Tele2 Group Strategy

Tele2 Group Strategy

Tele2 operates in 10 markets, each with its own characteristics. Our footprint includes both emerging and mature markets with different economic conditions, cultural contexts and competitive dynamics. However, there are a few common denominators applicable to all our countries of operation: the transition from voice to data and the trend towards mobility. Industry Trends and Drivers To be successful in our rapidly changing and competitive industry, we need to understand the key underlying trends and their implications for Tele2 crucial to assist us in making the right strategic decisions for the future. Key Customer trends Customers demand not only low prices but also quality throughout the lifecycle, particularly as markets become more mature. Smartphones, usage of multiple devices per user and the increased number of mobile services drive customers need for data access. Media services are increasingly streamed everywhere, on all screens and on demand with the expectation of a seamless experience when switching device. Both consumers and businesses are dependent on telecommunication services and expect to always be connected. Tele2 must continue to develop its understanding of drivers of customer satisfaction Customers want the best value, not only the lowest price. We must continuously invest in understanding our customers needs, and how to meet them better than competition, improving relevant touch points where necessary. Tele2 must provide an appropriate data connectivity portfolio Tele2 s customers will show an increasing demand for data services. We have to provide a competitive service offering that meets the needs of the always connected customers. Tele2 must secure an attractive device portfolio The importance of mobile devices in the customer s purchasing decision is growing, therefore we must secure a relevant, yet cost efficient portfolio of devices, including attractive financing options. Tele2 must intensify the development of key customer touch points, such as online and Tele2 branded stores Tele2 needs to satisfy and exceed customers expectations on information, sales and service in both the physical and digital worlds. Tele2 will need to adopt an omni-channel approach and ensure that customers receive an integrated customer experience across our different channels and platforms. Tele2 must excel in customer service As data connectivity becomes a vital service, the tolerance for failures reduces dramatically while customers dependency on expert support increases. A world-class customer service is critical in defending our customer relationships. 2 Tele2 Annual Report 2013

Key Competition trends The competitive landscape is changing with Internet players and device manufacturers entering the value chain. As markets mature and market penetration increases, competition between operators may intensify efforts to acquire new customers and retain existing customers. Many fixed access and Wi-Fi providers are seeking to capitalise on growing mobile data usage by extending their service offering as mobile virtual network operators (MVNO), further intensifying competition. Tele2 will be challenged on price leadership by competitors Offering low prices with added value is crucial in attracting customer segments beyond the pure price-conscious and in reducing the risk of sustained price wars. The introduction of separate pricefighter brands, such as Comviq in Sweden, will help us tackle price competition whilst maintaining the Tele2 brand. Tele2 will defend and retain ownership of its customer relationships Tele2 will defend customer ownership from the threat of Over-the- Top (OTT) players and device manufacturers. The company will leverage on its customer relationships and outperform in delivering value in the most critical customer touch points. Tele2 will focus on providing access to existing and new customer segments Tele2 will embrace the shift towards a new business model focused on monetising demand for data services and expand to new customer segments, e.g. Business-to-Business (B2B) and Machine-to- Machine (M2M). Tele2 must continue to leverage its network as a competitive asset To stay competitive and differentiate itself from existing competitors and potential new entrants, Tele2 will need to keep investing in its network with the goal of providing the best connectivity experience at the lowest internal cost. Tele2 will selectively explore new opportunities In addition to access, Tele2 will leverage on its assets: customer data and the billing relationship. Tele2 will provide services bundled with access and provide billing services on behalf of other service providers, such as social media sites and App Stores. The company will very carefully monetise on customer data, without compromising customer data privacy. Key Technology trends Demand for cellular data services continue to increase significantly due to higher smartphone penetration, better and faster networks, and the availability of data intensive applications. Enhanced data capabilities allow for more competition from OTT high-quality Voice over IP (VoIP) solutions. 4G Long Term Evolution (LTE) networks are already being upgraded to LTE Advanced, delivering higher speeds and capacities. Network vendors under pressure will not have the means to invest in new technologies, therefore leading to a lack of innovation and risk of obsolescence. Tele2 s customers will demand faster speed and higher data capacities Focus on customer experience, real-time charging, and end-to-end performance will be crucial. Backhaul and transmission capacities will be critical in achieving economies of scale. Likewise, it will be important to secure sufficient fibre-based capacities and monitor opportunities to secure wider spectrum in our markets. Tele2 will embrace the shift from Voice to Data and Voice over Data Networks Customer experience in voice over data networks needs to be of at least equal quality compared to customer experience in current circuit-switched networks. Voice over LTE (VoLTE) will create opportunities for superior voice experiences and potential integration with messaging and social networking. Tele2 must ensure high quality networks by focusing on customer experience Cost versus quality is a crucial area of focus in network upgrades. Tele2 needs to carefully balance investments in its legacy networks to optimise the customer experience while maintaining profitability. Tele2 must prepare for a change in vendor landscape We could face a potential Supplier Market situation with fewer vendors, less competition and increased prices. 3 Tele2 Annual Report 2013

