annual report 1999

MCMXCIXN

etCom A

nnual Rep

ort 1999

A n n u a l R e p o r t 1999

Contents

Financial Calendar

First Quarter Results May 8

Annual General Meeting May 25

Second Quarter Results August 15

Third Quarter Results November 6

34

30

26 22

2521

4

16

41

36

1 1999 Highlights

2 President´s message

4 NetCom AB

10 Board of Directors

11 Senior Executives

12 Financial Review

13 Five Year Summary

14 NetCom Share Data

16 Tele2 AB Sweden

18 Mobile Telephony

22 Fixed Telephony

25 WAP

26 Internet

29 Broadband

30 Cable-TV

32 Tele2 A/S Denmark

34 Tele2 Norge AS

36 Other OperationsRitabellDatametrixOptimal Telecom4T Solutions

40 Associated CompaniesSECEveryday.com

42 Report of Directors

44 Income Statements

45 Balance Sheets

47 Cash Flow Statements

48 Notes

72 Audit Report

Back page Addresses

33

18

1999 Highlights

• Inclusive of prepaid, Comviq added 362,000 gross new sub-

scribers on an annualized basis for a total of 1,641,000.

• 48% annualized growth in activated prepaid card customers

in Sweden to 909,000.

• Monthly mobile average revenue per subscriber (ARPU) in

Sweden, excluding prepaid subscribers, increased by over

14% to SEK 418.

• In March, the NetCom Board announced the appointment of

Lars-Johan Jarnheimer as President and CEO of NetCom AB.

• In June, NetCom announced a business reorganization initia-

tive to cut costs to meet future increases in market compe-

tition. The reorganization will create annualized cost savings

of MSEK 80, effective January 2000.

• In September, Everyday.com, NetCom’s joint venture with

Modern Times Group (MTG), was launched, creating Scan-

dinavia’s biggest Internet portal. Everyday.com offers free

Internet, secure payments in addition to broad product

content.

• In October, NetCom announced a collaboration with Cisco

to launch a new fiber optic ring as part of Tele2’s Internet

back bone which will facilitate greater bandwidth.

• In November, NetCom announced the sale of its 24.8%

shareholding in its associate company, NetCom ASA, in

exchange for a 17.8% stake in Société Européenne de

Communication SA.

• NetCom’s operations were not effected by the changeover

to the new millennium.

1NetCom Annual Repor t 99

F I N A N C I A L S U M M A R Y

SEK million 1999 1998 % Change

Operating revenue 8,193 5,969 +37

Operating profit

before depreciation and amortization 2,097 1,223 +71after depreciation and amortization 1,142 518 +120

Profit after financial items 4,179 232 +1,701

of which profit on sale of shares in associated companies 3,228 — —

excluding profit on sale of shares in associated companies 951 232 +310

Profit after taxes 3,769 67 +5,525

Earnings per share (SEK) (1) 36,29 0,64 +5,570

(1) Earnings per share figures are after taxes and full conversion.

2 NetCom Annual Repor t 99

A Message from the President of NetCom

...ensuring that NetCom is a highly efficient enterprise. Our customers must gain advan-

tages from that efficiency, through prices and quality, at the same time as the interests

of shareholders must also be satisfied, of course.

1999 was a watershed year for NetCom. A massive, far-sighted investment that was long in the red has brokenthrough to profitability, thanks to dedicated hard work.I am thankful for the efforts that my predecessors andmy associates have made to bring us to this destination.I assure you that our goal now is to further amplifyNetCom’s earnings as quickly as possible.

From the start, NetCom’s business concept was tosqueeze prices. This remains essential to our company’sidentity. For a growing number of customers, we are thecompany that offers at a lower price services of a qualityon a par with those of the old monopolists or, for thatmatter, the serious newcomers to the partially deregulat-ed markets where we are active.

My task primarily consists of ensuring that NetComis a highly efficient enterprise. Our customers must gainadvantages from that efficiency, through prices and qual-ity, at the same time as the interests of shareholdersmust also be satisfied, of course.

This makes tough demands on our ability to explainour services to customers. It also makes tough demandson the politicians in power and the government agenciessupervising the slow process of deregulation in the tele-com market. For consumers to genuinely benefit fromcompetition, politicians and government agencies mustshow more resolution for deregulation. The will and thecapacity for this have wavered recently, not only inSweden but also in Norway and Denmark.

NetCom’s various brands – chiefly Comviq GSM,Kabelvision, Tele2 and Tele2Mobil – have earned respectfor their high quality combined with low prices. Behindthis recognition lies a corporate culture that has learnedto wield its tools well, to invest so that efficiency andquality can be satisfied at extremely low cost.

This has created a proud corporate culture in whichthe various brands have grown into one another duringthe past few years, as the people working with thebrands have acted in an integrated organization. Andthat yielded outstanding efficiency gains. During thepast year, we saw similar effects, as staffing numberswere reduced by 150 with no loss of quality.

A look backIn the mobile telephony field, the prepaid card ComviqKontant kept up its rapid pace of expansion. Comviqwas one of the very first mobile telecom companies inEurope to invest aggressively in this technical solution,which was developed in Portugal. The Swedish marketquickly welcomed the prepaid card. Actually, the othertwo Swedish GSM operators were the only ones whotook their time before realizing this crying need amongconsumers. Comviq has retained its strong position asmarket leader in this segment. During 1999, we alsobecame the first Swedish operator to allow prepaid-cardcustomers to make calls while abroad.

Comviq subscriptions invoiced for service reportedoutstanding growth, as did Tele2Mobil subscriptions forbusiness customers.

The Estonian mobile telecom operator Ritabell posi-tioned itself during the year as the price leader in itsmarket.

Since Tele2 was founded, the Internet has been anessential business area. Tele2 pioneered the Internet inSweden at a time when the incumbent operator Teliathought it a passing fad. Tele2 has supplied broadbandcapacity to companies for many years – since longbefore others coined the phrase “Broadband for every-one!” Through Kabelvision, we can also supply suchcapacity to households. Tele2 has good reason to stressthis aspect of the company’s business more clearly in thefuture. The pioneer role may be a thing of the past, butTele2 remains a cutting-edge enterprise in both the busi-ness and consumer markets, capable of marshalingexceptional expertise.

In the area of fixed telephony, 1999 was a trying year.In Sweden, the chief ordeal was the telephone servicereform that included switching the international dialingprefix to 00, replacing the old operator prefixes andintroducing preselect, by which customers could desig-nate a default domestic and international carrier. Thisproved a complicated matter for customers and waspoorly managed by the authorities.

” ”


The transition to preselect caused the most animateddiscussion during a period of unclear instructions fromthe regulatory bodies. Heightened competition was thegoal of the reform, itself part of the deregulation ofEuropean telecom markets under the leadership of theEuropean Union. The goal of former monopolists likeTelia, Telenor and Tele Danmark was quite naturally tominimize the effects of preselect (in Sweden, a sub-scriber can choose to make all calls except local callswith a single operator). As reform loomed, a conflict ofinterest appeared that the operators themselves werepowerless to solve. The National Post and TelecomAgency, the Swedish Competition Authority and theSwedish Consumer Agency must have a mandate andthe power to handle problems that arise. This was notthe case in Sweden. In Denmark and Norway, on theother hand, it was considerably easier to implement thepreselect reform.

The fact that Tele2 in Sweden had become such a sig-nificant rival to Telia caused special problems. Telia sawthe reform as an opportunity to reset the clock to pre-competition days; Tele2 should start from zero, theyseemed to have reasoned. As the merger of Telia andTelenor and their pending stock exchange listingapproached, political and regulatory authoritiesappeared incapable of dealing with this conflict betweenTelia and its only genuine competition, Tele2.

Tele2 was forced to invest substantial sums in explain-ing the reform to customers and the public. Telia’s han-dling of the reform after September 11, when thechange took effect, also left much to be desired. Teliaowns the telephone system (the “copper-wire network”)and is also the biggest competitive operator – a situationthat is entirely unacceptable. The future will show towhat extent EU demands for further deregulation arefulfilled in a reasonable manner. In Denmark, TeleDanmark’s competitors have been able to use the tele-phone network all the way to the customer since thespring of 1999, but Tele Danmark’s pricing so far hasmade that reform a joke. Telia’s Danish subsidiary has

reacted most vociferously against Tele Danmark’s pric-ing, which illustrates the gap between Telia’s actions inSweden and in a market where the company does nothold the position of former monopolist.

The futureTelecom deregulation in Europe is a glacial process,unfortunately. It will take many years before customersenjoy a market in which the former monopoly compa-nies really are competitors, under the same conditions as the new companies. The political structures in eachcountry have a tendency to protect their old state-owned enterprises to the bitter end. This is true ofpoliticians as well as deregulation and competitionauthorities.

In the three markets where NetCom has its principaloperations – Denmark, Norway and Sweden – prospectsfor the future are bright as long as the company keeps toits pursuit of lower costs and the pricing philosophy thatI mentioned in the beginning. The idea is to augmentoperations in Denmark and Norway so that Tele2 cus-tomers there can also be offered mobile telephony inone way or another. The crucial Internet market isanother field where Tele2 has been a pioneer and aggres-sively pursued new projects, such as www.everyday.com,a portal owned jointly with Modern Times GroupMTG AB. This market is seething with competition inevery single country, which I find invigorating. NetComhas never shrunk from an attractive market with intensecompetition. On the contrary, that spurs the Companyto perform even better.

Lars-Johan JarnheimerCEO

Lars-Johan Jarnheimer (right)succeeded Anders Björkmanas CEO of NetCom in March1999.

Tele2Norge AS

Tele2 A/SDenmark

4TSolutions Datametrix Optimal

TelecomProjectsPoland

Ritabell(Estonia)

Tele2 AB(Tele2, Comviq and Kabelvision)

100%48% 50% 17.8%46.8%

NetCom AB

100%

Everyday.com SEC

NetCom AB, formed in 1993, is a leading telecommu-nications company in the Nordic countries. TheCompany provides GSM cellular services, under theComviq and Tele2Mobil brands in Sweden, through itsRitabell subsidiary (Q-GSM) in Estonia and through theTele2 brand in Lithuania. For public telecommunica-tions, data communications and Internet access,NetCom has the Tele2 brand in Sweden and the sub-sidiaries Tele2 A/S in Denmark and Tele2 Norge AS in

Norway. Datametrix, which specializes in systems inte-gration, 4T Solutions and Optimal Telecom are also partof NetCom. The Group offers cable television servicesunder the Kabelvision brand name. NetCom has a17.8% stake in Société Européenne de CommunicationSA. The Company is listed on the Stockholm StockExchange, under NCOMA and NCOMB, and on theNasdaq Stock Market, under NECS.

The NetCom Group


Business conceptBased on customer needs, NetCom AB shall efficiently provide a high level of service when selling and delivering com-

munication solutions for voice, data and images, to make its customers the most satisfied and loyal in the marketplace.

ObjectivesNetCom AB shall be the leading telecom operator in the Nordic and Baltic region. The Company shall achieve solid,

steady growth with improved profitability in both the business and consumer segments.

Strategy• Based on its thorough knowledge of the marketplace, NetCom AB quickly detects trends and launches profitable

communication solutions.

• NetCom’s services are marketed under the Tele2 and Comviq brands. Tele2 is used primarily for the business mar-

ket but even for fixed telephony and Internet access for private individuals. Comviq targets the consumer market

for mobile telephony. Tele2 and Comviq are perceived as the price leaders.

• By deploying new technologies at an early stage, NetCom generates fresh sources of revenue and boosts profitability.

Profitability is ensured through cost-effective and flexible operations that adhere to clearly defined standards of quality.

• Integrated services enable NetCom to better satisfy customer needs.

PrinciplesNetCom AB’s operations are based on three fundamental principles, intended to inform day-to-day activities.

• Flexibility

• Non pretentiousness

• Cost awareness

Tele2 AB offers mobile telephony,fixed telephony, Internet, datacommunications and cable-televi-sion services in Sweden. The com-pany’s services are marketed underthe Tele2, Comviq and Kabelvisionbrands. Tele2 is used primarily for mobile telephonyand data communications for the business market,and fixed telephony and Internet services for privateindividuals. Comviq is used as a consumer brandfor mobile telephony. Tele2 uses the Kabelvisionbrand name in the cable-TV market. Tele2 ABaccounted for 76% of Group revenues in 1999.


▲Tele2 Norge AS has provid-ed Internet and data com-munications services since1995 and fixed telephonysince 1998. The company isregarded as the private alterna-tive to the old state-owned monopoly. Tele2 Norge ASserves businesses and private individuals. The companyaccounted for 5% of Group revenues in 1999.

Tele2 A/S Denmark has offeredfixed telephony, Internet and datacommunications services inDenmark since 1996. The compa-ny is the leading alternative operatorin Denmark. It serves both businesscustomers and private individuals. Tele2 A/S of Denmarkaccounted for 11% of Group revenues in 1999.

▲

Other Operations includesRitabell, which offers mobiletelephony services inEstonia; NetCom owns94.8% of Ritabell. Amongthe remaining businesses are theoperator Optimal Telecom; 4T Solutions, whichdesigns, markets and installs invoicing systems; andDatametrix, which works with systems integration.Companies in Other business accounted for 8% ofGroup revenues in 1999.

▲▲

11%

8%

5%76%

* Proportion of Group operating revenue in 1999.

*

*

*

*

T H E B U S I N E S S E S I N B R I E F


works to transfer voice, images, text, audio and video. IP is equally effective whether used on a mobile, fixed or data network.

The technology poses fresh challenges to telecomoperators. In particular, competition is coming frombusinesses such as software manufacturers, systems inte-grators and media content providers. IP has given thesecompanies the ability to provide telecommunicationsservices.

Flexibility of small businessAmong the NetCom Group’s strengths is its success atcombining the advantages of a small business – speed,flexibility and cost awareness – with the economies ofscale available to big companies. In this market, it is notthe big that beat the small but the fast that beat the slow.

In Sweden, NetCom offers businesses and consumerscomplete customized solutions as well as standardizedservices in fixed and mobile telephony, Internet, datacommunications and cable-TV.

The Company has access to well-known brands, anextensive infrastructure and a broad customer base.

Telia controls access networkOne obstacle in Sweden is the legacy of the old telecommonopoly in the fixed telephony market. Telia owns thetelecommunications network that was built by the publicsector. This control of the access network, that is, thefinal link to the customer, guarantees Telia an effectivemonopoly on basic service subscriptions. A similar situa-tion exists in Norway.

The Swedish National Post and Telecom Agency(PTS) has proposed a change in the Swedish Telecom-munications Act that would open the national accessnetwork for telephony to other telecom operators thanTelia. However, the proposed legislative changes leaveseveral key issues unresolved. NetCom does not expectany other operators to be able to compete commerciallyuntil the second half of 2001, at the earliest.

QualityThe following quality guidelines apply to all activitiesthroughout the Group.

“A vital means for achieving our goals is first-classquality in everything we do. The basic foundation forthis is our principles and know-how. Our maxim is con-tinuous improvement. The actual use of a product orservice must always meet the customer’s expectations. We constantly place the customer at center stage, andour chief gauge of quality is his or her satisfaction. Ourpromises, our actions and our products must be per-ceived as embodying quality. Our customers must alwaysfeel confident in NetCom AB as a service provider.”

Environmental policiesNetCom AB’s operations have only a limited impact onthe environment. Nevertheless, customers increasinglyrequest the Group to confirm that its practices are asenvironment-friendly as possible. The Group’s environ-mental policy states that environmentally certified prod-ucts should be used whenever possible. In addition, everyeffort should be made to manage waste generated by theCompany’s offices in a sound environmental manner.Scrapped materials should be handled similarly. Finally,purchasing decisions must take into account environ-mental considerations. Mobile telephony in particulardemands that the Group pay constant attention to envi-ronmental safety, keep up with research in Sweden andabroad, actively participate in discussions of health, theenvironment and security and disseminate new findingsthrough its web site.

The new IP standardOwing to the rapid growth of the Internet, the Internetprotocol suite (IP, the Net’s basic language of communi-cation) has become accepted as the standard communica-tions protocol. And the spread of IP is spurring the con-vergence of fixed telephony, mobile telephony and datatransfer. The protocol allows data communications net-

The NetCom Group


In Denmark and Norway, the ability of Tele2 compa-nies to offer complete solutions is restricted by their lackof mobile telephony operations.

Radiation warnings for cellular phonesNow and then, warnings appear in the media about radi-ation from cellular phones and base stations. Such dis-cussions could impede the further expansion of mobiletelephony services.

NetCom offers complete solutionsBy offering complete solutions from all of the Group’sbusiness areas to a greater extent than previously,NetCom has major potential for boosting sales to newprospects in Sweden. The long-term goal is to be able tooffer complete solutions in every market.

Another spur to sales is NetCom’s ability to offer existing customers services provided by other companiesin the Group. Such collaboration can also boost the useof existing services.

Given the global nature of its operations, theCompany is well positioned to transfer know-how fromone country to another, too. The Group has significantpotential in the various business areas sharing their exper-tise more than at present.

Major corporate transactions in 1999Higher stake in Ritabell, EstoniaIn January, NetCom acquired 90% of the share capital inTele2 Eesti AS, formerly AS Levicom Cellular (CellCo),and 19% of OÜ Levicom Broadband (BroadCo). Tele2Eesti has a 52% stake in Ritabell, the Estonian mobileoperator, and 100% of a Lithuanian GSM 1800 license.The acquisition boosted NetCom’s holding in Ritabell,from 48% to 94.8%. BroadCo’s business includesInternet services in Estonia and several cable-TV compa-nies in Estonia and Lithuania.

Investment in Suomen Kolmegee Oy, FinlandIn March, NetCom’s Tele2 AB reached an agreementwith 41 Finnish Finnet companies to acquire 20% of the shares and votes in Suomen Kolmegee Oy. Tele2 ABwill be the largest single shareholder. Suomen Kolmegeehas been granted a nationwide license in Finland for a third-generation mobile telephony network, using W-CDMA/UMTS. Besides constructing and operatingthe network, the company will sell capacity to serviceproviders. The company will have access to the infra-structure already managed by the Finnet companies.Thus, the investments required should be significantlyless than usual. Sales will be made to end-users throughthe service providers. Tele2 AB is authorized to act as aservice provider in Finland.

Late 1970s: Industriförvaltnings AB Kinnevik decidesto enter the telecommunications market.

1981 Kinnevik starts its own analog mobile telephonynetwork.

1980s: Kinnevik prepares to provide traditional voiceand data communications.

1986 A satellite link for data traffic is established.

1989 An agreement is signed with the Swedish NationalRail Administration on a joint fiber-optic network.

1989 Kinnevik is awarded a license to operate a nation-wide GSM network.

1990 Tele2 AB is formed.

1992 Comviq GSM is launched.

1993 The fixed telephony market in Sweden is deregu-lated.

1993 NetCom Systems is formed to own and developthe Kinnevik group’s telecommunications companies inthe Nordic countries.

1993 Kinnevik and Orkla set up NetCom ASA inNorway. NetCom Systems owns 25% of the company.

1995 NetCom Systems launches the precursor to Tele2Norge.

1996 The shares of NetCom Systems are distributed toKinnevik shareholders. At the same time, these shares arelisted on the Stockholm Stock Exchange’s O list.

1996 Through its subsidiary Tele2 A/S, NetComSystems becomes Tele Danmark’s first rival in the Danishtelecommunications market, breaking up a monopolythat had lasted a century.

1997 NetCom Systems’ shares are listed on the NasdaqStock Market.

January 1, 1998: The Norwegian telecommunicationsmarket is deregulated.

1998 Operations expand into the Baltic states throughthe acquisition of 48% of Ritabell, a mobile telecomoperator in Estonia.

1998 NetCom Systems AB changes its name toNetCom AB.

1999 NetCom AB boosts its Ritabell holding to 94.8%.

1999 Carrier preselect is introduced in Denmark,Norway and Sweden.

1999 NetCom AB sells its holdings in NetCom ASA toSociété Européenne de Communication SA (SEC) inexchange for newly issued stock in SEC. Following thedeal, NetCom AB owns 17.8% of SEC’s capital.

H I S TO R Y


Internet and radio licenses in PolandIn May, NetCom received a nationwide Internet serviceprovider (ISP) license in Poland as well as a license tooperate a wireless local loop (WLL) in several populationcenters. The ISP license, valid for 15 years with a renewaloption, makes it possible for NetCom to offer Internetaccess throughout the country. The WLL license is forfive years and can also be renewed. In the areas coveredby the latter license, NetCom will be able to offer bothdomestic and international data transmission as well astelephony access for households and companies throughits own WLL network. Approximately 14 million people,or 36% of the Polish population, live in the regionsincluded in the license. The license was awarded toIn2loop Polska; NetCom, with a 49% stake, is the onlyforeign shareholder in the company.

SEC holding acquired through share swapTo emphasize its European focus, NetCom AB, inNovember, sold its stake in NetCom ASA to SociétéEuropéenne de Communication SA (SEC). For its24.8% holding in NetCom ASA, the Company obtainednew stock in SEC equivalent to 17.8% of share capitaland votes. SEC’s activities span fixed telephony, mobiletelephony, the Internet, prepaid fixed telephone cardsand call centers. SEC operates in seven European coun-tries, markets with a total of some 240 million people.

No disruptions over millenniumBy means of comprehensive testing throughout 1999,NetCom AB made sure that all systems employed in theGroup’s business would successfully make the transitionto the 21st century. No problems arose at all. In additionto ensuring a smooth transition, much of the work wasworthwhile from other points of view.

Reorganization lowers costsIn June, NetCom AB carried out a comprehensive reor-ganization of its Swedish operations to better deal withfuture competition and to hold down costs in the Group.About 150 positions were eliminated, just less than one-third of which were permanent. The resulting savingswill be at least SEK 80 million a year from 2000.

Quality assurance revised and reaffirmedSwedish Tele2 and Comviq previously pursued theirquality efforts in accordance with ISO standards. ISOcertification required a review of the companies’ proce-

dures that proved valuable and a great aid to qualityassurance. Nevertheless, it became evident that the com-panies should establish their own priorities to achieveobjectives not covered by the ISO system. Thus, Tele2and Comviq decided to suspend preparations for ISOcertification and instead develop their own quality-assur-ance systems better adapted to customer requirements.The essentials of their previous quality assurance workhave been preserved and expanded upon. The approachhas become more consistent, with a sharper focus onprocesses which need improvement. Support systems arenow more closely linked to the NetCom Group’sintranet, the backbone of its internal communications.Also, all employees and consultants have been trained inquality-related issues.

In compliance with Danish telecommunications legis-lation, invoice procedures at Tele2 A/S in Denmark haveobtained ISO 9002 certification. Tele2 Norge AS is con-ducting a process-oriented quality project targetingprocesses which need improvement.

Ongoing trainingTo strengthen the Group’s management corps, more than100 managers from Swedish operations completed aneight-day leadership training course. The objective was tofoster an attitude and approach among Company man-agers that would help them to motivate other employees.

NetCom also has a management trainee program toensure a steady supply of competent leaders for thefuture. Several new graduates are selected each year forthe year-long program. In three phases, participants gainexperience within the organization through hands-onwork in sales, technology and the operations in Denmarkor Norway.

NetCom conducts training on an ongoing basis. Forexample, Swedish sales managers underwent advancedtraining in 1999. All new employees complete a two-daybasic course that covers NetCom’s business, goals, princi-ples and quality-assurance objectives.

Employee bonus programNetCom AB sets salaries on an individual basis. Beyondthe basic salary, every employee in the Group participatesin a bonus system. The annual bonus can be as much as4% of wages. Bonuses are contingent upon the attain-ment of specific revenue, profitability and customer-satis-faction objectives. The 1999 bonus was 1.0%, comparedto 2.5% in 1998.

NetCom AB

NetCom squeezes pricesAs in most countries, Swedish telephony services were long the reserve of a state-owned monopoly. The mobile telephony market was not dereg-ulated until the fall of 1992, when Comviq launched its GSM network.The market for fixed telephony service was formally deregulated in 1993.However, the Telia monopoly has lingered in several key segments.

Price trends in competitive segments of the telephony market

Mobile telephonyUntil Comviq GSM AB started in September 1992, a call from a mobile phone cost SEK 4.25 perminute. The same rate had applied since 1981. A Comviq call now costs as little as SEK 0.40 per minute,a decline of 91% since the market was opened.

International calls via fixed telephonyIn 1993, Telia charged SEK 8.65 per minute for phone calls from Sweden to the United States. Now,Tele2 charges SEK 1.35 per minute for the same call, or 84% less.

Fixed long-distance telephonySome long-distance calls for which Telia charged SEK 1.32 per minute in 1994 are now classified as localcalls by Tele2, which charges SEK 0.20 per minute for them. The 85% disparity in prices is a direct resultof competition.

Price trends in segments where Telia faces little or no competition

Local callsA local call that cost SEK 0.11 per minute day time through Telia in 1994 now costs SEK 0.23, up 109%.

Service subscription feesTelia’s quarterly subscription fee for individuals went from SEK 217 in 1993, to SEK 315 in 1999. Lack of competition has allowed this 45% jump in price.


Prices were effective in March 2000.


Board of Directors

Vigo Carlund (born 1946) has worked inKinnevik companies since1968, such as Partner Motor-sågar and Svenska Motor AB,as president in the latter. In1997, he became vice presi-dent of Industriförvaltnings ABKinnevik (Kinnevik), and inMay 1999 president. Carlundhas been president of Korsnässince 1998. Member of theBoard of NetCom since 1995.

Marc J. A. Beuls(born 1956) has a B.Sc. inEconomics. He has beenpresident of Millicom sinceJanuary 1998, and presidentof Banque Invik in Luxem-bourg since June 1997. Beuls previously held execu-tive positions at GeneraleBank in Belgium. He is amember of the board ofSociété Européenne deCommunication (SEC) andbecame a member of theBoard of NetCom in 1998.

Jan Hugo Stenbeck Chairman of the board

(born 1942) is chairman of theboards of Kinnevik, Millicom,Invik and MTG. He has been a member of the Board ofNetCom since 1993.

Holdings: 787,027 class A shares.

Håkan Ledin (born 1937) has an M.B.A.and an M.Sc. in Engineering.He worked for LM Ericssonfor many years before leavingin 1987 to become presidentof Millicom, where he is vicechairman of the board.Between 1995 and 1996, hewas president of NetComSystems. Since 1996, Ledinhas been a member of theboard of SEC. He has been a member of the Board ofNetCom since 1994.

Holdings: 80,000 class B shares.

Stig Nordin (born 1943), M. Sc.Engineering, has more thantwo decades’ experience in theforest products industry. Hejoined Kinnevik in 1989 andbuilt up TV3 in London.Nordin became vice presidentof Kinnevik in 1991, andfrom May 1992 to May 1999he was president. Since 1999,he has been president of Invik& Co AB. He was presidentof Korsnäs 1993–1998.Member of the Board ofNetCom since 1993. Otherboard assignments: Kinnevik,Millicom and MTG.

Holdings: 10 class B shares and,through relations, 4,878 class Bshares.

Lars-JohanJarnheimerpresident and CEO (not a member of the Board)

(born 1960) is an M.B.A. He has been president andCEO of NetCom AB sinceMarch 1999. He has held vari-ous positions at IKEA, Hennes& Mauritz and SARA Hotelsand served as president of ZTVa short while before joiningComviq as vice president.Jarnheimer was president ofComviq 1993–1997. He was a member of executive manage-ment at Saab Automobiles withresponsibility for the Nordiccountries, Russia and the Balticstates and was president of SaabOpel Sverige AB 1997–1998.1998–1999 he has been vicepresident of Industri-förvaltnings AB Kinnevik andpresident of Investment ABKinnevik. Board assignments:MTG, SEC and Arvid Nord-quist HAB.

Holdings: 2,000 class B sharesand 48,000 options.

Lars Wohlin(born 1933), Ph.D. Econ., washead of the Swedish IndustrialResearch Institute 1973–1976.He served as Under-Secretaryof State in the conservative gov-ernment 1976–1979 and as a Governor of the Riksbank(Swedish central bank) 1979–1982. Between 1983 and 1996,Wohlin was chairman of theboard of the property companyDrott and president of theUrban Mortgage CreditCorporation of Sweden. He has been a member of theBoard of NetCom since 1996.

Sven Hagströmer(born 1943) was president and chairman of the board ofHagströmer & Qviberg fromits founding in 1980 until1995. He is the chairman ofthe boards of Investment ABÖresund and AB Custos andhas been a member of theBoard of NetCom since 1997.Other board assignments:Acando, Arkivator, BokförlagetAtlantis, ProtectData, QuartzPro and HQ.se.

