Sweden Telecommunications Report Q1 2013

BMI View: The Swedish telecommunications market is one the most developed in the world with highpenetration levels for mobile voice, mobile data, fixed-voice and broadband services. This makes Sweden amature market, with the concomitant limits to growth prospects. As well as having a high level ofpenetration, price erosion has been less pronounced than in the majority of Western European markets andoperators have managed to continue to grow revenues. Meanwhile, in terms of technology, Sweden is at theforefront of development with, not only high levels of next generation wireline and wireless data services,but also machine-to-machine services and other consumer value-added services.

Key Data:

Broadband growth has slowed as penetration has risen. There was a decline in fixed broadbandsubscriptions in the first half of 2012, according to regulatory data, and dedicated mobile broadbandgrowth has slowed appreciably. Dedicated mobile broadband subscriptions increased 7.6% y-o-y toQ212, compared to a 24.4% increase y-o-y to Q211.

PTS data also show that uptake of LTE services has been sluggish. The regulator reported a total of83,000 LTE subscriptions at the end of June 2012 - equal to 0.6% of the total market. This contradictsfigures reported by TeliaSonera in May 2012, which stated it had over 140,000 LTE subscribers.

Key Developments:

The Swedish mobile market has proved robust in terms of subscriptions and ARPU compared tomany markets in Western Europe in recent years. However, there are signs that trends affecting someits neighbours may begin to undermine operator financial performance. For instance, PTS reporteddata or H112 showing the number of SMSs sent per user per month declined 15.2% from 138 in H211to 117. BMI believes this indicates the onset of SMS IP substitution as smartphone users increasinglyturn to services such as WhatsApp. This trend has hit operator performance in markets such as theNetherlands, and can have a significant impact on financial performance because of the high marginnature of SMS for operators. That said, with Sweden a highly developed market, a large number ofSMSs were already bundled with the subscription fee.

Contrasting with the threat of SMS IP substitution is the ongoing growth in machine-to-machine (M2M)subscriptions. The Swedish market is a global leader with the presence of incumbent TeliaSonera, as well asglobal frontrunner Telenor Connexion. Both operators achieved strong subscription growth y-o-y to theend of June 2012 with Telenor Connexion subscriptions increasing 56.6% to 1.638mn and TeliaSoneraincreasing subscriptions 18.8% y-o-y to 461,900. BMI expects both operators will continue to benefit fromgrowth in Sweden as they expand into new verticals.