Norway Telecommunications Report Q3 2012

The Q312 update to BMI's Norway Telecommunications Report contains our latest forecasts for the mobile subscriber market and monthly blended ARPUs, as well as the fixed-line, broadband, internet and 3G markets through to 2016. We have adjusted our mobile subscriber forecast for Norway this quarter following slower growth in Q411 and Q112, as detailed in operator data. However, our other forecasts remain unchanged this quarter, as operator data have confirmed the continuation of the underlying trends that were the key assumptions in our previous forecasts.

Data reported by the three mobile network operators in Norway - NetCom (TeliaSonera), Telenor and Tele2 - show there were 5.883mn mobile subscribers in the country at the end of March 2012. BMI calculates this figure to equate to a penetration rate of 119.6%. While the market has been growing strongly, even at penetration rates over 115% in 2011, there was a noticeable slowdown in Q411 and Q112 as q-o-q growth dropped to 0.4% and 0.2% respectively. We believe this slowdown supports our long-held view that a growth plateau is imminent as a result of market saturation. We expect the Norwegian market to exhibit some growth over the coming years; however, with acquisition opportunities diminished, we expect operators to increasingly target value generation from existing subscribers. In terms of revenue generation in the mobile market, BMI has a negative outlook for the Norwegian operators as a result of a combination of price competition, consumer behaviour and cuts to mobile termination rates (MTRs). Price competition and consumer adoption of IP substitutes for traditional voice and SMS services will place downward pressure on revenues over the medium term; however, it is cuts to MTRs that primarily determine our view on ARPUs in the coming years. MTR cuts are scheduled for July 2012 and January 2013 that will see Telenor and NetCom's MTR cut from NOK0.3 per minute in H112 to NOK0.15 per minute in H113. Meanwhile, Tele2's MTR will fall from NOK0.4 per minute to NOK0.15 per minute over the same period. As a result of these cuts, we forecast a steeper decline in ARPU in 2012 and 2013, before a more gradual decline in the latter part of our forecast period. It should, however, be noted that MTR cuts can have a positive impact on bottom line performance by reducing operating costs.

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

Looking at Norway's wireline segment, Telenor and NextGenTel (TeliaSonera), the two largest operators, both reported net broadband subscriber losses in the 12 months to the end of March 2012. BMI considers this a reflection of the high penetration of broadband services in Norway (we estimate 50.3% penetration at YE11), as well as the popularity of mobile broadband services. The latest regulatory data on dedicated mobile broadband services relate to H111, showing mobile broadband accounted for 73% of net additions in the 12 months to the end of June 2011. We believe this trend likely to accelerate with the widening availability of higher speed 4G LTE services.