Johnny Svedberg

Born 1962.Vice president of Tele2 AB,New markets. B.A. Mktg.Employed since 1990.

Holdings: 220 class B sharesand 4,000 options.

Jörgen Latte

Born 1954.Senior Vice Presidentand Chief financialofficer of NetCom ABsince 1997. M.B.A.Employed since 1992.

Holdings: 200 class Bshares and 42,000options.

Kenneth Gustafsson

Born 1951.President of Tele2 A/S Denmarkeffective January 2000.Employed since 1993.

Holdings: 8,000 options.

Lars-Johan Jarnheimer

Born 1960.President and CEO of NetCom ABand Tele2 AB from 1999. M.B.A.Employed since 1992.

Holdings: 2,000 class B shares and48,000 options.

Roger Mobrin

Born 1968.Operations manager at Tele2 AB. Technical secondary school.Employed since 1995.


Lars-Erik Svegander

Born 1941.Human resources manager at Tele2 AB.Employed since 1991.


Fredrik Berglund

Born 1961.Marketing and sales managerat Tele2 AB. B.A. Mktg.Employed since 1995.


Henrik Ringmar

Born 1969.President of Tele2 NorgeAS. M.B.A.Employed since 1998.


Björn Lundström

Born 1965.Networks manager at Tele2 AB. M.Sc.Engineering.Employed since 1991.


Ebbe Jörgensen

Born 1938.Executive vice chairman ofTele2 A/S Denmark effectiveJanuary 2000. M.B.A.Employed since 1995.

Holdings: 1,130 class B sharesand 22,800 options.

Jeanette Almberg

Born 1965.Director customer service at Tele2 AB. M.B.A.Employed since 1995.



Senior Executives


Financial Review

NetCom increased operating revenue 37% in 1999, toSEK 8,193 million. Operating revenue advanced strong-ly in mobile telephony operations in Sweden and excep-tionally well in NetCom’s operations in Denmark andNorway.

Mobile telephony in Tele2 AB in Sweden contributedSEK 3,909 million, up 32% (SEK 2,958 million in1998). Fixed telephony and Internet reported operatingrevenue 18% better, at SEK 2,630 million (SEK 2,223million), while Cable-TV’s revenues declined 20%, toSEK 110 million (SEK 137 million). Operating revenuein Tele2 A/S in Denmark surged 78%, to SEK 974 mil-lion (SEK 546 million) and in Tele2 Norge AS 163%,to SEK 444 million (SEK 169 million). Other opera-tions, which includes Optimal Telecom, 4T Solutions,Datametrix and Ritabell, boosted operating revenue toSEK 696 million (SEK 197 million), up 253%.

Operating profit before depreciation and amortiza-tion climbed 71%, to SEK 2,097 million. The operatingmargin before depreciation and amortization increased,to 25.6%, from 20.5%, as a result of a sharp rise in theprofitability of NetCom’s Swedish fixed and mobile tele-phony businesses and reduced losses in Tele2 A/S inDenmark and Tele2 Norge AS.

Mobile telephony within Tele2 AB boosted operatingprofit before depreciation and amortization 45%, toSEK 1,858 million (SEK 1,277 million). Operatingprofit before depreciation and amortization for fixedtelephony and Internet equaled SEK 466 million, up77% from the profit of SEK 263 million in 1998.Cable-TV reported an operating loss before depreciationand amortization of SEK 8 million (SEK 2 million prof-it in 1998). The operating loss before depreciation andamortization for Tele2 A/S in Denmark totaled SEK 47million (SEK 115 million). Tele2 Norge AS reported anoperating loss before depreciation and amortization ofSEK 58 million (SEK 93 million). For Other businesses,operating profit improved, to SEK 51 million (SEK 21million loss in 1998).

The cost of the stock option program for senior man-agement is based on the market price of NetCom shares.The appreciation of the share during the year requiredan increase of SEK 134 million in the provision for theoption program for 1999, compared to SEK 67 millionin 1998.

Operating profit after depreciation and amortizationjumped 120%, to SEK 1,142 million. The operatingmargin after depreciation and amortization alsoimproved, to 13.9% (8.7%).

Net interest income and other net financial itemstotaled SEK 241 million (SEK 276 million). Thedecline was primarily caused by lower interest ratesdespite the increase in loans outstanding. The averageinterest rate on outstanding debt dropped, to 4.8%from 6.6%.

Profit after financial items rose, to SEK 4,179 million(SEK 232 million). The increase was owing to betterprofitability in operations and a profit of SEK 3,228million from the sale of the Group’s 24.8% shareholdingin its associated company NetCom ASA. Profit afterfinancial items excluding the gain on the sale of sharesin the associated company was SEK 951 million for full-year 1999.

Profit for the year also rose, to SEK 3,769 million(SEK 67 million). The increase reflected improved prof-itability in NetCom’s operations and the gain on the saleof shares in the associated company.

Earnings per share increased, to SEK 36.29 (SEK0.64). Profit for the year excluding the gain on the saleof shares in the associated company was SEK 541 mil-lion (SEK 67 million), and earnings per share excludingthat gain were SEK 5.21 (SEK 0.64).

NetCom’s total assets at December 31 were SEK14,693 million, reflecting a rise of 44%, compared toSEK 10,189 million at December 31, 1998, as a resultof greater investment in core operations and companyacquisitions.

Parent CompanyThe Parent Company reported a profit after financialitems of SEK 914 million (SEK 29 million loss in1998). The total included a capital gain of SEK 2,957million on the sale of shares in NetCom ASA, a capitalloss of SEK -1,912 million on a sale within the Groupand SEK -19 million from losses on shares and partici-pations in associated companies. Total profit includedincreased provisions for option commitments to man-agement equaling SEK -134 million (SEK -67 million),necessitated by the dramatic appreciation of theCompany’s share price.

Operating revenues

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96 97 98 99

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Text in parantheses are adjustments thatreflect full conversion of debentures.

LiquidtyCash and cash equivalents includingunused credit facilities.

Net borrowingInterest-bearing liabilities (less convert-ible debentures) less interest-bearingassets.

InvestmentsAcquisitions and divestment of fixedassets and investments through financialleases and investments not qualifying ascash equivalents.

Equity/assets ratioShareholders’ equity (including theconvertible debentures) divided by total assets.

Return on shareholders’ equityProfit/loss after tax, less non-recurringitems, minority share and standard tax(and interest expense for convertibledebentures after deduction of tax),divided by average capital (including the convertible debentures).

Return on capital employedProfit/loss after financial items, excludingnon-recurring items and financialexpenses (excluding the interestexpense for convertible debentures)divided by average capital employed.

Capital employed Total assets, less provisions, minorityinterests and non-interest-bearingliabilities.

Average interest rateInterest expence (excluding the interestexpense for the convertible debenture),divided by average interest-bearing liabil-ities (excluding the convertible deben-tures).

Profit/loss per shareProfit/loss for the period (excluding theinterest expense for the converibledebentures, after deduction of tax),divided by the weighted avarage numberof shares outstanding during the fiscalyear (that would result from full conver-sion of the convertible debentures).

Shareholders’ equity per shareShareholders’ equity (including theconvertible debentures) less minorityinterest, divided by the weighted averagenumber of shares during the fiscal year(that would result from full conversionof the converible debentures).

P/e ratioShare price divided by profit/loss pershare.

Cash flow per shareIs based on cash flow from operatingactivities before investing and financingactivities.

Dividend per shareRefers to the decided or suggesteddividend for each year.


Five-year summary

1999 1998 1997 1996 1995 *

Income statement and balance sheet

items, SEK million

Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,193 5,969 4,036 2,872 1,953

Operating profit/loss before

depreciation and amortization . . . . . . . . . . . . . . . . . . . 2,097 1,223 1,000 651 – 431

Operating profit/loss after

depreciation and amortization . . . . . . . . . . . . . . . . . . . 1,142 518 392 254 – 728

Profit/loss after financial items . . . . . . . . . . . . . . . . . . . 4,179 232 – 37 29 – 1,456

Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002 3,269 3,156 2,276 – 910

Shareholders’ equity, after full conversion . . . . . 7,002 3,269 3,193 2,923 – 910

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,693 10,189 8,684 7,527 4,831

Cash flow provided by operating activities . . . . . 1,771 990 411 610 – 759

Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,123 821 1,499 819 189

Net borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 605 4,600 3,579 3,894 4,555

Net borrowing, after full conversion . . . . . . . . . . . 4,605 4,600 3,542 3,247 4,555

Investments, including financial leases** . . . . . . . . . 1,493 1,959 1,117 1,016 1,006

Key ratios, %

Equity/assets ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 32 36 30 – 19

Equity/assets ratio, after full conversion . . . . . . . 48 32 37 39 – 19

Return on shareholders’ equity . . . . . . . . . . . . . . . . . 73.4 2.1 3.2 – 10,0 N/A***

Return on shareholders’ equity,

after full conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.4 2.1 3.2 – 3.3 N/A***

Return on capital employed . . . . . . . . . . . . . . . . . . . . . . 43.6 6.7 4.8 1.3 – 24.5

Average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 6.6 7.1 8.9 11.5

Average interest rate, after full conversion . . . . 4.8 6.6 7.1 8.6 11.5

Per share data, SEK

Profit/loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.29 0.64 0.50 2.80 – 44,107.40

Profit/loss per share, after full conversion . . . . . . 36.29 0.64 0.57 2.78 – 44,107.40

from Tele2 Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 1.10 – 1.24 – 0.46 – 0.12 – 28.15

from Tele2 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . – 1.39 – 1.69 – 0.79 – 0.16 –

from associated companies . . . . . . . . . . . . . . . . . . 0.18 – 0.14 – 0.85 2.52 – 20,005.20

from sale of shares in associated companies . 31.08 – – – –

from Tele2 Sweden and

other companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.52 3.71 2.67 0.54 – 24,074.05

Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.43 31.55 32.18 25.78 – 45,520.00

Shareholders’ equity after full conversion . . . . . 67.43 31.48 30.86 28.70 – 45,520.00

Cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.05 9.56 4.19 6.91 – 37,965.70

Cash flow after full conversion . . . . . . . . . . . . . . . . . . 17.05 9.53 3.97 5.99 – 37,965.70

Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – –

Share price at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . 598.00 330.00 170.50 110.50 N/A*

P/E ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.48 512.92 344.43 39.40 N/A*

P/E ratio, after full converion . . . . . . . . . . . . . . . . . . . . . 16.48 514.17 298.12 39.81 N/A*

* Until NetCom was listed on the Stockholm Stock Exchange in 1996, it was a wholly-owned subsidiary of

Industriförvaltnings AB Kinnevik.

** Financial leases are included from January 1, 1997.

*** Not applicable because of negative shareholders’ equity.

**** The weighted number of A and B shares outstanding at December 31, 2000, was 103,850,246.

D E F I N I T I O N S


NetCom Share Data

Listing on the Stockholm Stock ExchangeNetCom’s A and B shares were first quoted on theStockholm Stock Exchange’s O list on May 14, 1996,when the stock was distributed to shareholders inIndustriförvaltnings AB Kinnevik. After the distribu-tion, Kinnevik held no shares in NetCom but retained a convertible debenture corresponding to 25,555,555shares. In 1996, Kinnevik sold shares obtained fromconverting part of the loan to institutional investors andInvik & Co. AB.

Listing on NasdaqTo attract interest in the United States for theCompany’s shares and to increase liquidity in tradingoutside Sweden, NetCom’s shares were listed on theNasdaq Stock Market starting January 22, 1997. Amonth later, 2,000,000 new class B shares were issued.NetCom issued the shares with the aim of expanding itscircle of international shareholders and bolstering trad-ing in its shares on Nasdaq. The proceeds from theissue, totaling SEK 220 million, were applied mainly to ongoing capital expenditure, especially to developNetCom’s Danish and Norwegian operations.In conjunction with the issue, Industriförvaltnings ABKinnevik sold the majority of its remaining convertibledebenture loan in NetCom, converted into 6,000,000 B shares.

Other debt instrumentsIn the spring of 1997, on two occasions Cable &Wireless sold its shares in NetCom. At year-end 1996,

Cable & Wireless had been NetCom’s third largestshareholder, controlling 9.2% of the votes. In mid-1997, Invik & Co. AB converted its holding of con-vertible debentures in the Company. The conversionrepresented 6,700,000 B shares and expanded NetCom’sshareholders’ equity by SEK 335 million.

During the second quarter of 1998, convertibledebentures were redeemed for 755,555 class B shares.With this conversion, NetCom no longer had any out-standing convertible debentures, and since that datethere has been no change in the number of shares.

At December 31, 1999, NetCom AB had103,850,246 shares on issue and no outstandingconvertible debentures.

One class A share represents 10 votes, and one B share one vote.

ShareholdersAt year-end 1999, NetCom had about 54,000 share-holders, compared to about 56,000 one year previous.Institutional shareholders controlled 60% of the capitaland 74% of the votes at December 31, 1999.

Analysts who cover NetComSome of the analysts who cover NetCom are:Ulf Hellzén, Swedbank, Peter Dahlander, Carnegie,Richard Rosenbacke, Enskilda Securities, Lena Hansson,Warburg Dillon Read, Peter Kurt Nielsen, Alfred Berg,James Sawtell, Goldman Sachs and Johan Broström,Hagströmer & Qviberg.

Ownership structure, December 31, 1999 Current distribution

Number Pctg. of Pctg. ofClass A Class B Class A+B of votes capital votes

Invik & Co AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,405,792 2,563,166 10,968,958 86,621,086 10.56 32.48

Afti AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,178,730 2,178,730 21,787,300 2.10 8.17

Brotherton Corporation NV . . . . . . . . . . . . . . 1,384,316 4,607,228 5,991,544 18,450,388 5.77 6.92

Förvaltnings AB Confidentia . . . . . . . . . . . . . . . 886,900 886,900 8,869,000 0.85 3.33

Stenbeck, Jan Hugo . . . . . . . . . . . . . . . . . . . . . . . . . . 787,027 787,027 7,870,270 0.76 2.95

Nordbankens Allemansfond Beta . . . . . . . . . 612,450 842,400 1,454,850 6,966,900 1.40 2.61

Chase Manhattan Bank . . . . . . . . . . . . . . . . . . . . . 21,300 3,762,647 3,783,947 3,975,647 3.64 1.49

Industriförvaltnings AB Kinnevik . . . . . . . . . . 60,000 3,290,000 3,350,000 3,890,000 3.23 1.46

State Street Bank & Trust Co. . . . . . . . . . . . . . 3,079,728 3,079,728 3,079,728 2.97 1.15

Livförsäkringsbolaget Skandia . . . . . . . . . . . . . 198 000 962,269 1,160,269 2,942,269 1.12 1.10

Total, ten largest shareholders . . . . . . 14,534,515 19,107,438 32.39 61.66

Other shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 3,561,117 66,647,176 67.61 38.34


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Tele2 AB Sweden is a Swedish telecommunications company that sells and delivers, in a

cost-effective manner with first-class service, profitable communication solutions to its

customers.

Tele2 AB


ele2 offers services in mobile telephony, fixedtelephony, the Internet, data communicationsand cable-TV. The company provides every-

thing, from customized communications solutions forlarge corporate groups, to standardized packages for indi-viduals and small businesses.

The company’s services are marketed under the Tele2and Comviq brands. Tele2 is used primarily for mobiletelephony and data communications for the businessmarket but even for fixed telephony and Internet servicesfor private individuals. Comviq is used as a brand formobile telephony for consumers. Both brands are posi-tioned as flexible, customer-friendly price leaders. Tele2uses the Kabelvision brand name in the cable-TV market.

Complete range of servicesTele2 is the only telecom operator besides Telia that canoffer a complete line of services for mobile telephony,fixed telephony, the Internet, data communications andcable TV. Technologies for mobile telephony, fixed tele-phony, Internet communication and data communica-tion are converging, so the capability to provide totalsolutions constitutes a major competitive edge. More-over, customers show a growing desire to fulfill all oftheir communications requirements through one supplier, and that favors Tele2.

Smoothly functioning customer careCrucial to Tele2’s success is its close relationships withcustomers and its ability to respond quickly to newdemands, preferences and market conditions by offeringappealing solutions.

A well-run customer service operation is crucial tomaintaining loyalty. Tele2 has an in-house support func-tion for large corporate customers in fixed telephony,Internet service and data communications. Individualsand small businesses turn to call centers, which are runby Transcom, a Kinnevik company that specializes in thisarea.

If a case turns out to be a technical fault that neithersupport services nor the call center can resolve, it ispassed on to specialists at the company’s technical sup-port for customer care.

Customers wishing to close their accounts are referredto employees trained to handle such matters.

Tele2 reaches out to its customers in a number ofways. They receive discount prices to various events andare kept informed of the latest developments through

1981 Comvik AB commences operations in the Swedishmarket for analog mobile telephony.

1986 Kabelvision HB begins operations.

1986 Tele2 commences operations under the name ofComvik Skyport AB.

1990 Comvik Skyport changes its name to Tele2 AB.

1991 Tele2 AB starts providing data communicationsservices and is awarded a fixed telephony license.

1991 Tele2 becomes the first Swedish company to offerInternet access.

1992 Tele2 offers domestic and international leased lines.

1992 Comviq GSM is the first Swedish company toopen a GSM network.

1993 By dialing Tele2’s 007 prefix, businesses and pri-vate individuals can call abroad more cheaply thanthrough Telia.

1994 A similar service is introduced for long-distancecalls.

1995 Internet use takes off.

1997 Comviq launches its prepaid card.

1998 The prepaid card makes its breakthrough. Sales ofthe prepaid card rise dramatically.

1999 The Swedish preselect reform allows people tochoose their own phone company for domestic andinternational calls. Number portability initiated for fixedtelephony in metropolitan areas.

T

H I S TO R Y

newsletters and brochures. Comviq has been a pioneer incultivating customer loyalty, often broadening its effortsto include other Tele2 businesses. In the Collect club,customers of Comviq, Tele2 and Kabelvision can collectbonus points for services used. A certain number ofpoints entitles a customer to a discount on a particularproduct or service.

Mobile TelephonyOperating revenue, SEK 3,909 million (2,958), +32%Operating profit before depreciation and amortization, SEK 1,858 million (1,277), +45%

Fixed Telephony and InternetOperating revenue, SEK 2,630 million (2,223), +18%Operating profit before depreciation and amortization, SEK 466 million (263), +77%

Cable-TVOperating revenue, SEK 110 million (137), -20%Operating profit before depreciation and amortization, SEK -8 million (2)


Tele2 AB SverigeTele2 AB

Tele2’s mobile telephony operations grew apace in 1999, fueled by

new types of subscriptions and a sharp increase in the number of

customers using prepaid cards. The Company expanded its share of

the mobile telephony market.

Tele2 markets its cellular services under theComviq and Tele2Mobil brands, which usethe same GSM network. Comviq targets con-sumers, whereas Tele2Mobil aims solely atbusinesses. The mobile telephony servicesare to be perceived as price leaders.

Tele2 markets its cellular services throughindependent dealers who are autonomousretailers or distributors or members of achain. The business market is also canvassedby the Company’s sales force and by tele-marketers.

▲▲

Mobile Telephony

FA C T S I N B R I E F


• Including prepaid card users, the number ofcustomers increased 28%, to 1,641,000.

• At year-end, 909,000 customers used prepaidcards, an increase of 48%.

• Prepaid card users accounted for 81% of newcustomers in 1999.

• Excluding prepaid card customers, subscribersaveraged 123 minutes calling time per month,up over 13%.

• Average monthly revenues for the same catego-ry rose some 14%, to SEK 418.

ne reason for higher revenue per customer wasthat 1999 saw a breakthrough in the use ofshort message service (SMS). Mobil Info users

have access to various SMS services – in addition tomessaging – that are practical and entertaining. Shareprices, last minute discounts on charter flights, sportsscores, directory assistance and decision making assis-tance are all available. An automated name and addressdirectory was launched in November. Customers haveaccess to all listings for the fixed network as well as num-bers for Comviq and Tele2Mobil subscribers.

On average, Comviq subscribers sent five times asmany SMS messages a month in 1999 as they did in1998. For prepaid card users, the figure tripled.

Expanded market shareMobile telephony penetration in Sweden is near the topin world rankings. In 1999, according to PTS, some63% of the population between 16 and 74 years of agehad cell phones. The sector is highly competitive. BesidesComviq and Tele2Mobil, Telia Mobile and Europolitanhave been in the GSM telephony market for severalyears. In 1999, Tele1 Europe joined the fray. Instead ofhaving its own infrastructure, Tele1 acts as a serviceprovider.

Comviq and Tele2Mobil had 34% of the SwedishGSM market.

With a market share of 49%, Telia Mobile is thelargest operator. Primarily due to its broad coverage, TeliaMobile leads in small towns and rural areas. A goodnumber of Telia Mobile customers still use NMT tech-nology, making them prospects for GSM services.

Europolitan concentrates on business clients as well as private individuals who use their phones extensively.The company had 17% of the market.

With 46% of the prepaid card market, Comviq has a strong market position.

Prompt response to changing demandComviq’s and Tele2Mobil’s strengths include attractiveprices, a broad customer base and well-known brandnames as well as the ability to quickly adapt to new cus-tomer demands and market conditions. Their competi-tive edge is further enhanced by the capacity to providecomprehensive packages including mobile telephony,fixed telephony and Internet services. Support systemsare the weakest link.

A major opportunity to bolster the mobile telephonybusiness will appear in 2000 when Sweden’s PTS offerslicenses to open networks for UMTS, the third-genera-tion cellular standard. NetCom plans to apply for alicense. The PTS will announce the winners of thelicenses towards the end of 2000. It is possible that thefourth GSM-license will be issued.

The mobile telephony business can easily benefit fromknow-how in NetCom’s other businesses, for example bylearning about corporate sales from the fixed-telephonybusiness.

Advanced service offeringComviq and Tele2Mobil develop new services as themarket makes its needs known. Comviq and Tele2 givethe customers access to one of the world’s most sophisti-cated ranges of mobile phone services. The aim is alwaysto provide customers with advanced services, running thegamut from easy-to-use answering machines to morecomplex applications like data and fax transmission overthe GSM network.

The most widely used premium services are the IQSvar and T2 Svar voice mailboxes. IQ Text and T2 Textenable customers to send and receive SMS messages. IQE-post and T2 E-post serve a similar function for e-mail.T2 Datanät and T2 Fax allow business customers to con-tinue working wherever they may be. In addition toworking as usual with hand-held or personal computersand GSM telephones, customers can transmit andreceive faxes and data. Individuals have access to similarservices.

Customer turnover (churn), excluding prepaid cardcustomers, amounted to 24% for full year 1999.

O

Prepaid

Postpaid

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800,000

400,000

0

Quarterly data1,600,000

Q1/98

Q2/98

Q3/98

Q4/98

Q1/99

Q2/99

Q3/99

Q4/99

NUMBER OF CUSTOMERS, MOBILE TELEPHONY


Revamping subscription packagesComviq’s business concept is simple: Make mobile tele-phony available to as many people as possible and at thelowest prices.

Comviq has designed several different kinds of sub-scriptions to suit varying customer calling patterns.

In 1999, this system was reorganized to further sim-plify matters for customers. The contracts are designed so that a customer can switch among five different servicesubscriptions, as his or her calling behavior changes. Fivechanges are allowed each year without incurring a charge.Customers have the choice of being billed for a subscrip-tion or paying up front for a prepaid card. Comviq’s fivesubscriptions are: basic with or without minutes (Grundand Grund med pott), discount evening with or withoutminutes (Joker med pott and Joker) and daytime withminutes (Dag med pott). Customers can choose betweena contract that can be canceled at any time or one that isbinding for 12, 18, or 24 months. The reworking of thesubscription system cut the cost of recruiting new cus-tomers, particularly dealer commissions.

Comviq also offers prepaid cards for mobile phones.Comviq Kontant, Sweden’s first prepaid card, was launch-ed back in 1997. The success of the card was key toComviq’s rapid growth.

In 1999, Comviq introduced its Kontant Utland,which allows prepaid-card subscribers to make andreceive calls outside Sweden. Handsets do not need to beprogrammed in any way. Instead of being debited to theprepaid card, international calls are billed to the userback in Sweden. The charge for international calls arebased on the rate in that country. IQ Svar can also beused abroad, as can SMS and e-mail services.

Tele2Mobil offers business subscriptionsTele2Mobil offers various subscriptions to businesses, all of them including the basics: voice mail (T2 Svar), T2 Plus, e-mail (T2 E-post), call forwarding and SMS(T2 Text). T2 is intended primarily for callers who average five minutes or less per day. T2 Max offers thesame service package but caters to those who tend to callmore. Tele2Mobil also has a prepaid card for businesses:Tele2Mobil Kontant. In addition to lower calling rates, acompany with multiple subscriptions can also reduce itsbasic monthly service charge.

Business Zone is a new service that allows employeesat their place of work to make calls from their GSMphones at rates on a par with fixed telephony. The virtualprivate network (VPN) service enables users to call num-bers in the fixed or mobile network from a cell phoneusing speed dial numbers.

Positioning system for GSM handsetsIn collaboration with CellPoint Systems, Tele2Mobillaunched Position, one of the first positioning systemanywhere for GSM handsets, in November 1999. Thesystem can pinpoint the location of a person or vehiclecarrying a mobile phone. It works indoors as well. Apassword-protected web interface shows users a mapidentifying the location of the GSM phones. Once thelocation has been determined, an SMS message is sent tothe handset, which compiles data from nearby base sta-tions. The data is forwarded to a server, which calculatesthe coordinates and produces the map. A red ring encir-cles the position on the interface map. The phones areequipped with a specially programmed SIM card. Freightcompanies, home help and security companies are a fewcustomers who can put such a system to good use.

Roaming with operators abroadThe global GSM network is constantly expanding. A total of 323 operators in 128 countries have adoptedthe GSM standard. Tele2 AB has signed roaming agree-ments with 134 operators in 72 countries. Roamingenables Tele2 customers to use their Comviq orTele2Mobil subscriptions in any of these locations.

Instant web-based enrollmentTele2 introduced new technology to simplify setting upnew subscriptions. New accounts can be opened from a retail outlet over the Internet, allowing customers tobegin using their mobile phones right away. Some 2,000retailers will eventually have access to this software.

The network’s unique cell structureIn terms of coverage as well as capacity, Comviq’s andTele2Mobil’s networks expanded more rapidly in 1999than ever before. Both the 900 MHz and 1800 MHznetworks far surpass the geographic coverage required by the National Post and Telecom Agency. Those regula-tions dictate that all cities with at least 10,000 residentsand all roads classified as European highways in 1990must be covered.

The unique Super City cell structure provides bettercoverage in metropolitan areas and permits Comviq andTele2Mobil to expand capacity in a highly cost-effectivemanner. Super City is patented in Sweden, and patentsare pending abroad.

Moreover, Tele2 has developed a new method forinstalling GSM 1800 capacity in the existing 900 MHznetwork. Equipment for the 1800 MHz band is con-structed in cells already in place, making network expan-sion both flexible and economical. In autumn 1999, thisnew capacity was installed in Stockholm, Gothenburg,Malmö and a few other metropolitan areas. The processwill continue throughout 2000.

Mobile TelephonyTele2 AB


During 1999, construction continued on the commonantenna system for GSM coverage in the Stockholm sub-way, a joint effort of Sweden’s mobile telecom operatorsand the Greater Stockholm Public Transport CompanyLimited. All 50 underground stations will have coverageby the end of 2000.

Together with the other mobile telephone operators asimilar GSM antenna system was installed in the tunnelsof Arlandabanan, the new high-speed railway connectingdowntown Stockholm and Arlanda InternationalAirport.

Tele2 is installing repeaters on Swedish State Railwaytrains. As of 1999, all first-class coaches were fullyequipped. Work on second-class coaches will proceed in2000.

GPRS requires nominal investmentThe market for telephony services using wireless applica-tion protocol (WAP) is likely to reach critical mass in2000. WAP gives cell-phone users partial access to theInternet. Network capacity must be sufficient to bear theincreased traffic. Hence, Comviq’s and Tele2Mobil’s net-work will be upgraded to handle general packet radio ser-vices (GPRS), a method of packaging data so that it canbe transmitted at rates faster than with previous tech-nologies. GPRS requires comparatively minor investmentin the network.

Advances in the business marketTele2Mobil continued to gain ground with all types ofbusiness customer in 1999. In terms of number of sub-scriptions the business market grew 30%.

The City of Stockholm and the Stockholm CountyCouncil renewed their contract in January. The two-year

agreement with Tele2, which comprises 27,000 subscrip-tions, is the biggest in Sweden for mobile telephony. TaxiStockholm, the biggest cab company in Sweden and aTele2 customer since 1993, also renewed its contract, for2,700 subscriptions.