Key Regulatory trends EU Digital Single Market : The European Commission adopted a draft Regulation in 2013 which proposes new telecommunication rules in many areas including provisions meant to ensure more end-user transparency and easier switching between operators. Other areas relate to spectrum allocation, EU roaming, net neutrality and fixed access regulation. The European Parliament & the European Council are currently working to amend the draft Regulation and eventually agree on a final Regulation. Spectrum Assignment: The draft Regulation sets out rules which promote more spectrum availability for mobile data in EU and ensure better foreseeability of when Member States will assign spectrum. Net Neutrality: The Net Neutrality rules set out in the draft Regulation are intended to strike a balance between the principle of the open internet (i.e. no discrimination, no blocking, and no degradation), while safeguarding innovation and flexibility in the telecom sector. However, this may prevent telecom operators from differentiating their products or from offering services with prioritised traffic streams. Roaming: New roaming regulation, which came in force in 2012, aims to lower EU roaming tariffs through higher levels of competition in the European roaming market. No alterations to this Regulation are expected during 2014. Nevertheless, EU legislators will continue to encourage roaming prices that approach domestic tariffs level, potentially through new regulation. Customer data and integrity: the European Commission has adopted a draft Data Protection Regulation which may introduce new rigid rules on how private and public entities should handle personal data. Tele2 encourages simplicity and transparency in spectrum assignments Governments and bidders have a common interest in well-functioning spectrum auctions. However, spectrum auctions are becoming increasingly complex and costly to host and attend, without adding any evident benefits to society. Therefore Tele2 welcomes the European Commission s proposal, which encourages auction designs that efficiently allocate scarce spectrum resources. Tele2 supports open internet while meeting end-user demands We do not believe that one size fits all. However, Tele2 wants to ensure end-user flexibility and will therefore continue to offer a choice of different bundles and packages, while safeguarding the underlying values of Net Neutrality. Tele2 continues to improve roaming offers The smartphone revolution has dramatically increased the importance of offering reasonably priced data to our customers when abroad. Tele2 will ensure that customers receive attractive and relevant roaming offers, as both competition and customer demand on the end-user roaming market are likely to increase. Tele2 continues to prioritise privacy and integrity Tele2 believes that customer data privacy is of utmost importance in order to deliver its customer promise. Tele2 continues to improve its system capabilities to enable better tailored services to customers without compromising on customer privacy. 4 Tele2 Annual Report 2013

