscriber growth in 2011, we maintain our view thatsaturation of the market is close at hand.

Meanwhile, mobile ARPU declines have underpinned our increasingly pessimistic view of the Norwegianmobile market. On the one hand, MVNOs are still driving growth and tend to focus on the lower-value endof the market, which generally is not conducive to ARPU growth. On the other, operators have already hadmobile revenues negatively impacted by cuts to MTRs, with further cuts scheduled in 2012 and 2013.Countering these negative trends has been growth in non-voice revenues, which we believe offer furtheropportunities for growth in the medium term as operators invest in the development of 3G, 3.5G and 4Gservices as a way of driving future growth..

A key development, although with little immediate market impact, was the completion in October 2011 ofTele2's purchase of Network Norway, consolidating two of the major alternative mobile service providersin the country and giving Tele2 complete control over the fourth licensed 3G operator, Mobile Norway. Weexpect this to help Tele2 achieve sufficient scale to be able to compete against the larger operators in anenvironment of falling MTRs. In April 2011, Hi3G Access, holder of the country's third 3G concession, hadhanded that licence back to the authorities as it no longer saw any commercially viable opportunities in themarket. Tele2 is now on the lookout for digital dividend 800MHz spectrum but, even with that resource, itmay find the Norwegian market too saturated to permit sufficient room for growth.

In BMI's Q212 Risk/Reward Ratings for Western Europe, Norway moved up from 10th to eighth position.This was the result of an improved Industry Rewards score on the back of stronger than expected subscribergrowth in H211. However, looking ahead we believe Norway's falling ARPU rates and a slowing in overallsubscriber growth will keep its Industry Rewards score low, countering its strength as a high-value andstable market at the forefront of technological development. We therefore expect it to score in the middle ofour ratings. One potential downside to this view is the fallout from the combination of Norway's longrunninghousing bubble and the eurozone crisis, which could prove detrimental to the development ofhigher-value services as household spending is scaled back.