Poolia, a staffing company, gave the nod to Tele2Mobilto provide mobile phone service to its 2,000 consultants.So far, around 300 of them have new GSM subscrip-tions. Proffice, a rival of Poolia, signed a two-year agree-ment in May for a total of 4,000 subscriptions, worthroughly SEK 12 million annually.

Canon chose a Tele2 wireless solution to serve itsentire Swedish operation. Tele2 will provide 600 GSMsubscriptions to start off. The agreement allows employ-ees to call any of the company’s cell phones free-of-charge.

Orkla picked Tele2 to provide a complete solution forfixed telephony, mobile telephony and data communica-tions throughout its Swedish operations. The contractcomprises 1,500 mobile subscriptions.

The Swedish Motor Vehicle Inspection Companyswitched from Telia to Tele2Mobil. About 400 subscrip-tions are included.

Cellular subscribers calling moreThe number of call minutes per subscriber should keepgrowing in 2000, fueled by traditional calling as well asdata traffic. Data communications will benefit fromgreater use of WAP services.

Administrative services that can be performed over acell phone by accessing various databases will one dayboost data traffic to even greater heights.

In a television commercial for Comviq Kontant that attracted much

attention, a person at a swimming pool left his telephone turned on

and in the bleachers so that a friend on the other end of the line could

hear what it sounds like when someone does a cannonball from the

highest diving platform at the pool. The clip closes with “Lotta talk.

Not much money.”

M A R K E T I N G


▲▲

Fixed Telephony

Tele2’s fixed telephony operations offerinternational, long-distance, and local tele-phony, permitting individuals to call aroundthe world more cheaply. Low rates andattractive volume discounts can mean majorsavings for business customers.

Tele2’s fixed telephony services are market-ed by the company’s sales force, telemar-keters and through dealers. While sales-people zero in on large and medium-sizedcompanies, dealers focus on individuals andsmall firms. Tele2 has altogether about2,000 dealers.

Tele2 AB Tele2 continued to grow rapidly in 1999. The preselect reform carried

out in September considerably boosted traffic volumes for the company.

At the same time, the reform drew attention to rates, pushing them down

across the board. The interconnect agreement concluded with Telia in

December 1998 expanded

margins on fixed telephony.



• Total fixed telephony customers rose 23%, from691,000 to 852,000.

• The preselect reform was a major success forTele2.

• As a result of the reform, revenues rose sharplyin the autumn.

he preselect reform implemented in Sweden onSeptember 11 gave people an option for the firsttime ever in terms of which company to use for

long-distance and overseas calling. As a result of thereform, Tele2’s customer no longer need to dial a prefixor use a smart box to place their calls via Tele2.

Telia repeatedly tried to obstruct the reform. Forexample, several times the company balked at registeringand activating Tele2’s preselect customers. A person whohas been activated calls directly through Tele2 by default– without having to dial the 9502 prefix.

Rates continued to move south in the wake of thepublicity generated by the reform. In conjunction withthe reform, Tele2 extended its lowest-rate guarantee toinclude all local, long-distance and international calls aswell as calls to mobile phones. As a result of the guaran-tee, rates fell for calls within the same area code and callsat night to adjacent area codes.

00 was introduced as the universal international dial-ing prefix on September 11. Although Tele2’s old 007prefix was discontinued, customers can now use 9502.

The preselect reform had a considerable positiveimpact on volumes.

Number portability paved the way for new marketsNumber portability was introduced in metropolitan areason July 1. This allows any direct subscriber to retain hisor her telephone number when switching serviceprovider, as long as the area code is the same.

Portability also applies to calls that are free-of-charge,that is, calls to Tele2’s 0200 and Telia’s 020 numbers,which spawned a new and attractive market. Previously,much effort and expense was involved in changing anestablished toll-free number. Now that companies canswitch operators and retain their toll-free numbers, Tele2is highly optimistic about wooing new customers to thisservice.

Tele2 is the leading alternative operatorTele2 is the leading alternative operator in the Swedishfixed telephony market dominated by Telia. The sectorhas close to 30 competing operators.

Notwithstanding deregulation of recent years, Teliaretains a monopolistic grip on several key segments. In1998, the total market was worth around SEK 25 billion.According to a survey made by Öhrlings Pricewaterhouse-Coopers, assignment given by PTS, Telia had a 90%market share. Tele2’s share was around 5%.

Deregulation has convinced many operators to enterthe Swedish market. Nevertheless, they still accountedfor a modest 5% of the market altogether. Telenordia,GTS, Sonera, MCI WorldCom and Tele1 are a fewprominent names.

Telia enjoys major advantages thanks to its control overthe Swedish telecom network, whose creation was financedby society at large. Given that Telia owns the access net-work – the final link to the customer – it has a virtualmonopoly on subscription fees. It had 98% of that market, a market worth SEK 8.6 billion in all.

For similar reasons, there is no competition in themarket for local calls. Such calls totaled SEK 5.7 billionin 1998. Telia had a 93% share of the all national calls,down from 96% the year previous. Tele2 had around 3%of the national calls in 1998.

In competitive segments, Tele2 has scored major suc-cesses. Tele2’s share of international calls was roughly 18%.

Customer interaction fuels growthAmong Tele2’s strong suits are its strong brand, its devel-opment of economical services in close collaborationwith customers and access to its own infrastructure.

One threat is growing competition as new operatorsenter the market. The potential for cultivating customersis greatly enhanced by Tele2’s ability to offer solutionsintegrating fixed telephony, mobile telephony, Internetand data communications services. Tele2 is striving toexpand knowledge transfer and the sharing of experiencebetween countries. The company’s advanced technicalexpertise enables it to rapidly develop new services.

Inexpensive directory assistanceTele2 offers fixed telephony to consumers and businessesat attractive prices with a wide range of associated ser-vices. For example, individuals can choose the Nära &Kära (near & dear) discount package for frequently

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In the run up to September 11, the start of

the carrier preselect reform, Tele2 compared its

prices with those of Telia’s, telling Swedes,

“Soon you can call just as easily with the

cheaper alternative.”

Som ett led i avregleringen av Europas telemarknad

är det nu dags för alla svenska hushåll och företag

att välja vem de ska ringa med i framtiden. Efter-

som avregleringen innebär att det blir lika enkelt att

ringa med Tele2, det billigare alternativet (du slipper

slå 007 före telefonnumret efter den 11 september),

är valet kanske inte så svårt?

Du som redan är Tele2-kund, kommer att få

information i brevlådan. Du som inte är Tele2-kund

och vill ringa billigare ansluter dig kostnadsfritt till

oss på 0200-25 25 25 eller www.tele2.se/forval

LIKA ENKELT FAST BILLIGARE

Snart ringer du lika enkelt

med det billigarealternativet.

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TELE2 TELIA

Sverigesamtal vard. 08-18 0,32 0,38

Sverigesamtal övr. tid 0,18 0,20

Samtal till Tele2Mobil- och Comviq-nätet, vard. 08-18 3,00 4,31*

Samtal till Tele2Mobil- och Comviq-nätet, övr. tid 2,00 2,88*

Samtal till övr. mobilnät vard. 08-18 3,70 4,31*

Samtal till övr. mobilnätövr. tid 2,50 2,88*

* Gäller till samtliga mobilnät.

Startavgift på 50 öre per samtal för Tele2 resp. 40 öre per samtal för Telia tillkommer. Priserna ärangivna i kronor per minut och inklusive moms enligt aktuella prislistor per den 31/3 -99.

addition, Tele2 has its own network in several cities insouthern and central Sweden as well as in Copenhagenand Oslo.

Tele2 owns submarine cables to Denmark, Finlandand Latvia and has invested in two transatlantic cables tocarry international traffic. The company also has satellitelinks to Asia. In other words, Tele2’s overseas traffic isnot dependent on Telia.

Orkla picked Tele2In June, Tele2 signed an agreement with Orkla to pro-vide a complete pan-Nordic solution. The contract cov-ers all outgoing fixed telephony, all mobile telephony forunits in Sweden and data communications services. Theorder is worth around SEK 36 million. Tele2 won thecontract for three reasons: its extensive organization inthe Nordic countries, its wide range of services and anattractive price. By choosing a single supplier, Orkla islooking at considerable savings.

In November, Borås Municipality concluded a two-year agreement for fixed and mobile telephony withTele2 worth SEK 9.5 million.

When Rädda Barnen (save the children) held itstelevised Barn 2000 fund-raiser on November 19, Tele2paid Telia’s charges for the toll calls made by viewers whowanted to donate money. As a result, 100% of the dona-tions went directly to Rädda Barnen. Moreover, Tele2donated SEK 100 to Rädda Barnen for every new prese-lect customer it recruited during the period November19–30.

In December 1999, the City of Gothenburg signed a three-year agreement with Tele2 for fixed and mobiletelephony. The value of the order is estimated at SEK80–100 million.

A general agreement was also concluded in Decemberwith the Swedish Agency for Administrative Develop-ment covering fixed, mobile and IP telephony. As aresult, government agencies, county councils, munici-palities and public service corporations will be able tostreamline and cut costs on their telecommunicationsusage. Government agencies and public organizationsthroughout Sweden can connect to Tele2 either as apreselect customer or by directly hooking up to thecompany’s nationwide fiber-optic network.

Still winning market sharesTele2 expects to win an even greater share of the Swedishfixed telephony market. Telia, which is currently uparound 90%, is likely to fall to 50% in the next four orfive years. Tele2’s goal is to substantially boost its marketshare.

Tele2 plans to intensify its concentration inScandinavia in 2000. Collaboration with the Danish andNorwegian operations will be beefed up, such as in jointproduct development.


called numbers. Mobil VPN offers discount rates for callsbetween a company’s cell phones or between one of thecompany’s offices and one of its cell phones. Tele2Svar isan integrated voice mail system for both fixed andmobile telephones.

Though the company has had a directory assistanceservice since 1995, it has not been promoted a great deal.To comply with the new European standard prefix fordirectory assistance, 118, Tele2’s domestic assistance wasswitched to 118 201 and its international service to 118202. It is the only complete alternative to Telia’s directoryassistance. Both the 118 201 and 118 202 services areless expensive than Telia’s corresponding services.

With Dubbellinjen, customers can receive calls whileconnected to the Internet even on a single account. Theycan also call over the Internet using IP telephony. InFebruary, Tele2 began offering Dubbellinje to all Internetusers, regardless of operator.

Click2Call allows a customer to call directly from websites. A click of the mouse places a call to the companywithout the user having to write down the number oreven log off.

Extensive networkTele2 has an agreement to use the National Rail Admin-istration’s network capacity through 2017. It is also col-laborating with Svenska Kraftnät, a power utility network,on the construction of a parallel backbone network incentral Sweden with black fiber and high capacity. In

Fixed TelephonyTele2 AB

M A R K E T I N G

WAP


he prevailing technology for mobile telephonylimits what can appear on a mobile phone’sdisplay, so WAP will not be able to reproduce

web sites as they appear on computer screens. The twochief constraints are the physical size of the display andthe current transmission capacity (bandwidth) of cellularnetworks.

Paring down the dataImages in particular contain more data than can bedownloaded at present from a web site to a cell phone ina reasonable length of time. WAP, which closely resem-bles IP, is the result of a joint project by mobile phonemanufacturers, systems suppliers and computer com-panies aimed at overcoming these difficulties. WAP permits the translation of hypertext markup language(HTML) – the Internet’s programming language – intomobile telephony’s wireless markup language (WML)standard, as well as the filtering out of images.

Another way of putting it is that WAP pares down thedata on which a web site is based so that it can be trans-mitted to a cell phone. Above all, special WAP web sites(written in WML) will exist side-by-side with sites basedon traditional HTML.

Only units equipped with WAP readers, designed tointerpret WML, will be able to receive such data. Aftermajor delays in deliveries from manufacturers, sales ofsuch handsets are expected to take off in 2000.

The process of creating a WAP web site is relativelyeasy, so a wide range of suppliers will be able to quicklydevelop new services for their customers. Initial applica-tions will be limited to words and simple graphics. Stocktrading, ticket reservations, banking and news services areinitially estimated to be of high customer demand .

GPRS speeds up data communicationsMany experts argue that WAP telephony will have abreakthrough when GSM networks are upgraded tohandle GPRS, a new technology that permits more rapiddata transfer and allows a cell phone to remain linked tothe network even when it is not being used for a call.Because users spend less time connected, data communi-cations services can be provided in GSM networks at alower cost.

T

Wireless application protocol (WAP) technology makes

parts of the Internet accessible to cell phones. The

application can be regarded as the first step toward a

full-fledged cellular Internet.

Gateway: A computer that links different networks.

GPRS: General Packet Radio Service. A new technologythat permits high-capacity data transfer in cellularnetworks as well as immediate connection.

HTML: HyperText Markup Language, the program-ming code on which web sites are based.

IP: Internet Protocol. The basic code regulating thetransmission and reception of data between Internet ser-vers.

WAP: Wireless Application Protocol. Code regulatingthe transfer of data from the Internet and advancedmobile telephony services to cell phones. The protocol isan open specification and is continually revised by theWAP Forum, in which more than 140 companies aremembers. The founders included Ericsson, Nokia andMotorola.

WAP reader: Program that interprets WML for a WAPphone; works in the same was as a traditional web browser.

Web browser: : Computer program, such as Netscape orInternet Explorer, that interprets HTML and displays aweb site on the screen.

WML: Wireless Markup Language. A means for codingweb sites so that they can be displayed on a mobilephone display.

G L O S S A R Y


Antalet kunder som utnyttjar Tele2:s Internettjänster fortsatte att

öka i snabb takt under 1999. Priserna på Internetabonnemang fort-

satte däremot att sjunka. Tele2 lanserade som första större aktör

Internetanslutning utan abonnemangsavgift, Free2Connect.

Tele2’s Internet offering includes dial-upmodem services and dedicated lines. Thetwo modem services, Connect2Internet andFree2Connect, are aimed at consumers andcompanies, while dedicated Internet accessare intended primarily for businesses. Theother offerings are data communications ser-vices and web hosting.

Tele2’s Internet services are marketed to pri-vate individuals through consumer electronicsretailers, with whom Tele2 has an extensivedealer network covering all of Sweden.Free2Connect is also distributed through cus-tomer bonus clubs, co-op marketing withother companies, gas stations, and variousother retail outlets. Dealers take care of salesto small businesses. Tele2 has its own salesforce to recruit large and medium-sized busi-nesses.

▲▲

Internet and Data Communications Services

Tele2 AB The total number of users of Tele2’s Internet services continued rising

briskly in 1999, while subscription fees continued downward.

The company was the first major Internet service provider (ISP) in

Sweden to offer free access: Free2Connect.



• At year-end, Tele2 had 536,000 dial-up Internetcustomers, an increase of 27% from year-end 1998.

• Growth was attributable to Tele2Internet’s solidposition in the market and the launch ofFree2Connect.

• Even premium services like Dubbellinjen, which makes it easier to use the Internet, spurredgrowth.

• The company kept gaining ground in the busi-ness market for data communications and webhosting.

nternet usage in Sweden is among the highest in theworld. A survey by market researchers Sifo Interactivefound that 3.67 million people aged 12–79 in

Sweden, that is, 51.7% of the population in those agegroups, used the Internet in December 1999.

Telia, Spray and Telenordia are some of Tele2’s compe-titors in the consumer market for dial-up service. Inrecent years, several others have begun offering Internetaccess with no subscription fee. In October, Tele2 respon-ded with Free2Connect, a no-fee, top-quality service.

Telia, Telenordia and WorldCom are key competitorsin the business sector. In addition, a number of systemsintegrators offer both data communications and Internetservices, either on their own or in collaboration with others.

Lower rates for loyal customersIn the first quarter of 1999, Tele2 began to offer lowerrates to individuals with dial-up Internet subscriptionswhen they opened a fixed telephony account as well. As aresult of the effort, by year-end approximately 38% ofInternet customers had switched their telephony serviceto Tele2. The company aims to boost this figure in 2000.

Familiar brand nameTele2’s biggest asset in the Internet market is the experti-se and experience it has accumulated since 1991, when itbecame the first company to offer Internet subscriptionsin Sweden. In the Internet and data communications sec-tors, the brand is now familiar, with a reputation forsuperb quality, extensive capacity and competitive rates.

The greatest threat to dial-up Internet operations isthe fact that ever more companies are offering subscrip-tions free of charge.

Tele2 has identified a number of areas in which it canstrengthen its product range and thus win more of themarket for dial-up access. Also, the collaboration withthe Everyday.com portal, developed last autumn, is a keycompetitive tool. In Everyday.com, Tele2 offers its dial-upInternet customers access to a new, first-class start page.

Higher sales to the business sector are well withinreach through the design of new products that will attractcustomers, small enterprises in particular, as well as morecross-sales with the fixed and mobile telephony opera-tions. Tele2 is fortunate in having its own pan-Nordicinfrastructure plus local coverage through its subsidiariesin Norway and Denmark.

Choice of Internet subscriptionsTele2 offers private individuals several kinds of Internetsubscriptions: Connect2Internet, Connect2InternetISDN and Connect2Internet Kabel. Connect2Internetincludes 10 e-mail addresses and disk space for a privateweb site. Connect2Internet ISDN provides higher trans-fer rates than an ordinary modem yet costs less than adedicated line. Connect2Internet Kabel provides a dedi-cated line with high capacity.

Then there is Free2Connect – with no subscription fee.Dubbellinjen allows customers to receive calls and use

the Internet simultaneously on a single telephone line. In February, Tele2 began offering Dubbellinjen to allInternet users, regardless of ISP.

Solutions for companies big and smallTele2’s Internet, data communications and web hostingservices can be adapted to the needs of any business,from the smallest to the largest.

Lan2Internet is intended for companies that maketough demands on the quality and capacity of theirInternet connection. A router located on-site at the com-pany hooks the customer up to Tele2’s infrastructure. Forsmall businesses, Lan2Internet ISDN offers higher trans-fer rates than an ordinary modem but is less expensivethan a dedicated line.

In recent years, Tele2 has forged a solid position in themarket for data communications. The company’sLan2Lan service provides the means of integrating geo-graphically widespread corporate networks into a singleinternal network. The technology is easily adaptable tochanges in customer needs. Premium services offer custo-mers higher grades of service, operational logs, encryp-tion and various backup options. The unique SNIX ser-

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Tele2 AB

vice permits direct links to institutions such as banks andthe postal giro system.

Talk2Lan, launched in April, enables businesses toutilize existing data communications networks instead ofordinary phone lines, making for more efficient internaltelephony.

Global managed private line (GMPL) was designedfor companies that make exceptional demands on inter-national voice and data communications. It provides adedicated and monitored digital line for internationaltransfer of voice, data and images.

An international private line (IPL) links a company to its alliance partners, customers, distributors and localoffices virtually worldwide. A national private line (NPL)works in a similar manner within the country.

Web hosting ensures reliable operationAs an alternative to having its own servers for its websites, a business can take advantage of Tele2’s web hostingservice. Monitored 24 hours a day, web hosting serversare connected to Tele2’s infrastructure, which has thegreatest Internet capacity in Scandinavia.

In 1999, web hosting was expanded to include threeseparate services: Web Light for businesses that are juststarting out on the Internet, Web FP for those with moretraffic and Web Gold in those cases where web sites are

visited frequently and uninterrupted access must be gua-ranteed.

Companies have the option of locating their servers at Tele2 facilities to ensure optimum reliability of opera-tions. Tele2 collaborates with several Internet consultantsand agencies.

Cutting-edge infrastructureWith its extraordinary bandwidth, Tele2’s backbonenetwork – Swipnet – is among the most advanced in theworld. The capacity of the network is key to Tele2’s goalof providing households with high-speed Internet con-nections.

In October, Tele2 and Cisco launched a fiber-opticnetwork utilizing a new ring configuration that permitsextremely high transfer rates. The ring is part of Swipnet.The fiber-optic network serves Tele2’s Internet users inStockholm and indirectly in the rest of the country, withtransmission capacity for broadband connections.

More companies turning to Tele2Nordiska Värme Sana AB (NVS), a wholly owned sub-sidiary of the construction company NCC, signed athree-year data communications contract worth an esti-mated SEK 26 million. NVS will employ Lan2Lan tolink 51 offices into a single data network. In addition, all70 NVS offices in Sweden will be hooked up to Tele2’sfixed telephony network. The agreement includes 500Tele2Mobil subscriptions as well as Internet services.

Eurest and SSP, one of Sweden’s largest institutionaland restaurant suppliers, entered into a three-yearLan2Lan agreement worth SEK 6.8 million. The packageconsists of some 50 dedicated connections to the compa-ny-wide data network, a dozen ISDN accounts and acentral Lan2Internet link guaranteeing uninterruptedInternet access.

A Lan2Internet package provides the computer centerat the University of Umeå with one of Tele2’s highestcapacity Internet connections. Its capacity has gone from an initial 2 Mbps in 1996, to 28 Mbps today.

Semcon, an IT consulting company, picked aLan2Lan solution to link its highly decentralized opera-tions, comprising more than 100 departments.

Market grows apaceThe robust expansion of the entire market is likely topersist in 2000. Tele2’s recent product launches shouldconvince more customers to rely on Tele2 as its one-stopISP and web services provider.

Demand for data communications services is alsoexpected to remain buoyant. Fueling this trend is the fact that reliable data communications are becoming aprerequisite for competing successfully in today’s world.Outsourcing to subcontractors should be an increasinglyfrequent phenomenon.

Tele2 was the first major operator in Sweden

to offer Internet access with no subscription fee:

Free2Connect. Each free subscription has five

e-mail addresses, server space for a home page,

the option of forwarding e-mail and much

more.

Nu kan du ha ett förstklassigt internetabonnemang med extremt

hög tillgänglighet utan att betala ett öre i abonnemangsavgift.

Det enda du betalar för är den tid du är uppkopplad på nätet.

Och då kommer vi osökt in på nästa glädjeämne, nämligen minut-

taxan. För närvarande tar vi bara 11,5 öre på kvällar och helger,

och 23 öre på vardagar. Startavgiften är 40 öre. Tack vare den

höga tillgängligheten tutar det dessutom sällan upptaget när du

ska koppla upp dig, plus att du mycket snabbt får upp bild, text och

ljud när du väl är ute på nätet.

Visst vore det väl kul att inte bara få e-post när du sitter på

jobbet? Och att de handlar om något annat än möten och

rapporter? Har du redan tillgång till internet och vill testa vad

vi går för är det bara att gå in på www.tele2.se/free2connect

och ladda ner abonnemanget. Annars ringer du bara

0200- 24 24 24 så skickar vi en CD med vårt internet-

abonnemang på posten. Du kan också hämta en CD hos

någon av våra återförsäljare.

Välkommen till Tele2.

Internet utan abonnemangsavgift. Beställ nu på 0200-24 24 24 eller hämta på www.tele2.se/free2connect

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VÄRDE CA 199 KR/ÅR.Abonnemanget har 5 st e-postadresser,

10 MB i utrymme för egen hemsida,

möjlighet att eftersända e-post

och mycket mer.

Du kan också hämta en CD hos någon av våra återförsäljare: Thorn.City Stormarknad.GEAB.Teknikmagasinet.SIBA. El-Giganten, m.fl.

M A R K E T I N G

Broadband

Bit: The fundamental unit of data transfer, either a 1 or a 0.

Gbps (gigabits per second): 1 Gigabit = 1,000,000,000bits (one billion bits).

kbit/s: (kilobits per second): 1 kbit = 1,000 bit.

LAN (local area network): A series of computers linkedtogether, often within a single building.

Mbps (megabits per second): 1 Megabit = 1,000,000 bits(one million bits).

Symmetrical data transmission: A connection that offers the same data rate to and from the user.

Antonym: Asymmetrical data transmission.


he concept includes local area networks (LANs),cable-TV networks, Ethernet and optical fiber.Tele2 provides a range of broadband services, via

data communications networks, cable-TV networks andLANs.

Bottlenecks stifle capacityOne of the myths surrounding broadband is that it ismore than 300 times faster than an ordinary analogmodem. Theoretically speaking, this is possible. How-ever, the end-user cannot achieve such high speeds whenaccessing the Internet. Although capacity is very greatwithin a building or a residential area, it is often conside-rably less on the links to the actual Internet servers.Thus, connections to the Internet’s backbone networkrepresent a bottleneck for many users. Furthermore, thecapacity available is a function of how many people areon the same connection. Tele2 gives the user access toone of world’s most modern Internet backbone networkwith a very high capacity.

Overhaul not requiredThe networks already found in many buildings normallywill not need to be overhauled to handle broadbandapplications. For example, most cable-TV networks arewholly adequate for the task. However, an individual userwill be limited by the number of users and the connec-tion to the Internet’s backbone network.

Fiber-optic cable is not necessarily the cheapest meansto broadband access. The cost depends on the location ofthe building and the condition of existing infrastructure.Thus, it will be more expensive in low populated ruralareas than in the big cities. Tele2 has successfully installedvarious broadband solutions. Most important is that thearrangement fit the needs and limitations of the property.

New services still on the test padBroadband is often portrayed as heralding a host of newapplications. Many of them are still at the experimentalstage. The most common services avaiable now are high-speed Internet access, e-mail and file transfer and website construction. In the future, web-based telephony,television, video and music will also be offered.

Broadband in the real worldIn Linköping, Tele2 has worked with Stångåstaden, themunicipal housing company, to provide around 500households with very-high-speed access to the Internetover an Ethernet LAN. The households can also watchtelevision or listen to the radio on their computers via IP,or they can play games over the LAN. Also via Kabel-vision’s Cable-TV network, Tele2 provides a great amountof households with high-speed access to the Internet.

Far from being a new technology, broadband is a generic term for various high-speed

data transfer applications. Broadband connections do not require special fiber-optic

cables, despite what many people might imagine.

T Tele2 offers multiple optionsTele2 offers a series of options for Internet access viabroadband: via the cable-TV network, a LAN or genuinewireless broadband.

The cable-TV network usually employs coaxial cableto transfer data. Hence, only minor adaptations are nee-ded to the existing cable-TV infrastructure. Rates havenothing to do with the connect time or traffic. The useris always on-line. The capacity is shared with other usersof the LAN all the way to the point of access to theInternet’s backbone network.

The LAN can be hooked up to an ISP via a dedicatedline just as the cable-TV network might. Transmission issymmetric and takes no time to establish a connection.Although capacity varies, it is easy to upgrade to higherspeeds. Users share the available capacity. The cost of thistype of access is relatively high.

Tele2 intends to offer wireless broadband to smallenterprises. Tele2’s efficient solution offers customers aleased line, Internet access and broadband capacity. Theleased line will keep the customer continuously on-line.The connection is a data link with availability and per-formance on a par with a dedicated line. Tele2’s accesspackage also offers e-mail and news groups as well as theoption of web hosting, which enables customers topublish their company web sites on a server directly con-nected to the Internet.

In broadband, Tele2 AB offers several capacities usingwireless technologies, from 64 kbps to 2 Mbps. Upgradesrequire no new hardware. Future improvements on thetechnology will enable many times the capacity of today.Systems with transfer rates of 11 Mbps are already beingtested.

G L O S S A R Y


Cable-TV

Tele2’s cable-TV business is marketed underthe Kabelvision brand. Kabelvision isSweden’s largest private cable-TV operator.The business area is responsible for the dis-tribution of TV channels and works withViaSat, which provides an attractive range ofchannels and manages individual subscrip-tions.

An in-house sales force reaches out to prop-erty owners and consumers through telemar-keting as well as direct marketing.

▲▲

Tele2 AB Kabelvision’s cable-TV network enables Tele2 to offer its customers

attractive television content, Internet access and IP telephony.



• At year-end, 321,000 (321,000) householdswere hooked-up to Kabelvision´s network.

• The business area offered Internet access viacable-TV access in Stockholm, Sundbyberg,Lidingö, Katrineholm, Lycksele, Sandviken,Eskilstuna, Västerås, Hallstahammar andJönköping.

n 1998, Kabelvision began collaborating with Viasat.The brand was re-positioned, and a new programoffering was launched, so customers now have a

much more attractive choice than previously. In 1999,the business area concentrated on recruiting new cus-tomers. By year-end the number of subscribers hadincreased by 10% to 148,000.

Deregulated marketThe Swedish cable-TV market is totally deregulated,with no special license requirements. Since the mid-1990s, the market has grown slowly. Competitionhas been fierce largely because of a glut of participants.Kabelvision’s rivals include Sweden Online, Telia andStjärn-TV (in Stockholm only).

A number of new broadband operators have alsoemerged, including Bredbandsbolaget, which promises a solution aimed at property owners.