Key Strategic Themes Telecommunication has been and continues to be a very dynamic industry where customer behaviours can change rapidly. We have identified four key strategic themes which we believe will be fundamental to the company going forward: Focus on being an access provider: Tele2 should capitalise on the growing usage of mobile applications and services as an access provider, but not invest in developing these applications and services internally. Focus on increasing scale and cost efficiency: Maintaining cost leadership is key to Tele2 s profitability. Strong customer relationship: Providing an integrated and seamless customer experience is extremely important in strengthening Tele2 s relationship to its customers. Partnerships to add value to offers: Tele2 should partner with application and service companies to provide value-added services closely related to its access business via strategic partnerships. The Tele2 House from Vision to Strategy implementation The Tele2 House describes what we want to be and how to get there. By delivering on our mission and strategic challenges, we believe that we will reach our vision and wanted position in the eyes of our customers, employees, and shareholders. Tele2 is a value-driven company which means that our values, thetele2 way, steer how we run and develop our company. The fact that our employees share the same basic belief in how to create value for our customers enhances our ability to reach our goals. Our vision statement: We will be the champions of customer value in everything we do Customers should view Tele2 as the operator that provides them with the most value-for-money. Our mission statement: We are challengers, fast-movers and will always offer our customers what they need for less Everything we do should lead to better and more relevant experiences for the customer at a better price. Our wanted position For a more tangible overall vision we have created a wanted position for each of our three main stakeholders. Customers We shall be the operator of choice By providing the best value-for-money we shall be the operator of choice and grow our market share. Employees We shall be considered a great place to work By being a great place to work, we shall attract and retain the best people who can deliver on our vision. Shareholders We shall have the best Total Shareholder Return (TSR) By being the operator of choice and a great place to work, we shall deliver the best TSR within our peer group. Vision We will be champions of customer value in everything we do MISSION We are challengers, fast-movers and will always offer our customers what they need, for less Wanted position Customers Employees Shareholders We shall be the We shall be considered We shall have the best TSR operator of choice a great place to work within our peer group Challenges Growth People Differentiation Business Model Cost Leadership Quality Tele2 Way 5 Tele2 Annual Report 2013

So, how do we get there? To help us reach our wanted position and focus our efforts, we have identified six strategic challenges that define our key priorities and activities. Growth challenge Tele2 has always been a growth company and will continue to set targets that aim to outgrow the industry while reaching its Return on Capital Employed (ROCE) targets. Pursuing organic growth in our core business (see also Differentiation and Business Model challenges) By offering what our customers need for less through differentiated offers, we will attract new customers and increase the loyalty of our existing customers. By adapting our business model to industry monetisation shifts from voice to data and volume to value, we will increase the revenue per customer. Exploring in-market consolidation opportunities We will engage in in-market consolidation opportunities where possible, with a view to increase our scale and profitability. Expanding into new geographical markets We will continue to explore new licence opportunities and/or acquisition of smaller operators in Europe and beyond. Building new revenue streams We scan growth areas of strategic importance for opportunities to expand our revenues streams beyond the traditional telecom value chain. M2M and mobile payments are areas that we are actively pursuing. Divesting businesses where it matches our criteria in terms of strategy fit, timing and price We continuously review our portfolio and evaluate options for those businesses that do not meet our financial targets. s Tele2 performs a multi-screen Android TV pilot in Sweden During Q2 2013, Tele2 successfully piloted a new TV and movie service concept enabling customers to control and watch TV and Video-on-Demand services on Android smartphones as well as on TVs through the use of an Android based TV-box developed by Tele2. An innovative component of the piloted concept is the use of a mobile device as an authentication and user interactive tool, to control the video-streaming service on TV. Tele2 acquired two licenses at the Dutch multiband frequency auction Tele2 Netherlands obtained 2x10 MHz licenses in the 800 MHz band during a multiband frequency auction in December 2012, a perfect complement to its existing spectrum portfolio. This creates a unique opportunity for Tele2 to develop and provide mobile services on its own infrastructure and become the new 4G-only challenger in The Netherlands. 6 Tele2 Annual Report 2013

