Speech by CEO Lars-Johan Jarnheimer. Annual General Meeting

Speech by CEO Lars-Johan Jarnheimer at NetCom's Annual General Meeting Stockholm, May 20, 1999 Ladies and gentlemen, It is with great pleasure that I welcome you to NetCom's annual general meeting. We have completed yet another successful year, a year of strong growth and innovative new products. NetCom's success is the result of far-sighted entrepreneurial efforts that began back at the end of the 1970s. Creating a new company in an industry long considered, in Europe, to be the domain of the state is a challenging and exciting process. The fact that Tele2 and Comviq have been so successful is the result of long-term vision in company building and of a constant readiness to reevaluate the situation, to look for new paths. In January 1998, we took up the struggle with Telenor in Norway when the Norwegian telecommunications market was deregulated. During the year, we also established operations in the Baltic states, through the Estonian mobile telephony operator Ritabell. The potential in this region is great, and NetCom has a competitive advantage in the form of previous experience building operations in Sweden, Denmark and Norway. This experience will prove extremely valuable in our Baltic expansion. The conditions a company must fulfill to succeed as a telecom operator are constantly changing. Consequently, NetCom's brands are the company's most important assets. We must continuously build strong brands, and they must be distinctive. Today, the Comviq and Tele2 brands are extremely solid. For example, Tele2 is seen as the telecommunications brand with the greatest potential today, according to a survey by Sifo Research. In distribution concepts, too, NetCom has been an innovator. The prepaid card for mobile telephony is a brilliant example of this. People can now buy mobile phone service at newsstands and service stations. In 1998, mobile phones were bundled with Comviq's prepaid card and distributed through the same channels. 1998 EARNINGS NetCom achieved outstanding growth in 1998, thanks in part to substantial efforts in the Danish and Norwegian operations. Sales surpassed budget, advancing 48%. In Sweden, the number of mobile telephony subscribers rose 58%, and the number of customers for fixed telephony and Internet access soared 93%. Operating revenue reached SEK 5,969 million for 1998, up 48%, and profit after depreciation and amortization rose 32%, to SEK 518 million. Tele2 AB's mobile telephony operation advanced strongly in 1998, as the number of subscribers rose rapidly. At year-end, Comviq and Tele2Mobil had about 1,300,000 customers, including customers for prepaid cards. That represented an increase of 58%. At the same time, the level of customer turnover remained steady, at around 20%. The Fixed telephony and Internet business area also enjoyed brisk growth, with operating revenues at SEK 2,223 million, representing an increase of 40%. During 1998, Tele2 expanded its customer base 121%, to 691,000 customers. By the end of the year, around 200,000 new customers had enrolled through the Ringo telephone lottery, which was a joint effort with the Cancer Society. Still, earnings were negatively impacted by price cuts on international and national fixed telephony service, which were aimed at maintaining Tele2's position as the price leader. The new interconnect agreement with Telia, which took effect on December 1, 1998, gave Tele2 AB healthier margins in its fixed telephony operation. The number of Kabelvision subscribers decreased in 1998. Sales and programming services are now provided by Viasat. This collaboration with ViaSat led to a repositioning of the brand and a new program line-up, which improved earnings towards the end of the year. In August 1998, the NetCom companies NätTeknik and Datametrix began cooperating with Lucent Technologies, a world leader in equipment for call centers and indeed one of the world's largest suppliers of telecommunications equipment overall. Together, they plan to challenge the competition in the Nordic call center market, a quickly expanding market. The collaboration also involves telephony over the Internet and powerful routers. In 1998, Tele2 Denmark grew quickly. The company is now Denmark's second largest operator in fixed telephony, with its "1001" service, marketed to companies and private individuals. The company had 274,000 customers for fixed telephony at year-end, representing growth of 138%. In Norway, a public telecom monopoly that had lasted more than 100 years was broken on January 1, 1998. As telecom services were deregulated, Tele2 Norway launched its service called "1502," the prefix that customers dial to place their calls through Tele2. At year-end, Tele2 Norway reported having 131,000 telephony customers. NetCom ASA, which is an associated company in Norway that provides GSM services, reported operating profit after depreciation and amortization of NOK 247 million for 1998, compared to a loss of NOK 24 million for 1997. NetCom has a 25% stake in the company. THE WORLD AROUND US NetCom is now one of the 20 biggest companies on the Stockholm Stock Exchange and one of the 500 biggest companies in Europe. When a telephony company in becomes that big in Sweden, there is a risk that it might start comparing itself with Telia and looking for benchmarks in Telia's operations. But that line of thinking is wrong. This brave new telecom world will hold no future for us if all we want to do