Important part of broadband initiativeTele2’s cable-TV network is vital to NetCom’s broadbandinitiative, which gives customers a series of options foraccessing TV stations, the Internet and IP telephony. The cables were installed primarily in 1987–1991. Toaccommodate telephony as well as Internet access, theyhave been enhanced over the past few years through theuse of municipal fiber networks. Already in 1998 broad-band services were offered in Stockholm. In 1998,Internet access via the cable-TV network underwent trials. These employ two-way cable modems, enablinghuge increases in transfer rates in both directions, so called return path. Todays Internet access has transferrates around ten times the speed of an ordinary modem.

More towns hook upA number of towns and residential areas were two-wayupgraded to the high-speed cable in 1999. In collabora-tion with Lycksele Bostäder, 1,100 families in the com-pany’s housing properties gained access to cable-basedInternet.

Sandvikenhus is now providing the service to 1,300tenants, with 3,200 more slated for 2000.

Pagoden Fastigheter offered the package to around2,500 households in the cities of Västerås and Eskilstuna.In December 1999, 154 apartments in the Bjurhovda-toppen area became the first in all of Västerås to havebroadband Internet access. Pagoden’s remaining Västeråstenants will be given the same option in 2000.

Tele2 will develop a network for Ringsjö Energi’s dataand telecommunications working with the utility com-pany Ringsjö Energi and the property managementcompany Eslövs Bostäder AB. Tele2 won the contract to provide service over the network, so tenants of forinstance Eslövs Bostäder will have the option of accessingthe Internet via their cable-TV system. Ringsjö Energi’scustomers will also be offered inexpensive Tele2 telepho-ny services.

Kungsklippan in Stockholm, with 1,010 apartmentsSweden’s second largest HSB tenant-owner association,picked Tele2 as its broadband supplier, despite the factthat HSB’s central office had already signed an agreementwith Bredbandsbolaget. What tipped the scales in favorof Tele2 was the company’s extensive experience withbroadband solutions and the fact that the price/perfor-mance mix suited the needs of the association’s membersbest.

General agreement in MälardalenIn January 2000, the Swedish Property Owners Asso-ciation in Mälardalen entered into a general agreementwith Tele2 for cable-TV access with broadband Internetfor the roughly 35,000 households in housing owned bythe association's members.

Continued upgradingKabelvision will continue to two-way upgrade itsnetwork to high-speed Internet requirements in 2000. By the end of the year, around 40 of the 78 towns andresidential areas in which the business area has networkswill provide this option.

I

160,000

120,000

80,000

0

Quarterly data200,000

40,000

Q1/98

Q2/98

Q3/98

Q4/98

Q1/99

Q2/99

Q3/99

Q4/99

NUMBER OF CUSTOMERS, CABLE-TV


reached 70,000 by year-end. The company capturedmarket shares and solidified its position as Denmark’ssecond largest fixed telephony operator and ISP.

Fixed preselect and lowered interconnect chargesCarrier preselect for fixed telephony began in Denmarkon January 1, 1999. Since that time, roughly 30% ofTele2 A/S prefix customers have signed up for theAutomatisk 10 01 service. Automatisk 10 01 customersgenerate more than three times as much traffic as thosewho prefer to dial the 10 01 prefix.

State-owned Tele Danmark lowered its interconnectfee 5% in the summer. Largely thanks to the preselectreform and fee cut, in August Tele2 A/S reported an ope-rating profit before depreciation and amortization for thefirst time.

Since spring 1999, Tele Danmark’s competitors havebeen able to use the telecom network all the way to thesubscriber. However, the company’s pricing policy makesit impossible for competitors to offer their services oncompetitive terms.

Agreement with SKIMuch public sector procurement in Denmark is regula-ted by Statens og Kommunernes Indkøbsservice (SKI,the government and municipal purchasing service). InAugust, Tele2 A/S signed an agreement with SKI makingit the first new telecom provider to be classified as an“official supplier for the public sector.” One feature ofthe agreement is the offer of a flat rate, that is, all callsbetween the public agencies that subscribe to Tele2 A/Sare free-of-charge. The company is the first telecom ope-rator in Denmark to offer a flat rate.

No-fee InternetIn the spring, a nationwide campaign offered Danishhouseholds no-fee get2net subscriptions. Around thesame time, a new Internet portal opened with improvedcontent and new interactive options.

UNI2 shored up its position as Denmark’s leadingsupplier of sophisticated Internet and data communica-tions services to large companies. A comprehensive e-commerce package has helped UNI2 establish a positionin the web hosting market. In the spring, UNI2 devoteda campaign to positioning itself as a purveyor of secureand stable Internet services. In the second half, several

• At year-end 1999, Tele2 A/S had approximately697,000 customers, up 65% on the year.

• The number of fixed telephony customers rose54%, from 274,000, to 421,000.

• The number of Internet subscribers surged 85%,from 149,000, to 276,000.

ele2 A/S aims to have the market’s most satisfiedand loyal customers. Børsen, the Danish financialnewspaper, conducted a survey of customer satis-

faction and loyalty in the Danish telecom sector. Tele2A/S and its get2net Internet service came in first. Thecompany’s own surveys also indicate that 10 01 (fixedtelephony) and UNI2 customers are highly loyal andsatisfied.

Expanded market sharesThe Danish telecom market was characterized by evenheavier competition during the year. Several new opera-tors emerged, and competition stiffened in the businesssegment. In the second half of the year, Tele2 A/S made amassive initiative to win more business customers. It wasa success. The total number of business customers

T

Tele2 A/S Denmark

Tele2 A/S offers fixed telephony, Internet anddata communications services as well asmobile telephony via interconnect agree-ments. Business customers are recruited forfixed telephony by an in-house sales force,via telemarketing agencies and through tele-phone system installers and brokers.

Internet services for business are marketedunder the UNI2 brand by an in-house salesorganization and through computer dealers.Private customers for fixed telephony cansubscribe to Tele2 in writing, on the Internetor by phone. Since the launch of the get2netno-fee subscription, the number of dealershas dropped sharply. Rather, get2net is bun-dled with other services and products.

▲▲

In August, for the first time Tele2 A/S reported an operating profit before

depreciation and amortization. The chief factors were increased traffic following

the preselect reform on January 1, 1999, and lower direct costs.



large companies in financial and insurance services andother sectors signed contracts with Tele2 A/S for securityservices and high-speed connections.

Covers DenmarkOn August 1, Tele2 A/S became a nationwide operator.From that date, companies and private consumers on theJutland peninsula were allowed to call locally via Tele2A/S. Since its founding, the company has chosen toadjust its service offering to available network capacity.By August 1999, capacity was sufficient to justify provi-ding this service to households and businesses in Jutland.Tele2 A/S signed number portability agreements withother telecom companies, permitting customers to keeptheir phone numbers when switching operator.Subscribers began taking advantage of this option inNovember.

Tele2 A/S also began offering preselect services formobile telephony. Tele Danmark Mobil’s customers cansave money right away by dialing 10 01. Calls abroad arethe first to be included.

Customers have access to Info 1818, the only alterna-tive directory assistance in Denmark. The service wasexpanded in 1999 to include mobile numbers in theleading operators’ networks. The combination of thisenhancement and preselect for fixed telephony substan-tially boosted use of Info 1818 during 1999.

ReorganizationIn the second half of 1999, Tele2 A/S revamped its orga-nization to enhance its growth potential and boost effici-ency. The focus of the organization was redirected from“product” to “process,” as the sales and marketing organi-zation was realigned according to sales channels.

Expanded capacityInitially, Tele2 A/S only purchased capacity in TeleDanmark’s network. Now the company has built its owninfrastructure to compete for bigger corporate clients. Incollaboration with Powercom, Tele2 A/S constructed atrunk network offering direct hook-ups for businesseswith heavy telephony and data communications usage.

Internet capacity was expanded considerably during1999 to handle expected growth in 2000.

Accord could cut interconnect feesIn September, the Danish government proposed anaccord on telecommunications policy, including a modelby which Tele Danmark will calculate its interconnectfees. If the Folketinget (parliament) votes in favor of theaccord in early 2000, interconnect fees will plummet.The proposal also suggests a schedule for awarding licen-ses for fixed wireless access (FWA), GSM and UMTS.With an FWA license, Tele2 A/S could provide telepho-ny and Internet services to consumers and businessesover a wireless access network. A GSM or UMTS licensewould permit Tele2 A/S to offer mobile telephony serviceusing its own network.

During the next couple of years, the company will beparticularly intent on boosting cross-selling betweentelephony and Internet customers.

Internet

Fixed Telephony

600,000

400,000

0


200,000

Q1/98

Q2/98

Q3/98

Q4/98

Q1/99

Q2/99

Q3/99

Q4/99

NUMBER OF CUSTOMERS, F IXED TELEPHONY AND INTERNET

In its marketing, Tele2 A/S Denmark emphasizes that the

company is the less expensive alternative to the state-owned

Tele Danmark.

• Operating revenue,SEK 974 million (546), +78%

• Operating profit before depreciation and amortization,SEK –47 million (–115)

M A R K E T I N G


Tele2 Norge AS also conducted campaigns to informcustomers with Connect2Internet subscriptions who useanother telecom operator to connect to the Internet thatTele2’s rates are lower.

Standardized package and customized solutionsThe business market saw a number of mergers and take-overs in 1999. Moreover, several new operators enteredthe market. Stiffer competition in the data communica-tions segment reduced prices. For telephony, businessesincreasingly desire access to dedicated lines to avoidgoing through Telenor.

Tele2 Norge AS provides everything from standardizedpackages for small businesses, to customized solutions forlarge companies with heavy traffic and exacting demands.In 1999, the company strengthened its position as a sup-plier of advanced network solutions.

It has scored major successes with its “home package,”a Connect2Internet subscription for corporate and publicemployees who have an office at home. The NorwegianDepartments of Defense and Justice and the multinatio-nal Pripps/Ringnes are a few major clients who offer theservice to their own employees.

Tele2 Norge: The private alternativeThe state-owned incumbent operator Telenor and Enitel,which acquired Telia Norway in December, are the big-gest operators in the fixed telephony and Internet mar-kets. Moreover, several new operators joined the fray in1999.

As the acknowledged private alternative, Tele2 NorgeAS has benefited from the protracted and ultimatelyunsuccessful attempt by Telenor and Telia AB to merge.The company won additional market shares in 1999.

In addition to the big operators, several small firms areactive in the fixed telephony market, along with a num-ber of brokers focusing on the business market. Tele2Norge AS’s 289,000 fixed telephony customers representabout 15% of the market.

Four main operators dominate the Internet market:Tele2 Norge, Telenor, Enitel and Sense Communications.In addition, there are some 20 smaller ISPs. Tele2 NorgeAS has about 20% of the market, an improvement from1998, making it Norway’s second largest ISP.

• At December 31, Tele2 Norge AS had 289,000fixed telephony customers, 121% more than the131,000 one year previous.

• The number of Internet subscribers increased178%, from 63,000 to some 175,000.

• Operating revenue rose 163%, to SEK 444 million.

• Operating profit before depreciation and amortiza-tion was SEK -58 million (SEK -93 million).

n June 1, preselect was introduced for fixedtelephony in Norway. Hence, Tele2 Norge’scustomers no longer need to dial the 1502 pre-

fix if they sign up for the Automatisk 1502 (A1502) ser-vice: The A1502 service dials 1502 for them. The reformsubstantially boosted traffic in Tele2’s network.

At the same time, Tele2 Norge launched Norgestakst,allowing A1502 customers to call long-distance anywherein Norway at local rates.

The pre-reform marketing effort turned out to be hig-hly successful. The main theme was, “You don’t have todial 1502 any more just to save money with Tele2’s lowprices.” The campaign provided objective informationabout the repercussions of the reform, how customerscould sign up for A1502 and that Tele2 Norge was im-plementing local rates on calls anywhere in the country.

Several successful campaignsIn September–October, a sales campaign offered Tele2Total, no-fee Internet service, as part of a preselect packa-ge. The offer was a great success, attracting 24,000 newcustomers.

O

Tele2 Norge AS

Tele2 Norge AS offers fixed telephony,Internet and data communications services.Fixed telephony services are marketed bythe company’s sales organization and throughtelemarketers as well as other external chan-nels. A nationwide network of dealers sellsDial-up Internet, with the company’s ownsales organization also selling to large com-panies and government agencies. Data com-munication services are sold by Tele2 AS’sown personnel.

▲

Tele2 Norge AS grew extremely fast in 1999, more than doubling the number of fixed

telephony and Internet customers. On June 1, Norway introduced preselect for fixed

telephony, lifting traffic volumes and revenues.



Rates generally proceeded downwards in 1999, aslong-distance and international fixed telephony declinedabout 20%. However, Internet rates were essentiallyunchanged. At the same time, ISP pricing is rapidly shif-ting, as price breaks are offered in the evenings and atnight.

Prompt response to changing market situationTele2 Norge AS’s strong suits include competitive ratesand a small, flexible and cost effective organization thatcan quickly adapt to a changing market. The quality ofits services clearly surpasses that of its competitors. Anadditional asset is extensive know-how, along withinsight into sales and marketing. The company’s offeringhas a solid technological base.

Tele2’s Scandinavian companies are working on greatercollaboration, in product development, for example, tobroaden the sharing of know-how and experience betwe-en countries.

Tele2 Norge AS has also identified major potential forhigher revenues in cross-sales between its various businessareas. The launch of mobile telephony services wouldturn the company into a complete supplier, giving it evenmore of a competitive edge.

Low start-up costsSince its inception, in line with customer growth, Tele2Norge has focused on the construction of telephoneexchanges and Internet capacity. Capacity for long-

Internet

Fixed Telephony

400,000

300,000

200,000

0


100,000

Q1/98

Q2/98

Q3/98

Q4/98

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Q2/99

Q3/99

Q4/99

NUMBER OF CUSTOMERS, F IXED TELEPHONY AND INTERNET

Since its inception, Tele2 Norge AS has been advanced as the private, cheaper alternative to the state-owned incumbent Telenor. With the company’s

Nære&Kjære (near & dear) service, customers get a 15% discount on calls to any 15 telephone numbers they may choose.

distance telephony has been leased from Telenor, whilethe existing infrastructure has been used for internationaltraffic, curbing capital investment required. Unit costsfor long-distance infrastructure have fallen dramaticallyin recent years because Tele2 Norge AS is now leasingmore capacity and is using alternative suppliers.In 1999, the company invested to extend capacity,

enhance operating reliability and check costs by exploi-ting economies of scale. Through capital expenditure ondata networks and servers, along with a new telephoneexchange, total capacity has followed the increase in traf-fic volumes, which more than quadrupled in 1999.

Eyeing mobile telephonyTele2 is examining its options for breaking into theNorwegian mobile telephony market. By providingmobile telephony Tele2’s highly visible brand namewould be strengthened.

Tele2 Norge’s goal for 2000 is to build on its reputa-tion as the main alternative to Telenor. The mobile telep-hony and Internet markets are likely to see a steady flowof new products and services. Tele2 Norge plans to meetthe competition with an expanded range at competitiveprices.

• Operating revenue,SEK 444 million (169), +163%

• Operating profit before depreciation and amortization,SEK –58 million (–93)

M A R K E T I N G


• In January, NetCom increased its stake inRitabell, from 48% to 94.8%.

• Marketing was aimed at positioning Ritabell asthe price leader

• At year-end 1999, Ritabell had some 56,000customers, an advance of 30%.

n January, NetCom acquired 90% of AS LevicomCellular, now Tele2 Eesti AS, which owns 52% ofRitabell and 100% of a GSM 1800 license in

Lithuania. The deal boosted NetCom’s stake in Ritabell,from 48% to 94.8%, making it a full-fledged subsidiary.Around the same time, NetCom acquired 19% of thecapital in OÜ Levicom Broadband, which encompassesseveral participants in the Estonian and Lithuaniancable-TV markets as well as Internet operations inEstonia. The total purchase price was USD 58.6 million.

Three Estonian licensesThree GSM 900 licenses have been awarded in Estonia:Ritabell, Estonia Mobile Telephone (EMT) and Radio-linja (Finland). EMT is owned by Telia of Sweden,Sonera of Finland and the Estonian state. EMT andRadiolinja date back to 1995.

On April 28, 1997, Ritabell launched Q-GSM as thethird alternative in the market. Ritabell was the first ope-rator to court the mass market with attractive packages,including subsidized handsets, that made it easier andless expensive to sign up for service. The effort proved so successful that at the six-month mark, Q-GSMaccounted for roughly 35% of all new subscriptions.

In February 1998, Ritabell became the first operatorto introduce a prepaid card.

25% market penetrationAround 25% of all Estonians had cell phones at the endof 1999, compared to 23% at the start of the year.

I

The Estonian company Ritabell markets itsmobile telephony services, aimed at privateconsumers as well as small and medium-sizedbusinesses, under the Q-GSM brand. The ser-vices, which are to be perceived as price lead-ers, are sold through Ritabell’s own Q-Shopschain and non-exclusive dealers. Also, prepaidcards can be purchased at gas stations andnewsstands. Finally, the company has a salesforce that reaches out to prospective businesscustomers.

▲

RitabellFollowing a sluggish first half, the second half of the year saw recruitment of new

customers accelerate on the back of new services and marketing campaigns that

established Ritabell as a price leader.

OtherOperations

• Operating revenue, SEK 696 million (197), +253%

• Operating profit before depreciation and amortization,SEK 51 milion (-21)



Growth has been curbed by a weak domestic economy inthe wake of Russia’s difficulties. In a long-term perspective,growth has been breakneck. At the beginning of 1997,only 6% of the population had a mobile telephone.

EMT has some 60% of the GSM market. Radiolinjais second, at around 21%, followed by Ritabell, withapproximately 19%. These percentages were fairly stablethroughout 1999.

Ritabell has about 50% of the prepaid card segment.

Q-GSM is a strong brand nameQ-GSM is a strong brand name for Ritabell. The com-pany has a flexible, customer-oriented organization andmaintains a brisk pace of marketing. Ritabell has a com-petitive edge by virtue of NetCom’s experience inSweden, Norway and Denmark. The greatest challengesit faces are a rigid invoicing system and poorer coveragethan EMT – not to mention growing competition, par-ticularly in the prepaid card segment. Among the oppor-tunities are broader distribution of subscriptions throughRitabell’s own stores. Its widespread network of prepaidcard dealers provides a stable foundation for furtherexpansion in the market.

Additional extension of networkRitabell has its own network, which covers territory thatis home to about 90% of the Estonian population. In2000, network capacity and coverage will be extendedfurther.

Favourable reception for new subscription packagesRitabell offers several different subscription packages forconsumers and businesses under the Q-GSM brand aswell as prepaid card packages. The basic packages includepremium services such as SMS, voice mailbox and callforwarding. In collaboration with Tele2, Ritabell isrevamping its SMS service to provide information suchas stock prices, weather forecasts and sports scores.

The new prepaid card package launched in Octoberoffers calling rates 10% below EMT’s. The marketingeffort, based on a comparison of Ritabell’s and EMT’srates, was favourably received. In November, a new sub-scription was promoted along similar lines. The aim is toshow that Q-GSM customers get more for their money.Largely due to the two sales efforts, customer recruit-ment improved in the second half of 1999.

A new business subscription that utilizes a bonuspoints system, by which discounts vary with call volume,was also launched in the autumn.

Prepaid

Postpaid

60,000

40,000

0


20,000

Q1/98

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Q3/98

Q4/98

Q1/99

Q2/99

Q3/99

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NUMBER OF CUSTOMERS, MOBILE TELEPHONY, RITABELL

Ritabell’s marketing aims to position Q-GSM as the price

leader. An advertisement with the heading “You’ve been

robbed” compared Q-GSM’s low prices with the higher

prices of EMT, a competitor partly owned by the state.

Economic upturn should spur marketAs the Estonian economy improves in 2000, the marketis expected to grow more rapidly.

Through new product launches, additional premiumservices, increased focus on price leadership and broadercoverage, Ritabell expects to carve out fresh market sharein 2000. In particular, the company will zero in on thebusiness sector, where it sees outstanding potential.

M A R K E T I N G


In 1998, NetCom acquired the Datametrixcompanies, which have been in Scandinaviasince 1976. The Group already hadNätTeknik, working with design, sales,installation, operation and maintenance ofsoftware systems for public and private net-works. In 1999, Datametrix Svenska AB andNätTeknik AB merged and were renamedDatametrix AB. Thanks to its background,the company has an extensive office andservice network in Sweden, Norway,Denmark and Finland.

▲

Optimal TelecomOptimal Telecom has offered attractively

priced fixed telephony services since

autumn 1998. The company enjoyed

strong growth in 1999.

ppealing services and successful marketing cam-paigns have substantially boosted the numberof callers using Optimal Telecom.

Smart Box finds the cheapest rateOptimal Telecom’s customers can pay the lowest ratesavailable by employing a Smart Box, which they pluginto their telephone outlet. The device contains a tinycomputer that compares the rates offered by Telia, Tele2and Telenordia, the three biggest operators in theSwedish market. It can also keep up with changes inrates, to guarantee the cheapest tariff at any time.

Since September 11, when the preselect reform wasimplemented for fixed telephony in Sweden, Smart Boxfunctions have been installed directly in the telecomnetwork. The device now works on all of a customer’s

Other Operations

DatametrixDatametrix continued to grow rapidly

in 1999, as external sales represented

a growing percentage of the total.

reviously, Datametrix in Sweden primarily soldother manufacturers’ equipment. Since the mergerwith NätTeknik, the company has been evolving

into a complete supplier of integration services. Datametrix is active in customer relationship manage-

ment (CRM), Internetworking, Internet communicationservices and broadband access, fields for which the com-pany offers services in consulting, operations and systemintegration.

Market’s foremost CRM systemsIn the CRM field, call centers represent a rapidly grow-ing market that demands integrated data communica-tions and telecom solutions. In mid-1999, around 70,000people were employed at call centers throughout theNordic region. Independent forecasts suggest that numberwill triple in the next four years. In less than 18 months,Datametrix has installed more than 30 call centers com-prising more than 3,000 agents in all. Consequently, thecompany is one of the leading Nordic suppliers of com-prehensive systems for call centers.

Internet security applicationsIn the Internet Communication Services area, Data-metrix focuses on effective security applications for theInternet. Its service offering includes solutions for virtualprivate networks (VPNs) and managed security services(MSS). VPN enables a company to link geographicallywidespread offices in a secure and cost-effective manner.As more sensitive strategic data is accessible over internalcompany networks, security issues are increasing signifi-cant for Internet-based communications solutions. MSSis a “total concept” in which the company operates,monitors and updates a customer’s firewalls.

Leading supplier of proprietary systemsIn Norway, Datametrix is a leading supplier of complexsolutions for voice and data communications used withina single company, for LANs and wide-area networks(WANs). Datametrix delivers complete systems to privateenterprise and government agencies. The systems com-prise equipment, consultants’ services, operation, mainte-nance and training. Demand for this type of solutionand expertise is expanding in all Nordic markets.

Not quiet on the broadband frontDatametrix has some 50 in-house broadband techniciansin Sweden. In concert with a few selected subcontractors,they make the company a leading provider of services forcable modems and wireless access solutions.

External sales risingAs Datametrix scores new successes in the marketplace,the percentage of sales to NetCom companies steadilydeclines. In 1999 around 70% of Datametrix Sverige’ssales came from customers outside the NetCom Group,compared to around 56% in 1998 and only 29% in1996. In the other Nordic countries, external customersrepresent more than 80% of total sales.

A

P



4T SolutionsSince its founding in 1997, 4T Solutions

has grown quickly and is now preparing a

broad marketing initiative in the European

market.

f telecom operators are to be paid efficiently andexpeditiously, they must have an invoicing systemthat can handle a wide array of services, is flexible

and can be easily adapted as new services and packagesemerge.

Next-generation billing system4T Solutions offers operators high-quality, cost-effectivebilling systems. The company has produced the next-generation Convergent Billing System, which is easier touse and more flexible than systems currently available.The system can handle and support a wide range ofapplications that operators offer, including GSM, prepaidcards, Internet service and fixed telephony. 4T solutionsanticipates customers will increasingly demand supportfor IP-based invoicing. Another spur to market growthwill be new customers, such as power utilities, eager tomake the most of spreading deregulation in their ownmarkets.

Since December 1997, Tele2 AB has run a billingsystem for GSM prepaid cards that was developed by 4T Solutions. Since that time, Tele2 AB has ordered fouradditional systems. Since installing its first system inAugust 1998, Tele2 Europe has purchased five more.

Beyond sales of the systems themselves, 4T Solutionsgenerates revenues through license fees and support ser-vices paid by the operators.

Rapidly growing marketThe market for billing systems has mushroomed inrecent years, as more people have acquired cell phonesand operators have provided more sophisticated services.Annual European sales of billing systems are in thebillions of kronor. To take advantage of this trend, 4T Solutions has created its own marketing organizationfor external sales. The target group is small and medium-sized operators throughout Europe. The company’sgrowth and marketing are based on thorough knowledgeof the opportunities and challenges operators face – aswell as solid business know-how.

Its chief rivals are systems and software companiessuch as Keenan (acquired by Lucent), Amdoc, Logica,EHPT, LHS and Sema.

Sharply higher sales

I

Optimal Telecom provides private individualswith low rates on fixed telephony andInternet services.

Customer bonus programs and athletic clubsare the primary sales channels.

▲▲

A wholly owned NetCom company, 4TSolutions develops invoicing systems fortelecommunications service providers.

▲

phones, regardless of how they are connected. Dereg-ulation has applied to long-distance and internationalcalls as well as calls to mobile phones. To obtain thelowest price for a local call, the customer still has tophysically install the Smart Box. Otherwise, local calls are automatically routed through Telia.

Smart Box for InternetThe Smart Box for Internet works much like the tele-phony version, ferreting out the cheapest local rate amongTelia, Tele2 and Telenordia. The subscription requires nospecial equipment and is installed from a CD-ROM.The modem dials Optimal Telecom’s modem pool. Ratechanges are noted immediately. Smart Box for Internetcarries no subscription fee.

InfrastructureOptimal Telecom is a service provider, which means ithas no infrastructure of its own. Rather, the companypurchases capacity in existing networks.




SEC n a transaction valued at DEM 800 million,NetCom AB and SEC carried out a stock swap. Forits 24.8% holding in NetCom ASA, the Company

obtained new shares in SEC representing 17.8% of theshare capital.NetCom AB’s stake in NetCom ASA dated from thefounding of the Norwegian company in 1993. Sincethen, NetCom ASA had entered the Norwegian marketfor fixed telephony, thereby becoming a direct competi-tor to Tele2 Norge AS.

Greater emphasis on EuropeThe deal sharpens NetCom’s European focus and en-hances its prospects for sustaining the current vigorousgrowth rate. SEC does business in seven Europeancountries. The Norwegian market has only 4 millionpeople, but 230 million live in the areas of Europe thatSEC covers. Also, SEC offers a broader spectrum ofservices, including fixed telephony, mobile telephony,Internet access and prepaid cards for fixed telephony.

SEC subsidiaries include: Tele2 Europe, a regional and international telecom operator in the Netherlands,Germany, Switzerland, Austria, France, Italy andLuxembourg; Transcom Europe, specializing in customerservice; Tango, a GSM 900/DCS 1800 mobile operatorin Luxembourg; 3C Communications, a company thatmarkets telephony and Internet services provided frompublic telephones and Internet terminals; and Transac, acompany providing data processing for card transactions,invoices and the like. SEC has started several new opera-

tions in the past year, including C3, the Europeanequivalent of the Everyday.com portal, prepaid cards for fixed telephony, and Intellinet, a fixed service with a lowest-price guarantee.

The Company is listed on the Stockholm StockExchange, Nasdaq in New York and the exchanges inLuxembourg and Frankfurt.

Kinnevik controls majority in SECThe stock transaction was executed through a non-cashissue, by which NetCom AB was compensated with newshares in SEC. Following the deal, NetCom AB owns17.8% of SEC’s capital and votes. IndustriförvaltningsAB Kinnevik holds 41.0% of the capital and 44.8% ofthe votes in SEC, and Millicom International CellularSA has 29.6% of the capital and 32.6% of the votes. The remaining 11.6% are publicly traded, having beendistributed to Kinnevik’s shareholders in 1998.

SEC enjoys large customer baseAt year-end, SEC had about 2.9 million customers, up more than 288% on the year. Cellular subscribersincreased by 113% to some 77,000. Revenues totaledDEM 607.1 million and SEC reported a loss after tax of DEM 446.9 million.

I

Associated CompaniesIn November, NetCom AB sold its holding in NetCom ASA, the Norwegian telecom operator,

to Société Européenne de Communication SA (SEC) in exchange for new shares in SEC.

SEC offers fixed telephony, mobile telephonyand Internet services as well as prepaid cardsfor fixed telephony. The Group operates inseven European countries through its sub-sidiaries Tele2 Europe, Transcom Europe,Tango, 3C Communications and Transac.