People challenge Being considered a great place to work is our key people challenge and one of our core strategic goals. We have a strong culture and values which create the right environment for highly engaged employees of diverse backgrounds to challenge and be challenged, while delivering outstanding value to our customers. In order to achieve our goals, we set high standards and have great expectations of our employees and managers. We actively work with people related areas of key strategic importance, including employee engagement, performance management, talent identification and succession planning, and measure our results against pre-defined goals. Maintaining high engagement levels and further fostering diversification within our organisation Increasing emphasis on personal development, performance and talent management In 2013, we implemented Tele2People our performance, development and talent management tool. Going forward, Tele2People will provide our managers and our organisation with (even) more relevant and reliable data on our people, and will act as a platform for sound decision making. Advancing our employer branding concept In 2013, we developed a common Group employer branding concept. The employee value proposition (EVP) will serve as a basis for all our people related guidelines and activities. The implementation process of the new EVP will follow in 2014. We Challenge You To Challenge Us Our employee value proposition and basis for employer branding work Our values, the Tele2Way, are and will remain the cornerstone of how we conduct business. We constantly monitor the relevance of their interpretation, adapt our walk-the-talk trainings for managers, and measure how well we live our values. Engaged employees who live our values We believe that engaged employees provide a crucial competitive advantage in our quest for long-term success. An engaged employee is willing to walk the extra mile and is an ambassador to our customers, which ultimately drives customer loyalty. Our internal employee surveys indicate that we have remarkably high levels of employee engagement year after year and we put great effort into maintaining it. We also believe that employees who live and breathe our values are essential to our success. In Tele2, we not only walk the talk and live our values; we also measure how well we do it in our annual employee survey. In 2013 we redesigned our measurement method and introduced five categories that evaluate how well employees perceive and live our values. The categories are: Ambassador, Do-er, Passive, Supporter and Critic. We are happy to see that over a third of our people are true value ambassadors. Going forward we will continue working on and measuring engagement and our values. Ambassadors True value ambassadors embrace the values and act according to them in everything they do. Doers Like the values and act according to them when they can. Supporters Support values emotionally but doesn t act according to them. Passives Act according to the values but lack emotional commitment. Critics Value critics have no emotional commitment to the values or act according to them. 7 Tele2 Annual Report 2013

Differentiation challenge Offering low prices will continue to be the cornerstone of our differentiation, but as our markets mature and the needs of our customers develop, we will focus more on offering the best value rather than offering only the lowest price. We want to become Value Champions. In order to become Value Champions, we are continuously investing in our network and improving our processes to enhance quality, while keeping attractive prices. We are also investing in understanding our customers needs, how they evaluate our performance throughout the entire life cycle, making sure we always deliver what they need for less. Achieving solid price leadership in the eyes of the customer in all markets Tele2 Lithuania has experienced a fantastic journey and has for numerous years been the undisputed price leader. Tele2 Kazakhstan has taken the price leader position in most of the regions in which the company operates. Understanding true customer needs and identifying the drivers of customer satisfaction without sacrificing the company s price leadership and profitability We identified key drivers of customer satisfaction and the processes that require improvements. We implemented improvement plans in relevant touch points where needed. In Sweden, Comviq has established itself as a modern price fighter with a strong focus on online services and easy-tounderstand products and offers. During 2013, Comviq has surprised the market with a bold move it removed the cancellation period and introduced innovative solutions around credit and cost control. The introduction of postpaid subscriptions proved to be very successful and in Q3 2013 Comviq became the fastest growing mobile operator in the Swedish market, with a solid number 1 price position. Business model challenge As technology has evolved, competitive pressures have grown and user behaviours have changed. This calls for increased efficiency and new long-term business models. The most obvious change impacting the telecom industry is the shift from selling voice to selling data. This, in turn, calls for new pricing models which, if correctly designed, will also open up new growth opportunities for the coming years. Another important area to consider is our shift in focus from volume to value which will improve profitability as markets mature. We continue to optimise our customer segmentation based on profitability and target each segment with customised offers in order to reduce churn and enhance sales. By addressing these two areas we will augment growth as well as profitability. Benefiting from the shift from voice to data: We successfully implemented a new pricing structure based on data volume in 2013. The new pricing structure offers customers bundled flat rate services including unlimited voice and SMS. These flat rate bundles are designed to offer customers different data volumes to suit their needs, complemented with upsell and cross-sell possibilities. These flat rate bundles also allow Tele2 to fully capitalize on data usage growth, where the price is set in correlation to the increase in data usage. Unlimited voice and SMS help mitigate the threat from OTT players. We are constantly evaluating different traffic management alternatives in order to give customers the best online experience. We continue to explore and develop relevant IP-based voice and messaging services, regardless of network technology. Benefiting from the shift from volume to value: We work continuously to reduce churn of our most valuable customers and to maintain high customer profitability. We predict churn risk and proactively contact customers with differentiated offers matching their needs. We further increase the value of the existing customer base by means of micro-segmentation based on customer needs and usage profiles, in order to better customise upsells and cross-sells. The Swedish mobile market has moved toward flat rate pricing - unlimited voice and tiered data pricing. Tele2 has successfully managed this pricing shift by introducing, amongst other initiatives, new data tiers and data upselling programmes where the customer can purchase a one-off data bucket once the data volume cap has been reached. The upsell options were introduced for Tele2 Residential, Business-to-Business, mobile broadband and Comviq customers during 2013. Tele2 has moved from throttling data speed once data volume cap is reached to blocking data usage. The blocking combined with clear customer communication has improved customer experience and contributed to increasing upsells. 8 Tele2 Annual Report 2013