is to be better than Telia. We have to compare ourselves with other, smaller companies and make sure that we also cultivate the advantages of size. This is particularly important in the classic business for fixed telephony, where we will be reviewing our costs and striving to further improve our profitability. In Sweden, Norway, and Denmark, we have barely begun our journey away from the previous state of monopoly. In Sweden, Telia retains a tight grip on almost all segments of the telecommunications market. The biggest price cuts for customers have been possible mainly where the hold of these dominant players is weakest. The European deregulation that started in 1998 will take many years before it reaches its goals. During this process, it is vital that the telecommunications market be genuinely deregulated, that is, that the same conditions apply here as in other, more traditional markets. We cannot allow market dominance to be used to obstruct competitors and customers from obtaining lower prices. Together with Telenordia, MCI WorldCom, Tele1 Europe and Sonera, we recently wrote to the Ministry of Industry and Commerce and pointed out the regrettably inept handling in Sweden of the big telecom reform: equal access preference. Unless the Swedish government can get Telia to manage the changeover properly, the government should delay the start, which is currently set for September 11 this year. The government and the Riksdag have dual responsibilities, which makes this matter difficult to handle. On the one hand, they want to implement the EU directive and the spirit of the Telecommunications Act to encourage competition, that is, produce lower prices and better service. On the other hand, they must take into consideration Telia and its shareholder value, which has resulted in the state-owned company retaining control over the telephone network. All Swedish telephone customers must be customers of Telia's. All telecommunications providers must have a good working relationship with Telia Network Services, which is the part of Telia that could just as well be an independent government authority. We see a natural parallel in the case of the Swedish State Railways (SJ) and the National Rail Administration. Nowadays, Telia's commercial companies are what actually direct Telia Network Services. In real terms, this has resulted in the sabotage of the reform to allow equal access preference. The Director General of the National Post and Telecom Agency has stated this in no uncertain terms in a pointed letter to Telia. Mona Sahlin, a cabinet minister, has assured the Riksdag that Telia will follow laws and comply with government directives. But that is not what we are seeing day by day. Most of the rest of the world has already introduced equal access preference. In other words, Sweden is far from the first country to carry out this particular reform. So international experience is anything but lacking. But special consideration towards Telia has led Sweden to introduce equal access preference in a way that might be the worst imaginable. This adversely affects us as an operator. Tele2 started competing with Telia six years ago. We now have more than 700,000 customers. Telia seems to have this farfetched idea that "equal access preference" means we should say goodbye to all of our customers and start from scratch without a single one. But that was not the intent of the law. That would mean that Sweden would revert to being a monopoly market for Telia as a result of the equal access preference reform. We have solid relationships with our customers. We believe, as do all other companies- including Telia, that the changes in customer contracts now being made because of decisions by the EU, the Swedish government and the Riksdag demand information but do not demand that every customer takes an active stand. Only those who have contracts as customers of ours but have not used our services to an appreciable extent will be offered the possibility now of taking a stand. I believe we are going to see a lot of negative reactions from consumers in the future. And that's not because of us, companies who compete with Telia. That will be because of the solutions we have chosen in Sweden and because of Telia's way of implementing these solutions. I understand that consumers are confused. We are investing millions of kronor in advertising in newspapers and on TV and in providing comprehensive information directly to our customers explaining the reform. Telia has not taken any responsibility for providing information anywhere close to this level. On the contrary, they have tried in various ways to sabotage implementation of the reform. That is not good. NetCom obviously has the advantages of scale of a big company, but we must always be on our guard to make sure the company runs like a small company. The advantages of the small company- speed, flexibility, cost-awareness- must remain our standards. It is not the big who will triumph over the small, but the quick who will triumph over the slow. I am convinced that long-term profitability is best achieved by steadily focusing on growth and expansion while markets are still expanding. By continuing to search for new routes and new possibilities and by continuing to challenge conventional thinking, NetCom can expand and remain a winner. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/05/20/19990520BIT00230/bit0001.doc http://www.bit.se/bitonline/1999/05/20/19990520BIT00230/bit0002.pdf