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Everyday.comt December 1, 1999, the new Internet portalEveryday.com was launched in Sweden. Beforeyear-end, the portal had also had a preliminary

release in France and the Netherlands. At the start of2000, Norway joined.

Before the end of the first quarter of 2000, Everydaywas also available in Denmark, Austria and Estonia. By opening in seven countries within the span of threemonths, it has become Europe’s fastest-growing Internetportal. Further launches have started in Italy, Switzerlandand Germany.

Dominant Internet portalEveryday Webguide AB, the company that runsEveryday.com, is jointly owned by Modern Times GroupMTG AB and NetCom AB. The goal is forEveryday.com to become the dominant Internet portal inScandinavia and a major player on the European portalscene.

The means will be to make the most of the strengthsof each group: MTG has content on the World WideWeb as well as expertise and power in mass media andmarketing. NetCom is the leading Internet operator inthe Nordic countries, serving 987,000 Internet subscri-bers at December 31, 1999.

Since the latter half of December, customers inSweden have been offered Everyday.com as their startpage. Subscribers in Norway had the same possibilityfrom the end of January.

A number of free servicesAs a portal, Everyday.com offers membership at no cost.This includes free web-based e-mail, free SMS messagingdirectly from a PC on-line, electronic postcards, book-marks and an address book all accessible from any com-puter connected to the Internet.

Accessible for all visitors to the site are domestic andinternational news, financial information, entertainmentand sports, chat rooms, personal ads, games, a completeTV guide for Europe and a five-day weather forecastdown to the municipal level in Sweden.

Since its inception, the portal has featured e-tail out-lets such as the Everyday Music Store, which offers some70,000 CDs.

Leading in Streaming VideoDuring the first month it was marketed via TV, radio,newspapers and banner ads, Everyday.com becameestablished in Sweden as the leading site with StreamingVideo, which allowed users to see the latest editions ofTV3 Direkt and ZTV Nytt as well as the precedingweek’s episode of the soap opera Vita lögner (WhiteLies). During millennium celebrations, users were able to access Historiens ljus (Light of history), by the popularwriter Herman Lindqvist, and TV3’s marathon broadcastof celebrations around the world – both as moving ima-ges at Everyday.com.

Everyday is operated by Everyday Webguide in thecore markets of MTG and NetCom, while franchiseshave been signed for the rest of Europe with SociétéEuropéenne de Communcation (SEC), which hasoperational responsibility for start-ups and day-to-daybusiness.

SEC had 3,000,000 subscribers at December 31,1999, 33% more than at the end of the precedingquarter. These are served mainly by Tele2 Europe.Everyday.com offers SEC’s customers the Internet portalas well as no-fee Internet access and free e-mail.

A

At December 1, 1999, the new Internet portal Everyday.com was launched

in Sweden. Before year-end, the portal had also had a preliminary release

in France and the Netherlands. At the start of 2000, Norway joined.

Internet users can join the Everyday.com portal for

free. Members can access free web-based e-mail, use

an SMS messaging service directly from their com-

puters and send electronic postcards.


Report of Directors

The Board of Directors and President present the annualreport for NetCom AB (publ), company registration number556410–8917, for fiscal 1999.

Report of the directorsClass A and class B shares in NetCom AB (“NetCom”) havebeen quoted on the O list of the Stockholm Stock Exchangesince 1996 (NCOMA and NCOMB), and through Americandepositary receipts (ADRs) on the Nasdaq National Marketsince 1997 (NECS).

OperationsFormed in 1993, NetCom AB is a leading telecommunicationscompany in the Nordic countries, Baltic states and Poland.

During the year, the Group conducted business in thefollowing areas.

Mobile GSM servicesin Sweden through Tele2 AB (with the Comviq and Tele2Mobilbrands), in Estonia through AS Ritabell (with the QGSMbrand), in Lithuania through UAB Tele2 and in Finland througha 20% holding in Suomen Kolmegee Oy. Until the associatedcompany NetCom ASA was divested in November 1999,mobile telephony was also conducted in Norway.

Fixed telephony, data communications and Internet servicein Sweden through Tele2 AB (with the Tele2 brand) andOptimal Telecom AB, in Denmark through Tele2 A/S and inNorway through Tele2 Norge AS. NetCom also owns 17.8%of Société Européenne de Communication SA, which conductstelephony business in central Europe. Datametrix is NetCom’sunit for systems integration. 4T Solutions is NetCom’s unit fordeveloping billing systems for telephony.Through its 50% hold-ing in Everyday Webguide (Everyday.com), the Company pro-vides an Internet portal with accompanying services.

Cable-TV servicein Sweden through Tele2 AB (with the Kabelvision brand) andin Estonia and Lithuania through a 19% holding in LevicomBroadband.

In 1999, the Group continued to extend its networks, andinvestment activity kept a brisk pace. In 1999, a total of SEK1,203 million (1998: SEK 1,546 million) was invested in opera-tions. In addition, other companies were acquired in 1999 fora total of SEK 513 million (1998: SEK 414 million).

NetCom enjoyed ongoing strong growth in its business.Operating revenue advanced 37% during 1999, to SEK 8,193million. Operating revenue for mobile telephony in Swedenrose dramatically, and NetCom’s operations in Denmark andNorway enjoyed exceptionally strong growth.

Operating profit increased some 71% before depreciationand amortization and 120% after.The operating margin beforedepreciation and amortization improved in 1999, from 20.5%to 25.6%; the operating margin after depreciation and amorti-zation went from 8.7% to 13.9%. Better performance resultedprimarily from much higher profitability in mobile telephonyand reduced losses by Tele2 in Norway and Tele2 in Denmark.The cost of the stock option program for senior executives isbased on the market price of NetCom shares.The apprecia-tion of the shares in 1999 required an addition of SEK 134million (1998: SEK 67 million) million to provisions for optioncommitments.

Profit/loss on shares and participations in associated com-panies includes a capital gain of SEK 3,228 million attributableto the divestment of the associated company NetCom ASA inNorway.

Net interest expense and other financial expenses equaledSEK –241 million in 1999, compared to SEK –276 million in1998.The decline was primarly caused by lower interest ratesdespite an increase in borrowings.The average interest rateon outstanding debt dropped, from 6.6% to 4.8% during theyear. Profit after financial items reached SEK 4,178 million in1999, compared to a loss of SEK 232 million in the precedingyear.

Tax expense for the year rose, from SEK –165 million, toSEK –412 million, as a result of healthy profit growth in theGroup. Profit for the year jumped, from SEK 67 million, toSEK 3,769 million, and earnings per share equaled SEK 36.29,compared to SEK 0.64 for the preceding year.

During the last years, NetCom has achieved solid growth inrevenue and profitability.

1999 1998 1997 1996 1995 1994

Operating revenue 8,193 5,969 4,036 2,872 1,953 882

Operating profit/loss 1,142 518 392 254 – 728 – 480

Profit/Loss after financial items 4,178 232 – 37 29 – 1,456 – 951

1999 profit after financial items includes a nonrecurring item of SEK 3,228 million attributable to capital gains from the divestment of the associated company NetCom ASA. 1996 profit included a nonrecurring gain of SEK 316 attributable to the issue of new shares in theassociated company NetCom ASA.


Report of Directors

Tele2 AB enjoyed a steady influx of mobile telephony cus-tomers in 1999. During the year, the number of mobile tele-phony customers rose 28%, to 1,641,000, including 909,000prepaid card customers, 48% better than in 1998. Ritabell AShad 56,000 customers for mobile telephony, representing anincrease of 30% in 1999.

At year-end,Tele2 AB had 852,000 customers for fixed tele-phony, up 23% in 1999, and 536,000 Internet customers, up27%.Tele2 A/S in Denmark had 421,000 customers for fixedtelephony at year-end, representing growth of 54%, and276,000 Internet customers, up 85%. At year-end,Tele2 inNorway had 289,000 fixed-telephony customers, up 121% for 1999, and 175,000 Internet customers, up 178%.The sub-scriber base for cable-TV grew 10%, to 148,000 at year-end.

The Group continuously develops new services. In March,Comviq launched a new, flexible type of subscription so thatcustomers no longer need to commit to a specific period fortheir phone service. In September, the Internet portalEveryday.com was launched, a joint effort of NetCom andModern Times Group (MTG). Everyday.com is Scandinavia’sbiggest Internet portal, offering everything from free Internetservice to a broad range of products and secure paymentssystems. In October, NetCom announced that it would collab-orate with Cisco Systems Inc. to introduce a new fiber-opticring as part of Tele2’s Internet initiatives.The new technologyenables broader bandwidth with limited additional investment.

In June, NetCom presented a reorganization proposalaimed at reducing costs and dealing with stiffer competition inthe future.The new organization entails staff cutbacks of 150persons, which will yield annual savings of about SEK 80 mil-lion from January 2000.

AcquisitionsDuring the first quarter of 1999, NetCom boosted its holdingin Ritabell, from 48% to 94.8%, by acquiring shares in Tele2Eesti AS (formerly AS Levicom Cellular) and OU LevicomBroadband. NetCom acquired 90% of the share capital inTele2 Eesti AS, which owns 52% of the share capital in Ritabelland 100% of a DCS 1800 license in Lithuania.At the sametime, NetCom acquired 19% of the capital in LevicomBroadband, which encompasses several participants in theEstonian and Lithuanian cable-TV markets as well as Internetoperations in Estonia.

In March 1999, NetCom announced the acquisition of 20%of the shares and 15% of the votes in Suomen Kolmegee Oy,making NetCom the single largest shareholder in the compa-ny. Suomen Kolmegee Oy has obtained one of the four cur-rent licenses for third generation mobile telephony networks,based on W-CDMA/UMTS, in the Finnish market.The compa-ny expects the mobile network to start up in about threeyears.

In November 1999, NetCom announced the divestment ofits 24.8% holding in NetCom ASA in Norway to SociétéEuropéenne de Communication SA (SEC) in exchange fornew shares in SEC. Following the deal, NetCom AB owned17.8% of SEC's capital. SEC, a leading alternative telecomoperator in Europe, conducts business in seven countries.

Also in November 1999, NetCom AB acquired the remain-ing 50% of Trade2 AB, bringing its stake up to 100%.Trade2conducts business related to electronic data transfer.

Several purchases and sales of shares in Group-companieswere executed within the NetCom Group at December 31,1999.

OutlookNo events occurred in 1999 or in 2000 to date to give man-agement reason to expect anything other than continuedhealthy growth in telephony and Internet service. Cable-TVnetworks in Sweden, which cover all markets, are beingupgraded for high-speed Internet traffic in areas demonstrat-ing such customer demand.

Significant events after year-endIn January, uniform tariffs were introduced for domestic fixedtelephony, and in February NetCom became the first mobileoperator in Sweden to offer a bonus for prepaid card cus-tomers when they receive calls from the Company’s cus-tomers who have contracts for mobile service.

Work of the Board of DirectorsIn 1999, NetCom’s Board of Directors held six meetings atwhich minutes were taken.The Board of Directors has a fixedset of procedures for its own tasks and established instruc-tions for the President.

OtherIn March 1999, the Board announced that Lars-JohanJarnheimer would succeed Anders Björkman as president ofNetCom AB.

NetCom’s operations were not effected by the changeoverto the new millennium.

Parent CompanyThe Parent Company performs functions and conducts cer-tain development projects common to the Group.The appre-ciation of the company’s share price in 1999 increased provi-sions for option commitments for senior executives SEK 134million (1998: SEK 67 million).

Proposed appropriation of earningsThe Group has retained earnings of SEK 2,242 million.TheBoard proposes a provision of SEK 29 thousand to theGroup’s restricted reserves.

The following funds are at the disposal of the ParentCompany’s Annual General Meeting.

Balance brought forward SEK 581,005,921Profit for the year SEK 914,154,523Total SEK 1,495,160,444

The Board of Directors and President propose that SEK1,495,160,444 be carried forward to the accounts for the year2000.


Consolidated Income Statements

R Group Parent Company

SEK thousands Note 1999 1998 1999 1998

Operating revenue................................................................................................ 1 8,193,036 5,969,081 10,032 5,898Cost of services sold........................................................................................ 2 – 4,402,892 – 3,497,502 — —Gross profit .......................................................................................................................... 3,790,144 2,471,579 10,032 5,898

Selling expenses........................................................................................................ 2 – 2,074,837 – 1,604,071 — —Administrative expenses.............................................................................. 2 – 651,466 – 462,726 – 40,811 – 29,522

Options issued to management ........................................................ 29 – 134,300 – 66,900 – 134,300 – 66,900Other operating revenue............................................................................ 3 213,303 189,920 — 73Other operating expense........................................................................... 4 -835 – 9,319 — —Operating profit ............................................................................................... 5 1,142,009 518,483 – 165,079 – 90,451

Share of profit/loss in associated companiesProfit/loss on shares and participations

in associated companies ....................................................................... 6 49,725 – 9,929 – 19,165 – 581Divestment of associated companies........................................ 7 3,227,889 — — —

Profit/loss on financial investmentsProfit/loss on shares in Group companies........................ 8 — — 1,044,936 —Profit/loss on other securities and receivables

classified as fixed assets......................................................................... 9 – 1,710 277 49,658 103,809Other interest revenue and similar income.................... 10 30,623 17,288 8,059 1,359Interest expense and similar costs ............................................... 11 – 270,247 – 294,371 – 4,404 – 44,193Profit after financial items ...................................................................... 4 178,289 231,748 914,005 – 30,057

AppropriationsChange in reserve for exchange rate differences... 12 — — 149 – 190

Tax on profit for the year.......................................................................... 13 – 411,523 – 165,400 — —Minority interest................................................................................................................ 2,363 270 — —Profit for the year.................................................................................................... 3,769,129 66,618 914,154 – 30,247

Earnings per share................................................................................................. 28 36.29 kr 0.64 krEarnings per share, after full conversion.............................. 28 36.29 kr 0.64 kr


Consolidated Balance Sheets

B Group Parent Company

SEK thousands Note 31 Dec 1999 31 Dec 1998 31 Dec 1999 31 Dec 1998

ASSETSFixed assetsIntangible assetsCapitalized start-up costs .......................................................................... 14 279,421 326,243 — —Capitalized license fees .................................................................................. 14 104,251 104,045 416 555Goodwill.............................................................................................................................. 14 1,920,947 1,256,637 — —Total intangible assets.......................................................................................... 2,304,619 1,686,925 416 555

Tangible assetsBuildings and land................................................................................................... 15 15,934 956 — —Machinery and other technical plant......................................... 15 5,832,197 5,229,411 — —Equipment, tools and installations.................................................. 15 185,898 112,204 422 616Fixed plant under construction ......................................................... 15 132,980 261,728 143 —Total tangible assets ................................................................................................ 6,167,009 5,604,299 565 616

Long-term financial assetsShares in Group companies.................................................................... 16 — — 1,481,354 3,811,317Receivables from Group companies........................................... 17 — — 847,236 1,071,248Shares and participations in associated companies.... 18 – 1,571 550,570 – 1,746 419Receivables from associated companies............................... 19 5,740 — — —Other long-term holdings of securities................................. 20 3,541,475 390 3,541,085 —Other long-term receivables................................................................. 21 58,399 2,342 19,811 —Deferred tax benefit .......................................................................................... 13 — 232,715 — —Total long-term financial assets .......................................................... 3,604,043 786,017 5,887,740 4,882,984

Total fixed assets ....................................................................................................... 12,075,671 8,077,241 5,888,721 4,884,155

Current assetsrMaterials and suppliesFinished goods and merchandise ............................................................... 34,309 30,674 — —Total materials and supplies ..................................................................... 34,309 30,674 — —

Current receivablesAccounts receivable ........................................................................................... 22 1,470,666 1,017,900 1,002 877Current tax benefits..................................................................................................... 387 184 — —Receivables from Group companies..................................................... — — 3,812 3,599Other receivables .................................................................................................. 23 29,786 95,497 284 7,409Prepaid expenses and accrued revenues ............................. 24 661,655 534,364 759 501Total current receivables ................................................................................. 2,162,494 1,647,945 5,857 12,386

Short-term investments ....................................................................................... 25 4,384 — — —

Cash and cash equivalents ............................................................................. 25 416,873 433,261 7,449 148,009

Total current assets.............................................................................................. 2,618,060 2,111,880 13,306 160,395

Total assets................................................................................................................. 26 14,693,731 10,189,121 5,902,027 5,044,550


Consolidated Balance Sheets

B Group Parent Company

SEK thousands Note 31 Dec 1999 31 Dec 1998 31 Dec 1999 31 Dec 1998

EQUITY AND LIABILITIESShareholders’ equity ................................................................................ 27

Restricted equityShare capital ................................................................................................................... 28 519,251 519,251 519,251 519,251Restricted reserves........................................................................................................ 4,241,472 3,701,609 3 478,970 3,478,970Total restricted equity .......................................................................................... 4,760,723 4,220,860 3,998,221 3,998,221

Non-restricted reserves/retained lossesRetained losses..................................................................................................................... – 1,527,538 – 1,018,537 581,006 611,253Profit for the year............................................................................................................ 3,769,129 66,618 914,154 – 30,247Total non-restricted reserves/retained losses................. 2,241,591 – 951,919 1,495,160 581,006

Total shareholders’ equity ....................................................................... 7,002,314 3,268,941 5,493,381 4,579,227Minority interest ........................................................................................................ 1,012 1,539 — —

Untaxed reservesReserve for exchange rate differences.............................................. — — 598 747Total untaxed reserves................................................................................... — — 598 747

ProvisionsDeferred tax liability.......................................................................................... 13 139,245 — — —Options issued............................................................................................................ 29 235,900 101,600 235,900 101,600Total provisions ............................................................................................................ 375,145 101,600 235,900 101,600

Long-term liabilities Interest-bearingLiabilities to financial institutions .................................................... 30 4,756,936 4,796,521 21,000 116,000Liabilities to Group companies..................................................................... — — 1,807 —Bank overdraft facility...................................................................................... 25 8,171 4,851 — —Other liabilities .......................................................................................................... 31 74,710 — 2,985 —Total interest-bearing liabilities .................................................... 4,839,817 4,801,372 25 792 116,000

Non-interest-bearingOther liabilities .................................................................................................................... 14,941 821 — 55Total non-interest-bearing liabilities............................................ 14,941 821 — 55Total long-term liabilities.......................................................................... 4,854,758 4,802,193 25,792 116,055

Current liabilitiesInterest-bearingLiabilities to financial institutions .................................................... 30 174,502 164,177 116,000 160,000Other liabilities .......................................................................................................... 31 73,654 74,997 2,946 74,997Total interest-bearing liabilities .................................................... 248,156 239,174 118,946 234,997

Non-interest-bearingAccounts payable .............................................................................................................. 790,074 740,786 1,260 1,593Current tax liabilities................................................................................................... 225 473 — —Liabilities to Group companies..................................................................... — — 159 23Other liabilities .......................................................................................................... 32 189,717 124,835 1,105 247Accrued expenses and prepaid revenues............................ 33 1,232,330 909,580 24,886 10,061Total non-interest-bearing liabilities............................................ 2,212,346 1,775,674 27,410 11,924

Total current liabilities ................................................................................... 2,460,502 2,014,848 146,356 246,921Total shareholders’ equity and liabilities ..................... 14,693,731 10,189,121 5,902,027 5,044,550

PLEDGED ASSETS AND CONTINGENT LIABILITIESPledged assets ...................................................................................................... 34 405,199 87,909 409,996 3,503,435Contingent liabilities ............................................................................... 35 None None 322,953 720,060


Consolidated Cash Flow Statement

K Group Parent Company

SEK thousands Note 1999 1998 1999 1998

Operating activitiesOperating profit ............................................................................................................... 1,142,009 518,483 – 165,079 – 90,451

Adjustment of income/expense items that do notgenerate cash flow from operating activities

Depreciation and amortization............................................................. 955,245 704,604 333 362Capital losses/gains on sale of machinery,

other technical plant .................................................................................... 5,361 – 89 — —Financial leases.............................................................................................................. – 15,955 – 17,802 — —

Exchange rate differences..................................................................................... 10,327 – 4,526 6,736 – 565Interest received................................................................................................................ 26,593 18,320 3,997 2,391Interest paid.............................................................................................................................. – 292,313 – 237,953 – 6,736 – 378Financial expenses paid ............................................................................................ – 19,386 – 25,725 – 307 – 1,251Tax received.............................................................................................................................. 214 181 — —

1,812,095 955,493 – 161,056 – 89,892Change in working capitalMaterials and supplies ................................................................................................ 1,789 – 15,708 — —Accounts receivable...................................................................................................... – 453,307 – 357,702 – 125 426Other current receivables................................................................................... 12,495 133,718 7,125 468Prepaid expenses and accrued revenues........................................ – 132,736 – 206,043 – 258 – 236Intercompany accounts, short-term...................................................... — — – 78 – 2,583Accounts payable .............................................................................................................. 2,431 188,479 – 333 – 3,651Other current liabilities........................................................................................... 61,712 67,815 858 – 6,212Accrued expenses and prepaid revenues...................................... 332,342 157,022 14,825 – 8,380Provisions ..................................................................................................................................... 134,300 66,900 134,300 66,900

– 40,974 34,481 156,314 46,732

Cash flow provided by operating activities 1,771,121 989,974 – 4,742 – 43,160

Investing activitiesAcquisition of intangible assets .................................................................... – 6,537 – 10,863 — – 693Sale of intangible assets ........................................................................................... 407 3,133 — —Acquisition of tangible assets.......................................................................... – 1,146,587 – 1 457,425 – 143 – 325Sale of tangible assets................................................................................................. 4,485 9,190 — 5,225Acquisition of shares in Group companies,

excl cash ...................................................................................................................... 16 – 236,894 – 413,935 – 26,373 – 319,577Sale of shares in Group companies,

excl cash ...................................................................................................................... 16 107 — – 12,738 —Acquisition of other long-term holdings of securities ..... – 40,476 — – 31,317 —Sale of other long-term holdings of securities ...................... 12,844 — — —Lending to Group companies ......................................................................... — — – 8,376 91,213Payments received from Group companies............................... — — 180,000 —Other long-term lending........................................................................................ – 19,811 — – 19,811 —Payments received on other long-term lending................... — 28,714 — 28,714Cash flow from investing activities ............................... 26 – 1,458,150 – 1,841,186 81,242 – 195,443

Financing activitiesProceeds from loans from credit institutions......................... 806,179 1,533,423 21,000 350,997Amortization of loans from credit institutions..................... – 1,053,358 – 830,510 – 234,997 —Amortization of other interest-bearing liabilities.............. – 75,066 — – 3,008 —Amortization of loans from Group companies.................... — — – 55 —Cash flow from financing activities......................................... – 322,245 702,913 – 217,060 350,997

Net change in cash ................................................................................................ – 9,274 – 148,299 – 140,560 112,394

Cash at beginning of year........................................................................... 25 433,261 579,048 148,009 35,615Adjustment for exchange rate differences........................ 25 – 2,730 2,512 — —Cash at end of year .................................................................................... 25 421,257 433,261 7,449 148,009

For additional cash flow information on transactions thathad no net effect on cash flow, see Note 36.


Notes

General accounting principles and changes in 1999In 1999, NetCom modified its accounting routines to conformto recommendation RR 8 of the Swedish Financial AccountingStandards Council, Reporting the effects of changes in exchangerates. Accordingly, goodwill from the acquisition of subsidiariesor associated companies should be calculated in the foreignunit’s currency. For purposes of comparison, the figures for1998 have been restated based on the new accounting principle.The recommendation does not have a retroactive effect onNetCom concerning the reversal of accumulated exchange dif-ferences attributable to companies divested in previous years.See also Note 27.

From 1999, NetCom is reporting deferred tax benefits attrib-utable to associated companies among Shares and participationsin associated companies, instead of in Deferred tax benefit, as inprevious years. For purposes of comparison, the figures for1996–1998 have been restated based on the new accountingprinciple. See also Note 27.

Assets and liabilities in subsidiaries are valued based on theaccounting principles applied by the Parent Company.

Consolidated accountsThe consolidated financial statements include the accounts ofthe Parent Company and all companies in which the ParentCompany controls, directly or indirectly, more than 50% of thevotes.

The consolidated accounts were prepared based on the pur-chase method, which means that the Parent Company’s pur-chase cost of shares in each subsidiary is charged against thatsubsidiary’s acquisition value, in other words, the subsidiary’sshareholders’ equity (including the equity component ofuntaxed reserves) at the time of acquisition based on a marketappraisal of the subsidiary’s net assets. Consequently, theGroup’s shareholders’ equity includes only that part of eachsubsidiary’s equity that has been earned after acquisition.

The difference between the purchase cost of shares in a sub-sidiary and the market value of that subsidiary’s net assets atthe time of acquisition is allocated to the subsidiary’s assets ifthe book values were less than the market values.Any amountsin market value exceeding book value are reported as goodwill.

The current method is used to translate the accounts of for-eign subsidiaries. Consequently, the exchange rate on the closingdate (closing rate) is used to translate items in the balancesheet, while items in the income statement are translated usingthe average exchange rate for the year (average rate).

All of NetCom’s companies are regarded as independent for-eign operations, so that exchange rate differences arising fromtranslation are charged directly to shareholders' equity.

When an independent foreign operation is divested, the accu-mulated exchange rate differences attributable to the divestedoperation, which were previously charged directly to share-holders' equity, are reported in Net assets in Group companiesdivested in the income statement.

Reporting associated companiesAn associated company is any company in which the Group’sholding is regarded as long-term and entitles the Group to atleast 20% but no more than 50% of the votes in the company.

Associated companies are reported using equity accounting.Accordingly, the book value of shares in each associated compa-ny as reported in the consolidated balance sheet correspondsto the Group’s participation in the associated company’s share-holders’ equity plus any residual goodwill on consolidation.TheGroup’s participation in associated companies’ earnings afterfinancial items is reported in the income statement under“Profit/loss on shares and participations in associated compa-nies” with amortization of acquired goodwill. Participation inassociated companies’ actual tax paid and deferred tax liabilitiesor benefits is reported in the income statement under “Tax onprofit/loss for the year” and in the balance sheet in “Shares andparticipations in associated companies.” Profits earned by anassociated company after acquisition that have not been distrib-uted are allocated to the equity component of associated com-

panies’ shareholders’ equity, which is part of the Group’srestricted equity. In the event of losses, the participation in theloss is deducted from non-restricted equity.

If the Group’s participation in the undistributed earnings of anassociated company increases or decreases because of a shareissue, the loss or gain is reported in the consolidated incomestatement under “Profit/loss on shares and participations inassociated companies.” However, if the one-off effect is substan-tial, the amount is reported under “Non-recurring items.”

Goodwill on consolidation attributable to a non-Swedish asso-ciated company is reported as an asset in the foreign currency.These values are translated applying the same principles as forthe associated companies’ income statements and balance sheets.

Minority interestsMinority interests includes the share of net profit or loss andshareholders’ equity in consolidated subsidiaries to which share-holders outside the Group are entitled.

Receivables and liabilities of Swedish and non-Swedishsubsidiaries denominated in foreign currenciesThe receivables and liabilities of Group companies that aredenominated in foreign currencies have been translated intoSwedish kronor using the closing rate.

Gains or losses on foreign exchange in international transac-tions related to regular operations are included in the incomestatement under “Other operating revenues” and “Other oper-ating expenses,” respectively, while differences in financial receiv-ables and liabilities are reported among financial items. Note 27summarizes the exchange rate differences charged directly toshareholders' equity and the differences that affected profit/lossfor the year.

Long-term lending to/borrowing from NetCom’s foreignoperations is regarded as a permanent part of the ParentCompany’s financing of/borrowing from foreign operations, andthus as an expansion/reduction of the Parent Company’s invest-ment in the independent foreign operation, the lending/borrow-ing is translated at the historical rate of exchange if the borrow-ing is denominated in the foreign company’s currency.

Valuation principlesAssets and liabilities have been valued at their purchase costunless otherwise specified.

Fixed assetsIntangible and tangible fixed assets are reported net afterdeductions for accumulated amortization and depreciationaccording to plan. Depreciation and amortization according toplan is based on the acquisition value of the asset and the esti-mated useful life.

Note 2 presents depreciation and amortization schedules forfixed assets and reasons for amortizing certain intangible fixedassets over a period longer than five years.

Intangible assetsCapitalized start-up costsOperating expenses and general overhead incurred while net-works are being started up are booked as assets and amor-tized over 5–13 years.