Cost leadership challenge Cost-leadership is in our DNA. Tele2 believes that the cost leader will win the battle for customers by offering what they need for less. With this in mind, we question all costs and constantly work to improve our cost efficiency to ensure that we can deliver upon our promise to the customers. Benchmarking cost performance against best practices internally and externally In 2013, all Tele2 mobile operations except Kazakhstan participated in an external benchmarking study. As a result, we identified key cost efficiency focus areas and aligned cost saving targets and action plans with the financial projections. Tele2 s fixed line operations have been benchmarked internally, on a quarterly basis since 2013. Targets have been included in the financial projections and will be tracked on monthly basis. Reengineering and scrutinizing cost structure from a functional perspective Special cost savings initiatives and targets have been identified in 2013 which will be tracked and further developed during 2014. Ensuring optimal Headquarters (HQ) organization cost structure Following the divestment of Tele2 Russia in 2013, Group HQ cost saving targets and action plans were developed to ensure that Tele2 continuously maintain an optimal HQ organization and cost structure. Established in 2004, the IT shared service centre in Riga is responsible for providing cost efficient billing and IT services for the Tele2 Group. The centre has been a key element in the central CTIO organization s sourcing transformation, while improving the products and services for Tele2 s customers. A good example of cost reduction is the insourcing of the maintenance and support agreement for the fixed billing platform in Sweden during 2013. The shift from an outsourcing model in Sweden to an insourced solution in Latvia has enhanced efficiency and control at a lower cost. Quality challenge To support our mission to provide what our customers need for less, we continuously improve quality in our internal processes, thereby securing cost leadership while enhancing quality, as measured from our customers perspectives. We invest to improve quality in areas that we believe will generate the highest return. For example, by ensuring that we handle the root cause of customer problems, we minimise the number of calls to our call centre, and we can lower our overall customer care costs. This in turn enables us to achieve cost leadership and deliver a better and more consistent service to our customers. When choosing which internal processes to focus on, we always prioritise according to the impact on the end-user. Integrating quality assurance into new product development By driving business process development as a key part of product projects, the entire Tele2 organization - from sales to support - can deliver higher quality to our customers. Improving specific measurement methods for voice and data quality By measuring and better understanding the customer s experience of Tele2 s and our competitors networks, we can better manage investments in the network to improve the customer perceived quality. Measuring and managing critical operating areas We use a Quality KPI dashboard to improve efficiency and the quality of services delivered to customers. Synchronising people, processes and systems around customer experience The Value Chain programme aims to increase quality understanding and value adding activities in every aspect of the product lifecycle. The quality improvement work carried out during 2013 contributed to reducing the number of significant incidents affecting customers by more than 30 percent across the whole Tele2 Group footprint. At the end of 2013, Tele2 achieved 99% LTE population coverage in Sweden and Tele2 s first 4G base stations were activated in The Netherlands. Tele2 was the first mobile operator in Europe to make a live voice call on its LTE network. All of our hard work in various people areas is aimed at reaching our vision: We will be champions of customer value in everything we do To achieve this we need highly skilled and engaged people who share our company values - the Tele2Way. 9 Tele2 Annual Report 2013