Capitalized license feesThe Company holds a number of licenses issued by the SwedishNational Post and Telecom Agency for the supply of various ser-vices. Based on a contract between Industriförvaltnings ABKinnevik ("Kinnevik") and Tele2 AB,Tele2 is entitled to exerciseKinnevik's license from the National Rail Administration.Capitalized expenses for these rights are amortized over theduration of the contract.

GoodwillGoodwill is defined as the difference between the purchase costof shares or assets acquired and the market value of net assets.Goodwill is amortized on a straight-line basis over 5–20 years.


Notes

Tangible assetsMachinery and technical plantMachinery and technical plant includes equipment and machinesintended for use in operations, such as network installations.The acquisition value includes direct expenses attributable tothe construction and installation of networks.

Extensions and improvements that increase value are capital-ized, while expenses for repairs and maintenance are charged toincome as they arise.

Equipment, tools and installationsEquipment comprises assets used in administration, sales andoperations.

LeasesIn the consolidated accounts, leases are classified as either finan-cial or operating leases. A lease is considered financial if all eco-nomic risks and benefits associated with ownership of the assethave been transferred, to a material degree, to the lessee; other-wise, the lease is an operating lease. For financial leases, eachasset is entered as a tangible fixed asset, and a correspondingliability is entered on the liabilities side of the balance sheet. Inthe income statement, the cost of the lease is divided into adepreciation portion and an item in interest expense.

ReceivablesReceivables have been reported in the amount expected to bepaid.

Materials and suppliesInventories of materials and supplies are valued at the lesser ofpurchase cost and market value.The requisite provisions aremade for obsolescence.

Revenue recognitionRevenue from telephony, cable-TV and other services and prod-ucts is recognized at the time the service/product is supplied tothe customer.

Revenue from IQ Spar and Kontantkort prepaid cards isrecognized at the time of sale, when provisions are also madefor future expenses.

Marketing expensesExpenditure for advertising and other marketing activities ischarged on an ongoing basis.

Costs of developing new servicesThe Group conducts ongoing development to produce newservices in the field of telecommunications. Development costsfor new services are expensed.

Estimates and approximationsSome items in the consolidated accounts are based on esti-mates and approximations. Actual results could differ fromthose estimates.

Corporate income taxConsolidated profit or loss for the year is charged with the taxon taxable income for the year (“Tax paid”) and with estimatedtax charges or credits for temporary differences (“Deferredtax”). A temporary difference is a provision to appropriationsmade by an individual company or any other item that merelyalters the time when an item is considered taxable or entitlingthe company to a deduction.

The calculation of deferred tax benefits in the Group hastaken into account the Group’s loss carry-forwards to theextent that it is expected they can be used in the foreseeablefuture. Deferred tax benefits and deferred tax liabilities are net-ted only among units having the same domicile for tax purposes.

The tax effects of Group contributions paid and received arereported in the individual companies as a tax expense or taxrevenue in the income statement (”Tax paid”) and charged toretained losses or earnings.

Number of employees Avg. no. employees

1999 of whom, men, % 1998 of whom, men, %

Parent Company:

Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 100 2 100

Total avg. No. of employees in Parent Company . . . . . . . . . . . . . . . . . . . . . . 2 100 2 100

Group:

Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990 72 861 72

Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 65 74 66

Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 72 114 68

Baltic States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 51 — —

Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 38 3 33

Total avg. No. of employees in Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 364 69 1 052 71

Costs of personnel 1999 1998

Salaries and Social security of which Salaries and Social security of whichremuneration expenses pension expense remuneration expenses pension expense

Parent Company:

Board and President 9,317 5,053 1,604 5,345 2,372 452

Other employees 1,242 1,005 478 1,286 691 220

Total Parent Company 10,559 6,058 2,082 6,631 3,063 672

Group:

Board and President 15,504 6,916 2,001 10,597 2,913 567

Other employees 487,237 165,913 28,729 372,260 141,472 22 718

Total Group 502,741 172,829 30,730 382,857 144,385 23,285


Notes

Group Parent CompanySEK thousands 1999 1998 1999 1998

Salaries and remuneration:

Board and President:

Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,579 6,446 9,317 5,345

Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,267 2,924 — —

Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,893 1,227 — —

Baltic States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765 — — —

15,504 10,597 9,317 5,345

Other employees:

Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,415 294,884 1,242 1,286

Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,010 29,761 — —

Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,252 46,930 — —

Baltic States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,438 — — —

Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,122 685 — —

487,237 372,260 1,242 1,286

Total salaries and remuneration: . . . . . . . . . . . . . . . . . . . . . 502,741 382,857 10,559 6,631

of which, bonuses:

Board and President:

Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 132 1,000 —

Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 70 — —

Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 159 — —

Baltic States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 — — —

Total bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,539 361 1,000 —

In 1999, in addition to remuneration stated above, provisionsequaling SEK 7.5 million (1998: SEK 7.7 million) were made forbonuses to senior executives in the Group plus social securityexpenses of SEK 2.5 million (1998: SEK 2.5 million).The alloca-tion of the amount will be determined in 2000.

The Chairman of the Board of NetCom AB, Jan HugoStenbeck, received compensation from the Group in 1999 in theform of a director’s fee totaling SEK 270 thousand (1998: SEK270 thousand) and the preceding year a consultant’s fee of USD200 thousand. Directors’ fees paid to other Members of theBoard equaled SEK 1,575 thousand (1998: SEK 1,090 thousand).

The President of NetCom AB, Lars-Johan Jarnheimer, receivedsalary and remuneration during the period April–December1999 from NetCom AB totaling SEK 3,892 thousand.AndersBjörkman, during his term as President of NetCom AB, received

SEK 3,580 thousand during the period January–March 1999(1998: SEK 4,005 thousand).

In the case of termination of employment by NetCom AB, thePresident is entitled to salary for a period of notice of no lessthan six and no more than 18 months, and other persons inCompany management are entitled to no less than six and nomore than 24 months’ salary. No other severance compensationwill be paid to Company management on termination of employ-ment besides the salaries specified above.

Pensions are paid based on a general pension insurance plan.In 1997, a decision was made to execute an incentive program

for senior management in the NetCom Group (as per Note 29).Of the options representing a total of 500,000 shares inNetCom AB, options corresponding to a total of 48,000 shareswere for Lars-Johan Jarnheimer, the Company’s President.


Notes

Auditors Group Parent Company(SEK thousands) 1999 1998 1999 1998

Pricewaterhouse Coopers

Audit assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,248 1,820 100 104

Other assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,239 3,540 598 422

3,487 5,360 698 526

KPMG:

Audit assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 60 60 60

Other assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8 — 8

60 68 60 68

Other auditors

Audit assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 — — —

228 — — —

Total fees and reimbursement . . . . . . . . . . . . . . . . . . . . . . . . 3,775 5,428 758 594

Audit assignments refer to the evaluation of the annual report and bookkeeping records as well as the administration by the President and Board of Directors.All other work is Other assignments.

Financial risksCredit risk represents the accounting loss that would bereported at the closing date if counterparties completely failedto fulfill their contractual obligations.

The Group limits its credit risk exposure to accounts receiv-able by continuously assessing the creditworthiness of cus-tomers. Because the Group has a heterogeneous base of cus-tomers, comprising both private individuals and businesses,credit risks are limited. No individual customer represents morethan 10% of the Group’s operating revenues.The Group makesprovisions for possible credit losses, and such losses haveremained within the estimates of management. In 1999, creditlosses were less than 1% of sales.

Because the Group’s operations are chiefly in the Nordiccountries, it has limited exposure to foreign exchange fluctua-tions.The fixed telephony operations and mobile telephonyoperations entail foreign exchange risk in conjunction withinternational call traffic and roaming traffic, which means that aliability or a claim arises between the NetCom Group and the

international operator.This account is calculated in special draw-ing rights (SDRs) but invoiced and paid in US dollars.The Groupeven purchases goods and services, to a limited degree, usingforeign currencies. At December 31, 1999, the net of all interna-tional call traffic, roaming traffic, and purchases made in foreigncurrencies was a liability roughly equal to SEK 263 million. Note27 specifies how exchange rate differences for the year haveaffected profit and been charged directly to shareholders' equity.Interest rate risk has been limited by varying the period of fixedinterest on loans outstanding, as described in Note 30.Tele2’sborrowings carry floating interest rates.To manage the risk ofrising interest rates,Tele2 has signed agreements with severaldifferent banks to cap the rate for a large portion of its borrow-ings.Tele2 has agreements to receive compensation if the STIBORrate for one month or three months on certain settlementdates exceeds 3.45% (for a nominal amount of SEK 2,200 mil-lion) or 5.95% (for a nominal amount of SEK 1,350 million).The agreements are valid until 2001.

Group Parent Company

Net sales by geographic market 1999 1998 1999 1998

Sweden......................................................................................................................................................................................................... 6,599,964 5,226,477 10,032 5,898

Norway........................................................................................................................................................................................................ 504,492 198,399 — —

Denmark.................................................................................................................................................................................................... 974,700 541,614 — —

Baltic states............................................................................................................................................................................................. 103,799 — — —

Other countries ............................................................................................................................................................................... 10,081 2,591 — —

Total net sales by geographic market 8,193,036 5,969,081 10,032 5,898

The geographic market is the country in which a company conducts the majority of its business.


Operating revenue by business area 1999 1998 1999 1998

Mobile telephony ............................................................................................................................................................................ 4,000,681 2,949,037 — —

Fixed telephony and Internet .......................................................................................................................................... 4,071,228 2,858,142 — —

Cable-TV................................................................................................................................................................................................... 121,127 161,812 — —

Group-wide; Parent Company....................................................................................................................................... — 90 10,032 5,898

Total operating revenue by business area 8,193,036 5,969,081 10,032 5,898

Of the Parent Company's total purchases and sales measured in Swedish kronor, 3.3% of operating expenses and 100% of sales pertained to other companies in the Group.


Notes

Group

Net sales by company 1999 1998

Tele2 AB:

Mobile telephony 3,909,227 2,957,478

Fixed telephony and Internet 2,630,188 2,223,267

Cable-TV 104,709 136,830

6,644,124 5,317,575

Tele2 Norge AS 444,312 169,473

Tele2 A/S, Denmark 973,740 545,761

Other Group companies 711,237 202,673

Elimination of sales within the Group – 580,377 – 266,401

Total net sales by company 8,193,036 5,969,081

Operating revenueNote 1

Depreciation, amortization and write-downs for the yearNote 2


1999 1998 1999 1998

Depreciation/amortization/write-downs included in operating profit/loss:

Capitalized start-up costs ............................................................................................................................................. – 51,679 – 47,672 — —

Capitalized license fees..................................................................................................................................................... – 7,391 – 6,389 – 139 – 138

Goodwill ............................................................................................................................................................................................. – 128,522 – 85,017 — —

Buildings and land.................................................................................................................................................................... – 508 — — —

Machinery and other technical plant.............................................................................................................. – 711,613 – 532,267 — —

Equipment, tools and installations....................................................................................................................... – 55,532 – 33,259 – 194 – 224

Total depreciation, amortization and write-downs by asset category – 955,245 – 704,604 – 333 – 362

Geographic breakdown of depreciation, amortization and write-downs

Sweden ................................................................................................................................................................................................. – 716,211 – 567,457 – 333 – 362

Norway................................................................................................................................................................................................ – 25,612 – 17,654 — —

Denmark ............................................................................................................................................................................................ – 67,893 – 40,464 — —

Baltic States..................................................................................................................................................................................... – 25,707 — — —

Other countries........................................................................................................................................................................ – 640 – 37 — —

Group depreciation/amortization....................................................................................................................... – 119,182 – 78,992 — —

Total depreciation, amortization and write-downs by geographic market – 955,245 – 704,604 – 333 – 362


Notes

Estimated useful life Group Parent Company

Intangible assets:

Capitalized start-up costs 3–13 years —

Capitalized license fees 2–25 years 5 years

Goodwill 5–20 years —

Tangible assets:

Land improvements 10 years —

Machinery and other technical plant 2–25 years —

Equipment, tools and installations 3–20 years 3–5 years

Depreciation/amortization according to plan is based on the acquisitionvalue of each fixed asset and its estimated useful life.

Capitalized start-up costs primarily pertain to the construction of net-works for mobile telephony which are amortized over 13 years, based onthe estimated average useful life of investments in infrastructure.

Capitalized license fees primarily pertain to the right to utilize transmis-sion capacity in the National Rail Administration’s trunk network.The amor-tization period of 23 years is based on the duration of the contract.

Goodwill that arose upon the original acquisition of Comviq GSM AB andTele2 AB as well as other acquisitions before 1996 is amortized over 10years. Goodwill that arose in 1996 with the purchases of the outstanding

Other operating revenueNote 3


1999 1998 1999 1998

Rental of capacity and antenna installations.................................................................................................. 120,959 121,875 — —

Divestment of fixed assets ............................................................................................................................................... 558 261 — —

Sales of mobile telephone equipment................................................................................................................ 5,572 3,762 — —

Administrative services ........................................................................................................................................................ 38,157 16,521 — —

Exchange gains in business operations.............................................................................................................. 2,060 848 — 73

Consulting and project revenue................................................................................................................................ 23,952 22,072 — —

Other revenue.................................................................................................................................................................................... 22,045 24,581 — —

Total other operating revenue 213,303 189,920 — 73

Group

1999 1998

Divestment of fixed assets – 19 – 172

Exchange losses in business operations – 816 – 9,147

Total other operating expenses – 835 – 9,319

Other operating expensesNote 4

minority interest in Tele2 AB and the outstanding option in Comviq GSM ABis amortized over 20 years. Goodwill that arose in 1998 with the acquisi-tion of the Datametrix, Ritabell and Trade2 companies will also be amor-tized over 20 years.The depreciation period is based on the long-term,strategic importance determined at the time of each acquisition.The reor-ganization of the Group in 1997, by which the Swedish operations wereessentially assembled in a single company, is a step towards facilitating thedevelopment of combined services across operational boundaries, which isone example of the strategic significance of these acquisitions.

Goodwill arising from the acquisition of customers in mobile telephonyand the acquisition of the UNI-C Internet operations is amortized over 10years, which is based on the estimated strategic value of the customer baseand operations, respectively. Other goodwill is amortized over five years.

Operating profit/lossNote 5


Operating profit/loss by geographic market 1999 1998 1999 1998

Sweden......................................................................................................................................................................................................... 1,495,768 864,703 – 165,079 – 90,451

Norway........................................................................................................................................................................................................ – 78,696 – 110,659 — —

Denmark.................................................................................................................................................................................................... – 114,412 – 155,581 — —

Baltic States............................................................................................................................................................................................ – 33,274 — — —

Other countries ............................................................................................................................................................................... – 8,195 – 988 — —

Group depreciation/amortization.............................................................................................................................. – 119,182 – 78,992 — —

Total operating profit/loss by geographic market 1,142,009 518,483 – 165,079 – 90,451


1999 1998 1999 1998

Depreciation, amortization and write-downs for the year by business area:

Mobile telephony..................................................................................................................................................................... – 329,101 – 272,860 — —

Fixed telephony and Internet................................................................................................................................... – 442,415 – 288,730 — —

Cable-TV............................................................................................................................................................................................ – 64,214 – 63,660 — —

Group-wide; Parent Company................................................................................................................................ – 333 – 362 – 333 – 362

Group depreciation/amortization....................................................................................................................... – 119,182 – 78,992 — —

Total depreciation, amortization and write-downs by business area – 955,245 – 704,604 – 333 – 362


Notes

Profit/loss on shares and participations in associated companiesNote 6


1999 1998 1999 1998

Share of earnings 79,165 25,109 – 19,165 – 581

Amortization of goodwill acquired – 29,440 – 35,038 — —

Total profit/loss on shares and participations in associated companies 49,725 – 9,929 – 19,165 – 581

Profit/loss on share and participations Holding Group Parent Company

in associated companies: 31 Dec 99 31 Dec 98 1999 1998 1999 1998

NetCom ASA, Norway — 25% 70,699 – 1,173 — —

Ritabell, Estonia 95% 48% – 1,809 – 8,175 — —

Gamla Stans Millennium 25% 25% – 19,165 – 581 – 19,165 – 581

Total share of profit/loss in associated companies 49,725 – 9,929 – 19,165 – 581

In January 1999, NetCom increased its holding in Ritabell, from 48% to94.8%, by acquiring shares in Tele2 Eesti AS. NetCom purchased 90% ofthe shares in Tele2 Eesti AS, which owns 52% of the share capital inRitabell.The share of losses, SEK –1,809 thousand, refers to the month ofJanuary.

In November 1999, NetCom sold its 24.8% shareholding in NetCom ASAto Société Européenne de Communication SA (SEC) in exchange for newshares in SEC.The share of earnings, SEK 70,699 thousand, reflectsNetCom’s interest in the company up to the time of sale.

NetCom ASA Ritabell

1999 1998 1999 1998Contribution of each associated company to colsolidated profit/loss: (11 months) (12 months) (1 month) (3 months)

Profit/loss in each associated company 359,444 108,491 – 368 – 6,865

Participation in profit/loss 89,286 27,144 – 177 – 3,295

Amortization of goodwill – 27,808 – 30,158 – 1,632 – 4,880

New issues by associated companies, NetCom’s share of the additional capital 9,221 1,841 — —

Contribution to profit/loss in the NetCom Group 70,699 – 1,173 – 1,809 – 8,175

The share of profits/losses in NetCom ASA for the first 11 months are basedon NetCom ASA’s earnings to September 30, 1999, plus two-thirds of the earn-ings announced by NetCom ASA for the third quarter of 1999.

Divestment of associated companiesNote 7

Group

1999 1998

Divestment of NetCom ASA 3,227,889 —

Total divestment of

associated companies 3,227,889 —

In November 1999, NetCom sold its 24.8% shareholding in NetCom ASAto Société Européenne de Communication SA (SEC) in exchange for newshares in SEC.

The sale was executed by the wholly owned holding company ComvikInternational AS, which owned shares in NetCom ASA, so the ParentCompany reports its capital gain in “Profit/loss on shares in Group compa-nies” in the income statement. See also Note 8.

Profit/loss on shares in Group companiesNote 8

Parent Company

1999 1998

Capital gain on the sale of

Comvik International AS 2,957,334 —

Capital loss on the sale of

Tele2 AB – 1,912,398 —

Total profit/loss on shares

in Group companies 1,044,936 —

In November, the Parent Company divested shares in its wholly owned sub-sidiary Comvik International AS, which owns 24.8% of the shares inNetCom ASA, which is listed on the Norwegian stock exchange. In theGroup, the capital gain is reported as Divestment of associated companies.See also Note 7.

At December 31, NetCom sold all shares in Tele2 AB to the Group com-pany Tele2 Holding AB.The sale was priced at the tax-effective purchasecost, resulting in a capital loss for the Company.


Operating profit/loss by buisness area 1999 1998 1999 1998

Mobile telephony......................................................................................................................................................................... 1,511,472 1,004,317 — —

Fixed telephony and Internet........................................................................................................................................ – 16,978 – 253,992 — —

Cable-TV................................................................................................................................................................................................ – 68,224 – 62,399 — —

Group-wide; Parent Company..................................................................................................................................... – 165,079 – 90,451 – 165,079 – 90,451

Group depreciation/amortization.............................................................................................................................. – 119,182 – 78,992 — —

Total operating profit/loss by business area 1,142,009 518,483 – 165,079 – 90,451


Notes

Gains/losses on other securities and receivables classified as fixed assetsNote 9


1999 1998 1999 1998

Interest, Group .................................................................................................................................................................................. — — 51,392 104,274

Interest, external receivables............................................................................................................................................ 304 277 278 277

Exchange rate differences .................................................................................................................................................... – 2,014 — – 2,012 – 742

Total gains/losses on securities/receivables as fixed assets – 1,710 277 49,658 103,809

Other interest revenueNote 10


1999 1998 1999 1998

Interest on bank deposits .................................................................................................................................................... 26,283 18,043 3,719 2,114

Exchange rate differences on short-term financial assets ........................................................... 4,340 – 755 4,340 – 755

Total other interest revenue 30,623 17,288 8,059 1,359

Interest expense and similar costsNote 11


1999 1998 1999 1998

Interest, Group .................................................................................................................................................................................. — — — – 39,557

Interest on loans.............................................................................................................................................................................. – 230,815 – 252,729 – 6,289 – 1,757

Interest on convertible debentures......................................................................................................................... — – 836 — – 836

Interest on financial leases................................................................................................................................................... – 13,607 – 8,065 — —

Interest on other liabilities.................................................................................................................................................. – 15,641 – 2,912 – 447 – 1,391

Exchange rate differences on financial liabilities....................................................................................... 6,103 – 3,771 2,639 932

Other financial expenses....................................................................................................................................................... – 16,287 – 26,058 – 307 – 1,584

Total interest expenses and similar costs – 270,247 – 294,371 – 4,404 – 44,193

Appropriations, otherNote 12

Parent Company

1999 1998

Reversal from/Provisions to

foreign exchange reserve 149 – 190

Total appropriations 149 – 190


Notes

Tax on profit/loss for the year and deferred tax liability/benefitNote 13

The Non-tax effects (Group adjustments) item of SEK 31 million in 1999 waschiefly attributable to the tax effect of gains from the sale of associated com-panies totaling SEK 67 million and to amortization of goodwill totaling SEK -33 million.

The permanent differences item in 1999 for all material purposes relatesto the tax effect of the Parent Company’s gain on the divestment of NetComASA, SEK 828 million, which has not been reported for taxation for the rea-sons specified to the right.

The item Loss for the year not utilized refers to foreign operations.

Tax on profit/loss for the Group

year by geographic area: 1999 1998

Current tax expense:

Sweden – 1 —

Norway — 157

Holland 215 24

214 181

Deferred tax expenseresulting from temporary differences:

Sweden – 369,255 – 163,127

Norway – 37,170 – 7,631

Estonia – 2,757 2,757

Holland – 1,811 1,811

Other countries – 744 609

– 411,737 – 165,581

Total tax on profit/loss for the year – 411,523 – 165,400

Group

Tax expense for the year 1999 1998

in relation to earnings before tax: SEK thousands % SEK thousands %

The difference between the Group’s tax expense and the tax expense based

on the actual tax rate consists of the following components.

Profit/loss before tax and minority interest.................................................................................................. 4,178,289 231,748

Tax as per current tax rate in:

Sweden, Norway, Finland................................................................................................................................................ – 1,227,446 28.0 – 114,449 28.0

Denmark ............................................................................................................................................................................................ 46,177 32.0 59,686 34.0

Estonia................................................................................................................................................................................................... 12,204 26.0 — —

Other countries........................................................................................................................................................................ 4,504 31.7 510 35.0

– 1,164,561 27.9 – 54,253 23.4

Tax effects of:

Non-tax effects (Group adjustments)........................................................................................................... 31,171 – 0.7 – 27,007 11.7

Permanent differences....................................................................................................................................................... 828,831 – 19.8 – 1,804 0.8

Loss carry-forwards:

Loss for the year not utilized................................................................................................................................ – 94,304 2.3 – 97,302 42.0

Losses carried forward from previous years not

included in loss for the year ............................................................................................................................ – 12,660 0.3 14,966 – 6.5

Tax expense for the year and effective tax rate – 411,523 9.8 – 165,400 71.4

Group

Deferred tax liability/benefit 31 Dec 99 31 Dec 98

In untaxed reserves – 396,810 – 13,017

In value of unutilized loss carry-forwards 257,565 245,732

Total deferred tax liability/benefit – 139,245 232,715

Unutilized loss carry-forwards include temporary differences

Geographic breakdown of Group

deferred tax liability/benefit 31 Dec 99 31 Dec 98

Deferred tax benefit:

Sweden 257,565 240,397

Estonia — 2,757

Holland — 1,811

Other countries — 767

Deferred tax liability:

Sweden – 396,810 – 13,017

Totaldeferred tax liability/benefit – 139,245 232,715

The accounting principle for deferred tax in associated companies waschanged with a retroactive effect of SEK 164,670 thousand, so deferredtax for NetCom ASA is reported in Shares and participations in associatedcompanies instead of in Deferred tax, as previously.

Deferred tax benefits are reported only for the portion of loss carry-for-wards that are anticipated could be used in the near future. One effect ofthis is that accumulated losses in Tele2 A/S in Denmark and Tele2 Norge ASin Norway are valued at zero.

The tax authorities have challenged loss carry-forwards in NetCom ABcorresponding to SEK 170 million (1998: SEK 181 million) in deferred taxrevenue.Those loss carry-forwards have been reported at their fullamounts.

The shares in NetCom ASA sold were actually exchanged for shares inSEC, so a postponement will be obtained for the tax-effective capital gain.Because NetCom exercises control over whether or not the profit will bebrought forward for taxation, no tax effect from the sale has been chargedin the accounts. A divestment of SEC shares outside the NetCom Groupwould incur taxes for NetCom of SEK 828 million.


Notes

Intangible assetsNote 14


Group Start-up Capitalized Goodwill Total Capitalized31 Dec 99 expenses license rights license rights

Acquisition value at Jan. 1........................................................................................................ 761,321 133,154 1,512,056 2 ,406,531 693

Acquisition value in acquired companies.............................................................. 9,926 1,904 — 11,830 —

Investment for the year.............................................................................................................. — 6,537 458,582 465,119 —

Divestment and retirement................................................................................................... — -37 — – 37 —

Reclassified items............................................................................................................................... — — 382,273 382,273 —

Translation difference for the year ............................................................................... – 2,685 – 847 – 51,260 – 54,792 —

Acquisition value 768 562 140,711 2,301,651 3,210,924 693

Accum. depreciation/amortization at Jan. 1........................................................ – 435,078 – 29,109 – 255,419 – 719,606 – 138

Accumulated depreciation/amortization in acquired companies – 3,474 — — – 3,474 —

Depreciation/amortization for the year................................................................. – 51,679 – 7,391 – 128,522 – 187,592 – 139

Divestment and retirement................................................................................................... — 3 — 3

Translation difference for the year ............................................................................... 1,090 37 3,237 4,364 —

Accumulated depreciation/amortization – 489,141 – 36,460 – 380,704 – 906,305 – 277

Book value 279,421 104,251 1,920,947 2,304,619 416

A change in accounting principles for calculating goodwill on consolidationdenominated in the currency of foreign companies resulted in a retroactivechange of SEK 15,947 thousand net in previous years’ figures for goodwill.

The reclassification for the year was for rebooking SEK 382 million from

Shares and participations in associated companies to Goodwill, in conjunc-tion with the shareholding in Ritabell increasing from 48% to 94.8%.Thisyear’s investment in goodwill totaling SEK 459 million is primarily attribut-able to this successive acquisition.

Tangible assetsNote 15

Group Buildings Machinery, Under construction31 Dec 99 & land Technical plant Equipment Fixed plant Total

Acquisition value at Jan. 1...................................................................................................................... 956 7,311,051 251,767 261,728 7,825,502

Acquisition value in acquired companies............................................................................ 15,773 81,767 44,464 57,090 199,094

Investment for the year ........................................................................................................................... — 845,280 47,667 289,200 1,182,147

Divestment and retirement................................................................................................................. — – 6,697 – 2,384 — -9,081

Reclassified items............................................................................................................................................. — 427,276 49,433 – 476,709 —

Translation difference for the year ............................................................................................. — – 26,015 – 5,348 1,671 – 29,692

Acquisition value 16,729 8,632,662 385,599 132,980 9,167,970

Accum. depreciation/amortization at Jan. 1...................................................................... — – 2,081,640 – 139,563 – 2,221,203

Accumulated depreciation/amortization in acquired companies........... – 293 – 13,019 – 7,791 – 21,103

Depreciation/amortization for the year............................................................................... – 202 – 711,613 – 55,532 – 767,347

Write-downs ........................................................................................................................................................ – 306 — — – 306

Divestment and retirement................................................................................................................. — 399 1,914 2,313

Reclassified items............................................................................................................................................. — — — —

Translation difference for the year ............................................................................................. 6 5,408 1,271 6,685

Accumulated depreciation/amortization – 795 – 2,800,465 – 199,701 – 3,000,961

Book value 15,934 5,832,197 185,898 132,980 6,167,009

Parent Company Under construction31 Dec 99 Equipment Fixed plant Total

Acquisition value at Jan. 1 ......................................................................................................................................................................................................... 1,083 — 1,083

Investment for the year............................................................................................................................................................................................................... — 143 143

Acquisition value 1,083 143 1,226

Accum. depreciation/amortization at Jan. 1......................................................................................................................................................... – 467 – 467

Depreciation/amortization for the year .................................................................................................................................................................. – 194 – 194

Accumulated depreciation amortization – 661 – 661

Book value 422 143 565


Notes


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Total capitalized interest expenses in fixed assets ................................................................................ 151,914 151,914 — —

Financial leasesAll assets related to financial leases signed since 1997 have been included in the consolidated accounts.The following table contains these values and values for assets under financial leases but which have not been restated in the consolidated accounts,that is, those pertaining to leases signed before January 1, 1997.

Group

Book value assets Assets not booked

31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Machinery and other technical plant

Acquisition value.............................................................................................................................................................................. 267,022 151,176 154,773 154,773

Accumulated depreciation/amortization........................................................................................................... – 40,345 – 7,690 – 28,584 – 21,785

Book value 226,677 143,486 126,189 132,988

Tax-assessed value:The tax-assessed value of the Group’s land in Sweden equaled SEK 936 thousand (1997: SEK 936 thousand).

Shares in Group companiesNote 16

Parent Company

31 Dec 99

Acquisition value at Jan. 1 3,542,366

Investment for the year 1,263,603

Divestment – 3,324,615

Acquisition value 1,481,354

Accumulated write-ups at Jan. 1 268,951

Divestment – 268,951

Accumulated write-ups —

Total shares in Group companies 1,481,354

In 1999, NetCom divested shares in its wholly owned subsidiary ComvikInternational AS, which owns 24.8% of the shares in NetCom ASA, which islisted on the Norwegian stock exchange.

In addition, NetCom has carried out an internal restructuring of the com-panies in the Group and in conjunction with this sold its shares in Tele2 ABto the Group company Tele2 Holding AB.

Shares in Group companies Number 31 Dec 99 31 Dec 98Company, reg. no., reg’d. Office of shares Holding, % Par value Book value Book value

Trade2 (Sweden) AB, 556469-7836, Stockholm.......................................................... 1,001 100 SEK 100,000 15,035 1,040

Belmus BV, 33261289,Amsterdam, Holland .................................................................... 15 100 NLG 15,000 330,552 317,476

AS Ritabell, 10069046,Tallinn, Estonia............................................................................... 48 — —

In2loop Polska Sp. So.o,Warsaw, Poland.............................................................................. 49 49 PLN 49,000 250 61

Web Communication BV,Amsterdam, Holland.......................................................... 400 100 NLG 40,000 170 —

Tele2 Polska Sp,Warsaw, Poland............................................................................................... 100 — —

Comvik International Norge AS, 954393232, Oslo, Norway...................... — — 447,000

NetCom ASA, 965361413, Oslo, Norway................................................................... — — —

Tele2 Dax Net A/S, dormant company ................................................................................. — — 108

NetCom Luxembourg Holding AB, 556580-7905, Stockholm.................. 100 SEK 100,000 104 —

NetCom Luxembourg SA, Luxembourg ............................................................................. 100 EUR 35,000 1,135,243 —

Everyday Holding AB, 556579-7718, Stockholm.................................................. 100 — —

Stenblocket i Fruängen AB, 556058-8500, Stockholm........................... 100 — —

Everyday Webguide AB, 556182-6016, Stockholm................................................... 50 — —

Tele2 Holding AB, 556579-7700, Stockholm................................................................... 100 — —

Tele2 AB, 556267-5164, Stockholm...................................................................................... 100 — 3,045,632

Tele2 Sweden SA, Luxembourg .......................................................................................... 100 — —

4 T Solutions Holding AB, 556580-2690, Stockholm......................... 100 — —

4 T Solutions AB, 556164-6281, Stockholm ........................................... 100 — —

Optimal Telecom Holding AB, 556580-7855, Stockholm.............. 100 — —

Optimal Telecom AB, 556440-1924, Stockholm................................ 100 — —

X-Source Holding AB, 556580-2682, Stockholm.................................... 100 — —

X-Source AB, 556290-2238, Stockholm...................................................... 100 — —

Datametrix Sverige Holding AB, 556580-7871, Stockholm....... 100 — —


Notes

Shares in Group companies Number 31 Dec 99 31 Dec 98Company, reg. no., reg’d. Office of shares Holding, % Par value Book value Book value

N.I.U Nätteknik Inst & U-h AB, 556539-4870, Stockholm... 100 — —

Tele2 Norge Holding AB, 556580-8143, Stockholm............................ 100 — —

Tele2 AS Norge, 974534703, Oslo, Norway........................................... 100 — —

Tele3 Norge AS, 932100975, dormant company........................ 100 — —

Tele2 Danmark Holding AB, 556580-8028, Stockholm.................... 100 — —

Tele2 A/S,A/S221234, Copenhagen, Denmark..................................... 100 — —

Tele2 Eesti AS, 10262238,Tallinn, Estonia.......................................................... 90 — —

AS Ritabell, 10069046,Tallinn, Estonia............................................................ 52 — —

Levi & Kuto Latvia, 000307707, Latvia .......................................................... 100 — —

UAB Tele2, 1147164, Lithuania ............................................................................... 100 — —

UAB Levi & Kuto Kaunas, 1149679, Lithuania .................................... 100 — —

UAB Levi & Kuto Klaipeda, 1150061, Lithuania................................. 100 — —

Datametrix Norway AS, 975993108, Oslo, Norway.......................... 100 — —

Datametrix Danmark A/S, 39419, Copenhagen, Denmark......... 100 — —

Datametrix OY, 378548, Helsinki, Finland....................................................... 100 — —

OY Interloop AB, Helsinki, Finland .......................................................................... 100 — —

Interloop AB, 556284-7565, Stockholm............................................................. 100 — —

NetCom GSM Sverige AB, 556304-7025, Stockholm....................... 100 — —

Åkersberga KV AB, 556326-3192, Österåker, Sweden.................... 100 — —

Halmstads KV AB, 556380-6115, Halmstad, Sweden......................... 100 — —

Skaraborgs Kabel-TV AB, 556483-6467, Mariestad, Sweden.... 60 — —

Hallstahammar KV KB, 916580-7912,Västerås, Sweden............... 90 — —

Kopparstaden KV KB, 916583-0564,Västerås, Sweden.................. 80 — —

Nelab KV KB, 916597-8983,Västerås, Sweden......................................... 80 — —

Comviq GSM AB, 556450-2606, dormant company.......................... 100 — —

Call2Web AB, 556403-7983, dormant company..................................... 100 — —

Swipnet AB, 556411-9401, dormant company........................................... 100 — —

SCD AB, 556353-6829, dormant company.................................................... 99.97 — —

Comviq Broadband AB, 556405-6678, dormant company ......... 100 — —

Datametrix Svenska AB, 556041-1307, dormant company........ 100 — —

Kalmar Kabelvision AB, 556244-2466, dormant company.......... 100 — —

Tele1 A/S, 955780132, Oslo, Norway .................................................................... 100 — —

Danu Wireless Security Ltd, Ireland....................................................................... 100 — —

Tele2 Sweden Ltd, England, dormant company.......................................... 100 — —

Total shares in Group companies 1,481,354 3,811,317

Acquisition and divestment of subsidiaries during the year:Group

The Group’s book values for assets and liabilites acquired and for Acquired Divested

assets and liabilites in divested companies were as follows: 1999 1998 1999 1998

Intangible assets ................................................................................................................................................................................ 467,440 482,465 — —

Tangible assets..................................................................................................................................................................................... 184,131 3,100 — —

Long-term financial assets.................................................................................................................................................... — 5,893 54 —

Materials and supplies............................................................................................................................................................... 6,008 5,599 — —

Current receivables ..................................................................................................................................................................... 22,638 21,004 53 —

Short-term investments and cash.............................................................................................................................. 7,077 1,540 — —

Long-term liabilities...................................................................................................................................................................... – 62,520 – 82,841 — —

Current liabilities............................................................................................................................................................................. – 157,470 – 21,285 — —

Purchase price 467,304 415,475 107 —

Payment by loan from the seller ................................................................................................................................. – 223,333 — — —

Purchase price paid/received 243,971 415,475 107 —

Cash in the companies acquired/divested....................................................................................................... – 7,077 – 1,540 — —

Impact on Group cash 236,894 413,935 107 —


Notes

Receivables from Group companiesNote 17

Parent Company

31 Dec 99 31 Dec 98

Acquisition value at Jan. 1 1,071,248 164,564

Loans 1,319,930 1,125,906

Amortization and additions paid – 1,542,173 – 218,480

Translation difference for the year – 1,769 – 742

Total receivables from Group companies 847,236 1,071,248

Number 31 Dec 99 31 Dec 98(Company, reg. no., reg’d. Office) of shares Holding,% Par value Book value Book value

Parent Company

Gamla Stans Millennium Evanemang KB, 969653-5997, Stockholm 25 — – 1,746 419

– 1,746 419

Group (additional):

Everyday Webguide AB...................................................................................................................... 50 SEK 175,000 175 —

NetCom ASA, 965361413, Oslo, Norway.................................................................. — — — 11,318

NetCom GSM AS, 951589888, Oslo, Norway............................................... 100 — — —

Klart Svar AS, 971180587, Oslo, Norway............................................................. 100 — — —

AS Ritabell, 10069046,Tallin, Estonia.................................................................................. 95 — — 538,833

Total shares and participations in associated companies, Group – 1,571 550,570

Shares and participations in associated companiesNote 18

A change in accounting principles for calculating goodwill on consolidationdenominated in the currency of foreign companies resulted in a retroactivechange of SEK -9,890 thousand in previous years’ figures for Shares andparticipations in associated companies.The accounting principle fordeferred tax in associated companies was also changed with a retroactive

effect of SEK 164,670 thousand, so deferred tax for NetCom ASA isreported in Shares and participations in associated companies instead ofin Deferred tax, as previously.

This year’s investment of SEK 175 thousand in Everyday Webguide ABreflects the participation in shareholders' equity.

Receivables from associated companiesNote 19

Group

31 Dec 99 31 Dec 98

Acquisition value at Jan. 1 — —

Loans 5,740 —

Total receivables from associated companies 5,740 —

Number of Holding, % 31 Dec 99 31 Dec 98(Company, reg. no, regd. Office) Shares capital votes Par value Book value Book value

Parent Company

Société Européenne de Communication SA (SEC), Luxembourg 92,533,625 A 17.8 17.8 LUF 101,852,000 3,518,004 —and 9,318,316 B

AS Levicom Broadband, Estonia 1 19.0 19.0 EEK 8,000 18,382 —

Suomen Kolmegee, Helsinki, Finland 1,924 20.1 15.0 FIM 1,924,000 4,699 —

SCD Invest AB, 556353-6753, Stockholm 1,058,425 A 9.1 49.6 SEK 5,292,000 0 0

3,541,085 0

Group (additional)

Brf Sundsvallshus (tenant-owner housing) — — — — 390 390

Total Group 3,541,475 390

The market value of NetCom’s shares in SEC equaled SEK 5,959 million at December 31, 1999.

Other long-term holdings of securitiesNote 20

Group Parent CompanyOther long-term holdings of securities: 31 Dec 99 31 Dec 99

Acquisition value at Jan. 1 343,141 342,751

Investment for the year 3,541,085 3,541,085

Acquisition value 3,884 ,226 3,883,836

Accumulated write-downs at Jan. 1 – 342,751 – 342,751

Accumulated write-downs – 342,751 – 342,751

Total 3,541,475 3,541,085


Notes

Other long-term receivablesNote 21


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Acquisition value at Jan. 1.................................................................................................................................................. 2,342 29,808 — 28,714

Loans .......................................................................................................................................................................................................... 14,799 1,473 20,169 277

Amortization and additions paid .............................................................................................................................. — – 28,992 — – 28,991

Reclassified items......................................................................................................................................................................... 41,828 – 50 — —

Translation differences........................................................................................................................................................... – 570 103 – 358 —

Total other long-term receivables 58,399 2,342 19,811 —

During the year, SEK 41 million was converted from a current receivable to a long-term claim on Finvision AB.

Accounts receivableNote 22

Group

Accounts receivable 31 Dec 99 31 Dec 98

Accounts receivable 1,642,943 1,116,561

Reserve for doubtful receivables – 172,277 – 98,661

Book value of accounts receivable 1,470,666 1,017,900

Group

Reserve for doubtful receivables: 31 Dec 99 31 Dec 98

Reserve for doubtful receivables at Jan. 1 98,661 51,654

Reserves in companies acquired during the year 10,425 121

Receivables recorded 64,679 47,480

Previous write-downs recovered – 1,488 – 594

Reserve for doubtful receivables at Dec. 31 172,277 98,661

Other current receivablesNote 23


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Prepaid VAT............................................................................................................................................................................................ 8,719 19,744 — 26

Receivable from Finvision AB .......................................................................................................................................... — 34,596 — —

Receivable from NetCom Intressenter AB.................................................................................................... — 7,380 — 7,253

Claim for goods returned.................................................................................................................................................... 7,285 — — —

Other............................................................................................................................................................................................................. 13,782 33,777 284 130

Total other current receivables 29,786 95,497 284 7,409

Prepaid expenses and accrued revenuesNote 24


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Accrued telephony revenue, other telecom operators ................................................................. 105,482 110,299 — —

Accrued telephony revenue, customers............................................................................................................ 407,316 299,335 — —

Prepaid leasing costs and rent........................................................................................................................................ 67,535 74,573 — 2

Other............................................................................................................................................................................................................. 81,322 50,157 759 499

Total prepaid expenses and accrued revenue 661,655 534,364 759 501


Notes

Cash and cash equivalentsNote 25


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Cash and cash equivalents................................................................................................................................................... 416,873 433,261 7,449 148,009

Short-term investments.......................................................................................................................................................... 4,384 — — —

Total cash and cash equivalents 421,257 433,261 7,449 148,009

Of the Group’s cash and cash equivalents at December 31, 1999, some portions can be used only within the Tele2 Group.

Bank overdraft facilities granted................................................................................................................................... 260,605 246,398 — —

Bank overdraft facilities used........................................................................................................................................... – 8,171 – 4,851 — —

Unutilized credit granted 252,434 241,547 — —

The Group has been granted loans equaling SEK 450 million that it has not utilized. In 1999, fees for credit limits and the like equaled SEK 4.7 million for the Group, of which

SEK 0.3 million was attributable to the Parent Company.

Exchange rate differences in cash and cash equivalents are attributable to the following:

Cash at beginning of year.............................................................................................................................................. 2,212 842

Cash flow for the year...................................................................................................................................................... – 4,942 1,670

Total adjustment for exchange rate differences in cash – 2,730 2,512

Investing activities and total assetsNote 26


1999 1998 1999 1998

Investing activity by geographic market

Sweden ................................................................................................................................................................................................. 1,294,860 1,641,570 – 81,242 195,443

Norway................................................................................................................................................................................................ 55,297 70,768 — —

Denmark ............................................................................................................................................................................................ 93,158 128,817 — —

Baltic States..................................................................................................................................................................................... 10,356 — — —

Other countries........................................................................................................................................................................ 4,479 31 — —

Total investing activity by geographic market 1,458,150 1,841,186 – 81,242 195,443

Investing activity by business area

Mobile telephony..................................................................................................................................................................... 436,045 609,885 — —

Fixed telephony and Internet................................................................................................................................... 697,984 830,343 — —

Cable-TV............................................................................................................................................................................................ 14,060 19,944 — —

Group-wide; Parent Company................................................................................................................................ 143 – 4,207 143 – 4,207

1,148,232 1,455,965 143 – 4,207

Acquisition/divestment of shares......................................................................................................................... 290,107 413,935 70,428 319,577

Long-term receivables, changes............................................................................................................................. 19,811 – 28,714 – 151,813 – 119,927

Total investing activity by business area 1,458,150 1,841,186 – 81,242 195,443

Financial leases, fixed telephony.................................................................................................................................... 34,907 118,391 — —

Total investing activity including financial leases 1,493,057 1,959,577 – 81,242 195,443


Total assets by geographic market: 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Sweden......................................................................................................................................................................................................... 12,687,185 8,805,032 5,902,027 5,044,550

Norway........................................................................................................................................................................................................ 462,480 518,117 — —

Denmark.................................................................................................................................................................................................... 542,970 475,064 — —

Finland........................................................................................................................................................................................................... 10,295 7,696 — —

Other countries ............................................................................................................................................................................... 990,801 383,212 — —

Total assets by geographic market 14,693,731 10,189,121 5,902,027 5,044,550


Notes

Restricted equity Non-restricted reserves

Share- Share Legal Other restricted Shares in Other non-res- Total share-Group: capital premium reserve reserves equity tricted reserves holders’ equity

Shareholders’ equity brought forward 519,251 3,466,366 320 244,813 –318,483 – 649,383 3,262,884

Effects of changes in

Accounting principles – 9,890 15,947 6,057

Adjusted shareholders’

equity brought forward 519,251 3,466,366 320 234,923 – 318,483 – 633,436 3,268,941

Provisions to:

legal reserve 5 – 5 —

Transfers:

Shares and participations

in associated companies 347,172 – 347,172 —

Deferred tax – 242,976 – 38,671 281,647 —

Untaxed reserves 987,015 – 987,015 —

Other transfers 322 – 203,990 9,982 193,686 —

Exchange rate differences – 513 – 35,243 – 35,756

Profit/Loss for the year 3,769,129 3,769,129

Shareholders’ equity

carried forward 519,251 3,466,366 647 774,459 — 2,241,591 7,002,314

Shareholders’ equityNote 27

Exchange rate differences Exchange rate differences

in consolidated Other restricted Non-restricted shareholders’ equity: reserves reserves Total

Shareholders’ equity brought forward 41,926 6,058 47,984

Effects of changes inaccounting principles – 9,890 15,947 6,057

Adjusted shareholders’equity brought forward 32,036 22,005 54,041

Reversal for companies sold – 32,140 – 7,249 – 39,389

Other changes for the year – 513 – 35,243 – 35,756

Amount carried forward – 617 – 20,487 – 21,104

The change in exchange rate differences for this year mainly resulted fromtranslations of subsidiaries and receivables in Danish kroner.The exchangerates used for translating the income statements and balance sheets intoSwedish kronor are specified below.

1999 31 Dec 99 1998 31 Dec 98

NOK........................................................................................................................................................................................................... 1.060091 1.0605 1.053777 1.0730

DDK............................................................................................................................................................................................................ 1.185219 1.1505 1.188146 1.2685

EEK............................................................................................................................................................................................................... 0.563100 0.5480 0.565500 0.5900

FIM................................................................................................................................................................................................................ 1.482199 1.4403 1.489393 1.5885

Other currencies had no material effect on the Group’s balance sheets or income statements.


Exchange rate differences that affected net profit/loss: 1999 1998 1999 1998

Other operating revenue................................................................................................................................................... 2,060 848 — 73

Other operating expenses............................................................................................................................................... – 816 – 9,147 — —

Loss/gain on other securities and receivables classified as fixed assets .................... – 2,014 — – 2,012 – 742

Other interest revenue and similar income................................................................................................ 4,340 – 755 4,340 – 755

Interest expense and similar costs......................................................................................................................... 6,103 – 3,771 2,639 932

9,673 – 12,825 4,967 – 492


Notes

Group

Balance sheet: 31 Dec 99 31 Dec 98 31 Dec 97 31 Dec 96

Tangible assets

Goodwill, acquisition value.......................................................................................................................................... — 16,164 — —

Goodwill, accumulated amortization.............................................................................................................. — – 217 — —

Goodwill, book value — 15,947 — —

Long-term financial assets

Shares and participations in associated companies...................................................................... — 154,780 176,721 139,470

Deferred tax benefit............................................................................................................................................................ — – 164,670 – 176,721 – 139,470

Total assets — 6,057 — —

Translation differences, restricted equity .......................................................................................................... — – 9,890 — —

Translation differences, non-restricted equity............................................................................................. — 15,947 — —

Total shareholders’ equity and liabilities — 6,057 — —

Restricted equity Non-restricted equity

Share capital (SEK thousands) Share- Share Legal Non-restricted Total share-Parent Company: Class A Class B capital premium reserve equity holders equity

Shareholders’ equitybrought forward 18,095,632 85,754,614 519,251 3,478,950 20 581,006 4,579,227

Profit/Loss for the year 914,154 914,154

Shareholders’ equity carried forward 18,095,632 85,754,614 519,251 3,478,950 20 1,495,160 5,493,381

Shareholders’ equityShareholders’ equity consists of registered share capital, reserves not avail-able for distribution (legal reserve, share premium reserve and otherrestricted reserves) and retained earnings/losses including profit/loss for theyear and share of profit/loss in associated companies.

Registered share capital:The share capital in NetCom AB is divided into two types of stock: class Aand class B. Stock of both types has a par value of SEK 5 per share andentitles the owners to equal participation in the net assets and profits ofthe Company. However, each class A share entitles its owner to 10 votes,while each class B share entitles its owner to one vote.

Restricted reserves:Share premium reserveThe share premium reserve contains the surplus funds raised when theCompany’s shares are issued at a price that exceeds the par value.

Equity component of associated companies’ shareholders’ equity:The equity component of associated companies’ shareholders’ equity refersto earnings after the time of acquisition. Profits are reported as restrictedequity, and losses are reported as a reduction of non-restricted equity.

Legal reserve:According to the Swedish Companies Act, provisions must be made to alegal reserve each year, equaling 10% of the portion of net profit for theyear not used to cover retained losses, until the legal reserve and the sharepremium reserve together equal 20% of share capital. Restricted reservesin NetCom AB and its Swedish subsidiaries can be used to increase sharecapital or, under certain circumstances, to cover retained losses.

Other restricted reserves:Other restricted reserves are the equity component of untaxed reserves,deferred tax and Group participation in translation differences.

Unappropriated earnings and dividends:According to the Companies Act, NetCom AB’s unappropriated earnings areavailable for distribution to shareholders after the requisite provisions havebeen made to the legal reserve and after previous years’ retained losseshave been covered. Statutory limitations to distribution of funds includegeneral rules for dividends not endangering the company’s liquidity or finan-cial position in other respects or exceeding non-restricted equity in theGroup.The dividend is decided by the shareholders at the Annual GeneralMeeting and generally cannot exceed the dividend proposed by the Boardof Directors.

Effects of changes in accounting principlesIn 1999, NetCom modified its accounting routines to conform to recommendation RR 8 of the Swedish Financial Accounting Standards Council, Reporting the effectsof changes in exchange rates. Accordingly, goodwill from the acquisition of subsidiaries or associated companies should be calculated in the foreign unit’s currency. Forpurposes of comparison, the figures for 1998 have been restated based on the new accounting principle.The recommendation does not have any retroactive effecton NetCom concerning the reversal of accumulated exchange differences attributable to companies divested in previous years.

From 1999, NetCom is reporting deferred tax benefits attributable to associated companies among Shares and participations in associated companies, instead ofin Deferred tax benefit, as in previous years. For purposes of comparison, the figures for 1996–1998 have been restated based on the new accounting principle.

The changes in accounting principles have had no retroactive effect on the income statements but have had the following retroactive effects on the balancesheets.


Notes

Class A Class B Par value Share capitalChange Total Change Total Total no. (SEK) (SEK thousands)

At Jan. 1, 1999 18,095,632 85,754,614 103,850,246 SEK 5 519,251

At Dec. 31, 1999 18,095,632 85,754,614 103,850,246 SEK 5 519,251

Number of sharesNote 28

Calculation of Group

earnings per share: 1999 1998

Profit/Loss for the year 3,769,129 66,618

Weighted avg. no. of shares 103,850,246 103,598,394

Earnings per share SEK 36.29 SEK 0.64

Calculation of earnings Group

per share after full conversion: 1999 1998

Profit/Loss for the year 3,769,129 66,618

Reversal: interest for the year on the outstanding convertible debenture — —

Reversal: 28% deferred tax on interest reversed above — —

Adjusted profit/loss for the year after full conversion 3,769,129 66,618

Weighted avg. no. of shares outstanding after full conversion 103,850,246 103,850,246

Earnings per share after full conversion SEK 36.29 SEK 0.64

Options issuedNote 29


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Short-term component........................................................................................................................................................... 94,360 20,320 94,360 20,320

Long-term component............................................................................................................................................................. 141,540 81,280 141,540 81,280

Total options issued 235,900 101,600 235,900 101,600

The Parent Company’s Annual General Meeting in May 1997 voted to imple-ment an incentive program for key personnel in the NetCom Group.Theincentive program was based on an initial seven senior managers in theGroup forming a limited liability company, NetCom Intressenter AB, to enablethem to acquire an option written by NetCom and entitling the holder to100,000 class B shares each year from 1999 through 2003, for a maximumof 500,000 shares in all. In 1998, a wider circle of approximately 50 moresenior managers in the Group was offered the opportunity of subscribing forshares in NetCom Intressenter AB.The subscription price is SEK 150 pershare. NetCom has the right, when the options are exercised, to: 1) deliver theshares, 2) pay a cash settlement or 3) propose to the Annual GeneralMeeting that a special issue of shares be made to NetCom Intressenter AB.NetCom AB is aware that the Swedish Companies Act currently does notallow the Company to deliver its own shares upon exercise of the option andthat the option for the time being must be considered a “notional option.”Theoptions are granted each year based on certain revenue goals.

Invik & Co.AB (“Invik”) owned 51% and 67% of NetCom Intressenter ABas of December 31, 1999 and 1998, respectively. Invik acts as a custodianfor these shares, in which capacity Invik is not permitted to sell or transfer theshares without the approval of NetCom. The company intends to distributethe remaining shares in NetCom Interessenter AB to employees in the future.

The premium for the option described here was SEK 6.6 million in 1997.The premium for the option and the ongoing obligation the option entailshave been valued based on the estimated value per share in NetCom.Thevaluation was performed by experts not related to the Company using theBlack-Scholes option pricing model, based on the share’s current market priceand an exercise price of SEK 150.The share price was SEK 107.50 at thetime the contract was signed in May 1997 and SEK 598 at year-end 1999.The Board regards the conditions described above as reflecting commercialterms.


Notes

Liabilities to financial institutionsNote 30


Short-term interest-bearing loans: 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Nordbanken .......................................................................................................................................................................................... 124,220 160,000 116,000 160,000

Armada........................................................................................................................................................................................................ 1,500 4,063 — —

Bank overdraft facilities........................................................................................................................................................... 3,133 114 — —

Financial leases.................................................................................................................................................................................... 45,649 — — —

Total short-term interest-bearing loans 174,502 164,177 116,000 160,000

Group

Long-term interest-bearing loans and terms of interest: Interest terms Maturity date 31 Dec 99 31 Dec 98

Parent Company:

Nordbanken LIBOR+ 0,45% 2001 21,000 116,000(security: Parent Company’s shares in Belmus BV and receivables on Belmus BV for SEK 79 million) 21,000 116,000

Group (additional):

CIBC Wood Gundy Plc LIBOR+ 0,45–0,55% 2004 4,175,000 3,730,000(security:Tele2 Holding AB’s shares in Tele2 AB)

Nordiska Investeringsbanken Fixed rate: 9,16% 2001 125,000 809,000(guaranteed by the CIBC Wood Gundy syndicate)

Armada Municipal rate + 1.5% 2000–2006 — 1,500(security: chattel mortgages in Åkersberga Kabelvision AB for SEK 16 million)

Nordbanken LIBOR+ 0,45% 2004 270,000 —(security:Tele2 AB’s shares in Tele2 Eesti AS)

Financial leases on transmission capacity 165,936 140,021

Total long-term interest-bearing loans 4,756,936 4,796,521

(LIBOR = London Interbank Offered Rate)


Security pledged for liabilites to financial institutions and for credit 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Chattel mortgages...................................................................................................................................................................... 16,000 16,000 — —

Shares in subsidiaries .............................................................................................................................................................. — — 330,552 317,476

Net assets in subsidiaries................................................................................................................................................... 365,676 0 — —

Materials and supplies............................................................................................................................................................ 6,865 5,365 — —

Receivables.......................................................................................................................................................................................... 10,630 2,146 79,444 75,929

Bank invoices .................................................................................................................................................................................... — 64,398 — —

Other assets.......................................................................................................................................................................................... 6,028 — — —

Total assets pledged for own loan liabilities 405,199 87,909 409,996 393,405

The loan from CIBC Wood Gundy is based on requirements to continuously satisfy certain financial ratios and sets some restrictions on the possibilities for divi-dends from Tele2 AB.Tele2 AB expects to be able to satisfy these requirements. Pledged assets are also discussed in Note 34.

Loans, including the short-term Group Parent Companycomponent, fall due in the following years: 99-12-31 99-12-31

2000 174,502 116,000

2001 865,098 21,000

2002 931,925 —

2003 923,529 —

2004 1,967,646 —

2005–2009 42,961 —

2010–2014 25,777 —

Total loans 4,931,438 137,000


Notes

Financial leasingAll assets related to financial leases signed since 1997 have been includedin the consolidated accounts.Values for these assets and assets that havenot been restated, that is, those pertaining to leases signed before January 1, 1997, are specified below.

Group

Book value assets Assets not booked

Loan liability, financial leases 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Short-term component........................................................................................................................................................... 45,649 11,155 9,402 27,998

Long-term component............................................................................................................................................................. 165,936 128,866 107,971 98,777

Total loans for assets under financial leases 211,585 140,021 117,373 126,775

Group

Loans pertaining to financial On-balance-sheet Off-balance-sheetleases expiring the following years: 31 Dec 99 31 Dec 99

2000................................................................................................................................................................................................................. 45,649 9,402

2001................................................................................................................................................................................................................. 39,411 9,402

2002................................................................................................................................................................................................................. 25,675 9,402

2003................................................................................................................................................................................................................. 17,279 9,402

2004................................................................................................................................................................................................................. 14,833 9,402

2005–2009............................................................................................................................................................................................... 42,961 43,977

2010–2014............................................................................................................................................................................................... 25,777 26,386

Total loans for assets under financial leases 211,585 117,373

Other interest-bearing liabilitiesNote 31


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Other current interest-bearing liabilities:

Levicom International ........................................................................................................................................................ 73,654 — 2 ,946 —

MIC ........................................................................................................................................................................................................... — 74,997 — 74,997

Total other current interest-bearing liabilities 73,654 74,997 2,946 74,997

Other long-term interest-bearing liabilities:

Levicom International ........................................................................................................................................................ 74,710 — 2,985 —

Total other long-term interest-bearing liabilities 74 ,710 — 2,985 —

Group Parent CompanyDebt, including the short-term component, falls due in the following years: 31 Dec 99 31 Dec 99

2000................................................................................................................................................................................................................. 73,654 2,946

2001................................................................................................................................................................................................................. 74,710 2,985

Total other interest-bearing liabilities 148,364 5,931

Other current liabilitiesNote 32


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

VAT liability............................................................................................................................................................................................. 118,016 65,032 588 —

Tax deducted at source, personnel.......................................................................................................................... 20,016 22,653 275 235

Liability to SCD Finans AB.................................................................................................................................................. 18,641 18,419 — —

Customer deposits....................................................................................................................................................................... 6,317 6,949 — —

Costs of programs and revenue on subscriptions, cable TV.................................................... 7,724 — — —

Liabilities to customers, point system................................................................................................................... 3,667 — — —

Other............................................................................................................................................................................................................. 15,336 11,782 242 12

Total other current liabilities 189,717 124,835 1,105 247


Notes

Accrued expenses and prepaid revenuesNote 33


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Accrued expenses related to personnel......................................................................................................... 66,924 55,563 1,283 1,475

Accrued interest expense................................................................................................................................................. 43,270 75,327 1,852 3,149

Accrued selling expenses, company divestment..................................................................................... 12,845 — 12,845 —

Accrued telephony expense to other telecom operators........................................................ 460,633 295,649 — —

Accrued expense to dealers.......................................................................................................................................... 56,081 36,164 — —

Accrued leasing costs and rent .................................................................................................................................. 109,383 46,042 — —

Accrued costs of programs ............................................................................................................................................ — 1,915 — —

Prepaid revenues.......................................................................................................................................................................... 350,979 266,243 — —

Other......................................................................................................................................................................................................... 132,215 132,677 8,906 5,437

Total accrued expenses and prepaid revenues 1,232,330 909,580 24,886 10,061

Pledged assetsNote 34


31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Assets pledged for own liabilities:

Chattel mortgages............................................................................................................................................................... 16,000 16,000 — —

Shares in subsidiaries ....................................................................................................................................................... — — 330,552 317,476

Net assets in Group companies......................................................................................................................... 365,676 0 — —

Materials and supplies..................................................................................................................................................... 6,865 5,365 — —

Receivables................................................................................................................................................................................... 10,630 2,146 79,444 75,929

Bank invoices............................................................................................................................................................................. — 64,398 — —

Other assets .................................................................................................................................................................................. 6,028 — — —

Total assets pledged for own liabilities 405,199 87,909 409,996 393,405

Other pledged assets:

Shares in subsidiaries for loans by subsidiaries.................................................................................. — — — 3,045,632

Bank invoices................................................................................................................................................................................. — — — 64,398

Total other assets pledged — — — 3,110,030

Total assets pledged 405,199 87,909 409,996 3,503,435

The data above show the book value of assets that have been pledged assecurity for external loans. NetCom has pledged its shares on Belmus BVand receivables on Belmus BV as security for its own borrowing fromNordbanken. During the year, NetCom sold its shares in Tele2 AB to awholly owned subsidiary. Consequently, shares in Tele2 that NetCom hadpledged at December 31, 1998, were pledged by a wholly owned sub-sidiary instead at December 31, 1999.The shares are pledged as securityfor Tele2 AB’s loan from a syndicate led by CIBC Wood Gundy.

The shares in the Group that have been pledged are reported in anamount corresponding to the book value of net assets that each subsidiaryrepresents in the consolidated balance sheet. Reported chattel mortgagestotaling SEK 16 million (1998: SEK 16 million) are security for a loan fromArmada. Materials, supplies and receivables totaling SEK 17 million (1998:SEK 7 million) are security for a bank overdraft facility for DatametrixNorway, and other assets pledged pertained to security for a bank over-draft facility for Ritabell.

Fees contracted to be paid in the future for Group Parent Companyoperating leases are distributed as follows: 31 Dec 99 31 Dec 99

2000 269,485 175

2001 141,209 —

2002 101,708 —

2003 87,286 —

Contingent liabilities and other commitmentsNote 35

Contingent liabilities Group Parent Company

31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Surety bonds benefiting Group companies.................................................................................................... — — 322,953 720,060

Total contingent liabilities — — 322,953 720,060


Notes

Supplemental cash flow information

U.S. generally accepted accounting principles

Note 36

Transactions attributable to investing and financing activi-ties but not affecting cash are as follows.In addition to investing activities in cash flow, in 1999 the Parent Companydivested its shares in NetCom ASA in exchange for new shares in SECworth SEK 3,518,004 thousand.

In addition to the reported investments in shares and financing activi-ties, in 1999 the Group also acquired shares in Levicom Cellular andLevicom Broadband for an additional SEK 223,333 thousand in the Group,SEK 8,939 thousand of which was in the Parent Company.The amountsrefer to the portion of the purchase price settled by an obligation to thepurchaser which will be paid off according to a fixed schedule.

In addition to the investment and debt obligation reported in cash flow,investment and loans secured through financial leasing in the Grouptotaled SEK 34,907 thousand (1998: SEK 118,391 thousand), and amor-

tization of loans secured through financial leasing was SEK -15,954 thou-sand (1998: SEK -9,737 thousand).

In addition to investment reported in cash flow for the Parent Company,in 1999 investments were also made in subsidiaries through the paymentof SEK 1,134,943 in shareholder contribution to NetCom Luxembourg SAand SEK 1,460 thousand in shareholder contributions to Trade2 AB and anissue of new shares to Comvik International AS for SEK 100,826 thousand.

In addition to sales of shares in subsidiaries reported in cash flow, in1999 the Parent Company divested its Tele2 AB subsidiary to the sub-sidiary Tele2 Holding AB for SEK 1,133,236 thousand and EverydayWebguide AB to the group-company Stenblocket i Fruängen AB for SEK175 thousand. In 1998, the Parent Company divested the subsidiaryComviq GSM AB to the subsidiary Tele2 AB (SEK 463,847 thousand) inaddition to sales reported in cash flow.

Profit/loss for the year: Group

1999 1998 1997

Profit/loss for the year based on Swedish accounting principles 3,769,129 66,618 48,542

Adjustments to comply with U.S. GAAP:a) Capitalized start-up costs 48,953 41,696 52,979b) Capitalized interest expense – 2,970 – 2,970 – 2,970c) Transactions between companies

with the same owners 20,599 20,599 20,599d) Reporting associated companies 133,631 30,158 30,931e) Leasing contracts 2,603 2,614 3,599f) Tangible assets: 28,847 36,697 826g) Revenue recognition, prepaid cards –15,693 –12,135 – 4,052h) Stock options 9,242 — —i) Group accounting, acquisition analisys 1,574 — —j) Internal use software – 80,418 — —

Net adjustment 146,368 116,659 101,912

Tax effect of adjustmentsfor U.S. GAAP – 43 – 20,838 – 16,736

Profit/loss for the year based on U.S. GAAP 3,915,454 162,439 133,718

Adjusted profit/loss per share for the year SEK 37.70 SEK 1.57 SEK 1.36

Weighted avg. no. of shares outstanding 103,850,246 103,598,394 98,061,358

Adjusted profit/loss per share for the year after full conversion SEK 37.70 SEK 1.56 SEK 1.40

Weighted avg. no. of shares outstanding after full conversion 103,850,246 103,850,246 103,433,579

Shareholders’ equity Group

31 Dec 99 31 Dec 98 31 Dec 97

Shareholders’ equity based on Swedish accounting principles 7,002,314 3,268,941 3,155,259

Adjustments to comply with U.S. GAAP:a) Capitalized start-up costs – 274,955 – 322,677 – 365,778b) Capitalized interest expense 20,784 23,754 26,724c) Transactions between companies

with the same owners – 71,643 – 92,242 – 112,841d) Reporting associated companies — – 133,631 – 174,165e) Leasing contracts 8,816 6,213 3,599f) Tangible assets: 20,230 – 8,617 – 45,314g) Revenue recognition, prepaid cards – 31,880 – 16,187 – 4,052h) Stock options 9,242 — —i) Group accounting, acquisition analisys 1,574 — —j) Internal use software – 80,418 — —

Net adjustment – 398,250 – 543,387 – 671,827

Tax effect of adjustments for U.S. GAAP 99,738 99,781 120,619

Shareholders’ equity based on U.S. GAAP 6,703,802 2,825,335 2,604,051

Group Parent Companycontinuing... 31 Dec 99 31 Dec 99

2004 81,352 —

2005 or later 420,097 —

Total fees contracted to be

paid in the future 1,101,137 175

Fees for operating leases for the year 499,647 259

The consolidated accounts were prepared based on accounting principlesgenerally accepted in Sweden.These rules differ in certain respects fromgenerally accepted accounting principles (GAAP) in the United States.

The following is a description of the adjustments based on U.S. GAAPthat affect the consolidated profit/loss for the year and shareholders’ equity.


Notes

Official US GAAP

Extract from the consolidated balance sheets: 31 Dec 99 31 Dec 98 31 Dec 99 31 Dec 98

Balance Sheet

Current assets............................................................................................................................................................................. 2,618,060 2,111,880 2,618,060 2,111,880

Fixed assets..................................................................................................................................................................................... 12,075,671 8,077,241 11,817,432 7,776,597

Total assets 14,693,731 10,189,121 14,435,492 9,888,477

Current liabilities............................................................................................................................................................................. 2,460,502 2,014,848 2,492,382 2,031,035

Long-term liabilities...................................................................................................................................................................... 5,229,903 4,903,793 5,238,296 5,030,568

Minority interest.............................................................................................................................................................................. 1,012 1,539 1,012 1,539

Total liabilities 7,691,417 6,920,180 7,731,690 7,063,142

Shareholders’ equity.................................................................................................................................................................... 7,002,314 3,268,941 6,703,802 2,825,335

Explanation of current differences between Swedish accounting principles and U.S. GAAP

U.S. generally accepted accounting principlesThe consolidated accounts were prepared based on generally acceptedaccounting principles in Sweden.These rules differ in certain respectsfrom U.S. GAAP.

The following is a description of the adjustments based on U.S. GAAPthat affect the consolidated profit/loss for fiscal 1997, 1998 and 1999 andthe Group’s shareholders’ equity at December 31, 1997, 1998 and 1999.Differences between Swedish and U.S. accounting principles that are rele-vant to NetCom are also discussed below.

a) Capitalized start-up costsThe Group has entered as assets start-up costs attributable to the con-struction of its networks to depreciate over the useful life of the net-works. A significant proportion of these costs is attributable to overheadincurred during the construction phase. U.S. GAAP requires such costs tobe expensed, so all start-up costs, which were capitalized have beenexpensed in the adjustment to U.S. GAAP. Depreciation and amortizationwere adjusted accordingly. At December 31, 1997, all start-up costs per-taining to fixed telephony in Tele2 AB had been fully amortized.

b) Capitalized interest expenseThe Group has not capitalized as assets interest expenses incurred forfinancing fees for constructing certain fixed assets. According to U.S.GAAP, such interest expenses are calculated using the interest ratesapplied on outstanding loans during the relevant period, are included inthe acquisition value of the fixed assets and are subsequently depreciatedover the useful life of the assets. Fixed assets, depreciation and amortiza-tion were adjusted accordingly.

c) Transactions between companies with the same ownersIn 1993 the Company acquired Tele2 and in 1994 Comviq from theIndustriförvaltings AB Kinnevik group.The transactions were reportedbased on the purchase method. Hence, the difference between the acquisi-tion value and the market value of net assets was reported as goodwill.U.S. GAAP requires that the acquisition of operations from companiesunder joint control (according to U.S. GAAP rules) is reported in a man-ner similar to the pooling-of-interests method. Accordingly, all revaluationsof properties, plant, equipment and other assets as well as goodwill arising atthe time of establishment are eliminated in consolidated accounts based onU.S. GAAP. Depreciation and amortization were adjusted accordingly.

d) Reporting associated companiesIn 1993, the Company acquired shares in the Norwegian associated com-pany NetCom ASA from a company in the Industriförvaltnings ABKinnevik group.The investment was reported based on equity accounting.In conjunction with the investment, a surplus was reported. For U.S.GAAP, this surplus has been reversed, because it resulted from a transac-tion between companies with the same owners. Amortization was adjust-ed accordingly. During 1999 NetCom sold its shares whereby all openingbalances adjustments have been reversed.

e) Leasing contractsThe Group has certain leasing transactions which have been treated asoperating leases based on Swedish generally accepted accounting princi-ples. U.S. GAAP regards such contracts as financial leases.

f) Tangible assetsCertain overhead expenses that were capitalized have been expensed forthe adjustment, and estimated direct payroll expenses attributable to theinstallation of networks have been capitalized, in accordance with U.S.GAAP.

g) Revenue recognition, prepaid cardsThe Group reports revenue from the sale of prepaid cards when thecards are sold to an independent dealer. Provisions are made for anticipat-ed future costs. According to U.S. GAAP, revenue cannot be recognizeduntil the telephony service is being used regularly by the end-customer,which means that profit/loss based on U.S. GAAP is reduced by the esti-mated net profit on prepaid cards that have been sold but not put intouse.

h) Stock optionsUnder U.S. GAAP, based on the terms of the stock options to the employ-ees, the amount of the liability for such stock options should be measuredeach period based on the current price of the underlying shares of theCompany’s stock. According to Swedish GAAP, all options are valuedusing the Black-Scholes model. The Company applies U.S.APB Opinion 25when accounting for its stock options.

i) Group accounting, acquisition analisysDue to differences between Swedish and U.S. GAAP regarding the account-ing treatment of start-up costs, acquired net assets in Ritabell AS are lowerunder U.S. GAAP compared to Swedish GAAP. For this reason, for U.S.GAAP purposes, goodwill increased by the same amount. Amortization isadjusted accordingly.

j) Internal-use softwareInternal-use software is under U.S. GAAP accounted for in accordancewith American Institute of Certified Public Accountants Statement ofPosition (SOP) 98-1,“Internal Use Software”. SOP 98-1 provides guidanceon reporting software developed in-house for use by the company itself.As the Company has during the development stage externally marketedits internal-use software, the criterias for SOP 98-1 are not met. SFAS 86,“Accounting for the Costs of Computer Software to Be Sold, Leased, orOtherwise Marketed” gives further guidance. According to SFAS 86,development costs for externally marketed software products, must beexpensed until “technological feasability” has been established.Thereafter,all software production costs must be capitalized until commercial salescommence. Swedish GAAP lacks specific guidance in this area. For U.S.GAAP purposes, an adjustment has been recorded to reflect the differ-ence. Amortization is adjusted accordingly.


Notes

Additional information for U.S. GAAP

Change of accounting principle According to Swedish GAAP, a change in accounting principles is recordedvia equity. U.S. GAAP requires a change in accounting principles to berecorded via the income statement, however corrections of errors arerecorded via equity.The Company has restated its equity under SwedishGAAP, due to a change in principles, regarding accounting for changes inforeign currency-rates. Since this restatement under U.S. GAAP reflects acorrection of an error, no adjustment is needed.

Net profit/loss per shareNet profit/loss per share on full conversion excludes interest expense,adjusted for tax, on the outstanding convertible debentures as specifiedbelow.

Advertising expensesTotal advertising expenses for the year were SEK 168 million (1998: SEK 209 million).

PensionsNetCom accounts for the valuation and disclosure of pension obligationsunder SFAS No. 87,“Employer’s Accounting for Pensions,” and SFAS No. 132,“Employers’ Disclosures about pensions and other post retirement benefits”.The Group provides pension benefits for all employees in Sweden throughgeneral pension plans.These Swedish pension plans are defined benefit plansbut are insured with a third party. In Denmark, pension benefits are providedbased on a defined contribution pension plan. Pension plans in Norway aredefined benefit plans, which require a U.S. GAAP valuation. However, theadjustment is not material and thus no adjustment has been made.

The Group’s pension costs are reported in the note “Costs of Personnel.”For the year ended December 31, 1999, SEK 1,2 million (SEK 1,4 million in1998; 1997 SEK 0,5 million) was attributable to defined benefit pension plansin Norway and SEK 0,8 million (SEK 0.7 million in 1998) was attributable todefined contribution pension plans in Denmark.

Fair valueSFAS 107, "Disclosure about Fair Values of Financial Instruments", requiresthe disclosure of estimated fair values for all financial instruments for whichit is practicable to estimate fair value. Financial instruments of the Groupincluding cash and cash equivalents, short-term investments, receivables andpayables, prepaid revenues and short-term liabilities to financial institutionsare deemed to approximate fair value due to short maturity.The carryingamount of the Group’s long-term liabilities to financial institutions andoptions issued are also deemed to approximate their fair values.

Comprehensive incomeThe Company accounts for Comprehensive income in accordance with SFASNo. 130 “Reporting Comprehensive Income”. Comprehensive incomeincludes net income and foreign currency translation adjustments.

Deferred taxThe following shows the estimated tax effect, related to temporary differ-ences, that is reported as deferred tax benefit in the reconciliation ofaccounts with U.S. GAAP.

Group

1999 1998

Deferred tax liability/benefit based on Swedish GAAP – 139,245 232,715

Adjustments to comply with U.S. GAAP:U.S. GAAP adjustments 99,738 99,781

Total deferred tax liability/benefit based on U.S. GAAP – 39,507 332,496

Cash flowsThe accompanying cash flow statements are prepared in a format consis-tent with SFAS No. 95,“Statement of Cash Flows,” except that cash flowprovided from operating activities is reconciled from operating income,not net income, as is required under U.S. GAAP.

These differences between the Swedish accounts and U.S. GAAP aredescribed in the table below:

Operating activities, Group 1999 1998 1997

Net income 3,769,129 66,618 48,542

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 955,245 704,604 608,348

Minority interest – 2,363 – 270 —

Gain/loss of associated companies – 49,725 9,929 119,282

Deferred income taxes 411,737 165,581 – 85,663

Capital leases – 5,980 – 9,737 – 1,204

Unpaid interest – 32,424 17,929 – 36,209

Sales of shares in

associated companies – 3,227,889 — —

Other – 5,635 839 – 2,941

1,812,095 955,493 650,155

1999 1998 1997

Comprehensive Income

Net income based on U.S. GAAP 3,915,454 162,439 133,718

Exchange rate differences based on U.S. GAAP – 73,475 21,183 – 4,783

Comprehensive Incomebased on U.S. GAAP 3,841,979 183,622 128,935

Cumulative Comprehensive Income

Cumulative Comprehensive Incomebased on U.S. GAAP, Jan 1 52,545 31,362 36,145

Exchange rate differences based on U.S. GAAP – 73,475 21,183 – 4,783

Cumulative ComprehensiveIncome based onU.S. GAAP, Dec 31 – 20,930 52,545 31,362

1999 1998 1997

Profit/Loss for the year 3,915,454 162,439 133,718

No. of shares, weighted avg. 103,850,246 103,598,394 98,061,358

Profit/loss per share SEK 37.70 SEK 1.57 SEK 1.36

Profit for the year 3,915,454 162,439 133,718

Reversal: interest for the year on the outstanding convertible debenture — — 14,742

Reversal: 28% deferred tax on interest reversed above — — -4,128

Adjusted profit/loss for theyear after full conversion 3,915,454 162,439 144,332

No. of shares outstanding after full conversion, weighted avg. 103,850,246 103,850,246 103,433,579

Profit/loss per share afterfull conversion SEK 37.70 SEK 1.56 SEK 1.40


Notes

Effects of new recommendationsThe Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133,“Accounting for Derivative Instruments andHedging Activities” (SFAS 133). SFAS 133 will be applicable to NetCom as from January 1, 2001. SFAS 133 requires that all derivative instruments be record-ed on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensiveincome, depending on whether or not a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management antici-pates that, due to its limited use of derivative instruments, the adoption of SFAS 133 will not have a significant effect on NetCom’s results of operations orits financial position based on U.S. GAAP.

Stockholm, February 21, 2000

Jan Hugo StenbeckChairman

Lars-Johan Jarnheimer Marc BeulsPresident and CEO

Vigo Carlund Sven Hagströmer Håkan Ledin

Stig Nordin Lars Wohlin

Audit Report

To the Annual General Meeting of NetCom AB (publ)Company registration number 556410-8917

We have examined the annual accounts, the consolidated accounts and the financial records as well as the administration of the

Board of Directors and the president of NetCom AB for 1999. It is the Board of Directors and the president who are responsib-

le for the accounting records and the administration. Our responsibility is to express an opinion on the annual accounts, the

consolidated accounts and the administration based on our audit.

The examination was conducted in accordance with generally-accepted auditing standards in Sweden.This means that we have

planned and carried out the audit to assure ourselves that to a reasonable extent the annual accounts and the consolidated

accounts do not contain any significant errors. An audit includes examining a selection of the supporting documents for amounts

and other information in the accounting records. An audit also covers the supporting documents for the amounts and other

information in the accounting records. An audit also includes examining the accounting principles and the Board of Directors’

and the president’s application of them to assess the collective information in the annual accounts and the consolidated accounts.

As support for our statement on discharge of liability, we have examined significant decisions, measures and conditions in the

Company to be able to assess if any Board Member or the president has in any other way acted contrary to the Companies Act,

the Annual Accounts Act or the Articles of Association.We consider that our audit gives us reasonable ground for our state-

ments below.

The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and thus

provide a true and fair view of the Company’s and the Group’s earnings and financial position in accordance with generally

accepted accounting principles in Sweden.

We recommend that the Annual General Meeting adopt the Income Statement and the Balance Sheet of the Parent Company

and the Group, distribute the profit in the Parent Company in accordance with the proposal in the Directors’ Report and

discharge the Board of Directors and the president from liability for the financial year.

Stockholm, February 23, 2000

Pål Wingren Hans KarlssonAuthorized Public Accountant Authorized Public Accountant


Notes

people poured into theSkeppsbron area ofStockholm’s Old Town,

crowded the roads around Slussen and the ferry docks atStadsgården, perched on Katarinavägen and Norrbro,and milled around Kungsträdgården and the GrandHotel.

The fireworks display on New Year’s Eve was seen byone million people in Stockholm.

The display was the climax of five days of festivities,called Årtusendets fest (The Party of the Millennium),which turned out to be Sweden’s biggest festival ever.The promoters were Invik & Co, IndustriförvaltningsAB Kinnevik, NetCom, and Modern Times Group. Theofficial invitation came from the newspaper Metro.The celebration began on December 27, with HistoricalDays in the Old Town, and continued through NewYear’s. Hundreds of thousands of people enjoyed mar-kets, handicrafts, sailing, entertainment and culturalevents, games, gambling and amusements, and samplesof food and drink.

They rediscovered how it had been in the Old Townover the centuries.

Above all, they eagerly followed the millennium celeb-rations’ most popular performance: Historiens ljus (Lightof History), with the popular Swedish author HermanLindqvist as guide. Some 25,000 people came to the pre-miere, and 50,000 the next day. On the following twodays, 80,000 people attended, although most of theaudience could experience only a fraction of this multi-media extravaganza that quickly transported spectatorsfrom the dawn of Swedish history to modern day.

The main stages were at Norrström and Norrbro, butthe Royal Palace, Riksdagen (House of Parliament), andthe Opera served as imposing backdrops playing them-selves.

700 000Film, music, light, explosions, and bonfires recreated

Swedish history right where it had happened.As the last performance ended on New Year’s Eve after-

noon, with the entire Swedish royal family in attendance,preparations for the gigantic New Year’s celebrationsbegan. At 9:00 PM, the fires were lit. Millennium celeb-rations around the world were projected on giant TVscreens. From 11 PM, the water was illuminated, andartists began performing on the floating stage beside theschooner af Chapman, which now serves as a youthhostel. ABBA’s Björn and Benny were honored by disting-uished Swedish performers such as Tommy Körberg,Helene Sjöholm, and Anders and Karin Glenmark.

And it was there that the biggest reunion of all the mil-lennium parties around the world took place this historicnight: The Swedish rock group Europe retook the stageand performed its notably fitting 1980s hit The FinalCountdown.

King Carl XVI Gustaf, with his family, came out ontothe Logårds steps of the castle and toasted in the new mil-lennium.

Then one million celebrants saw the biggest, mostmagnificent and powerful fireworks display ever seen inStockholm or this part of the world.

On TV3, those who wanted to could continue to fol-low New Year’s celebrations in time zone after time zone,in a marathon 26-hour broadcast.

The millennium celebration turned out to be thepopular festival it was intended to be, but with manymore participants than anyone dared to expect.

And none of this would have been possible without the2,000 millennium hosts and other volunteers who helpedwith everything – from security to fire safety, acting andeven selling champagne.

Millennium Celebrations inStockholm’s Old Town

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NETCOM ABSkeppsbron 18

P.O. Box 2094, SE-103 13 StockholmPhone +46 8 562 000 60 Fax +46 8 562 000 40

E-mail [email protected]

Reg.nr: 556410-8917

Comviq GSMP.O. Box 62SE-164 94 KistaStreet address: Borgarfjordsgatan 16Phone: +46 8 562 640 00 (vxl)

+46 200 22 20 40 (Customer service)Fax: +46 586-534 44

Datametrix ABP.O. Box 79SE-164 94 KistaStreet address: Borgarfjordsgatan 16Phone: +46 8 522 002 00Fax: +46 8 522 002 90

Datametrix ASGrenseveien 95N-0663 OsloNorgePhone: +47 23 03 59 00Fax: +47 23 03 59 01

Datametrix A/SGammel Køge Landevej 55-57DK-2500 ValbyDanmarkPhone: +45 77 30 10 60Fax: +45 77 30 10 61

Datametrix OyP.O. Box 5Virnatie 5AFIN-01301 VandaFinlandPhone: +358 9 47 64 82 00Fax: +358 9 47 64 82 10

Société Européenne de Communication75 Route de LongwyL-8080 BertrangeG-D de LuxembourgPhone: +352 45 95 451Fax: +352 45 95 51

Tele2 ABP.O. Box 62SE-164 94 KistaStreet address: Borgarfjordsgatan 16Phone: 08-562 640 00

Customer service:+46 200 24 24 24 (Internet)+46 200 25 25 25 (fast telefoni)+46 200 22 40 50 (mobiltelefoni)

Fax: +46 8 562 642 00

Tele2 Danmark A/SGammel Køge Landevej 55-57DK-2500 ValbyDanmarkPhone: +45 77 30 10 01Fax: +45 77 30 10 00

Tele2 Norge ASUlvenveien 89 BN-0581 OsloNorgePhone: +47 21 31 90 00Fax: +47 21 31 91 00

4T Solutions ABVästertorpsvägen 135SE-129 44 HägerstenPhone: +46 8 522 003 00Fax: +46 8 522 003 90

Interloop ABP.O. Box 62SE-164 94 KistaStreet address: Borgarfjordsgatan 16Phone: +46 8 562 623 50Fax: +46 8 562 642 00

KabelvisionP.O. Box 62SE-164 94 KistaStreet address: Borgarfjordsgatan 16Phone: +46 8 562 643 52 (vxl)

+46 200 22 55 00 (Customer service)Fax: +46 586 548 40

Optimal Telecom ABP.O. Box 62SE-164 94 KistaStreet address: Borgarfjordsgatan 16Phone: +46 8 562 625 00 (vxl)

+46 200 21 00 21 (Customer service)Fax: 08-562 625 25

Ritabell ASJõe Street 2Tallinn 10151EstlandPhone: +372 6 205 255Fax: +372 6 205 206

annual report 1999

Investor Relations