Teliasonera Ab Business Information, Profile, and History

Company Perspectives:

Group Strategy: TeliaSonera's overall focus is on best serving our customers in our core business and creating value for our shareholders through stronger profits and cash flows.

TeliaSonera will focus specifically on: core business in the Nordic and Baltic regions; pursuing profitable growth opportunities in the East; adopting a strong customer-oriented approach; increasing profits and cash flow.

History of Telia Sonera Ab

TeliaSonera AB--formed from the merger of Sweden's Telia AB and Finland's Sonera at the beginning of 2003--is the leading telecommunications provider to the Scandinavian and Baltic regions. The combined company claimed 8.6 million fixed line subscribers and nearly ten million mobile telephone subscribers, and pro forma revenues of EUR 8.8 billion ($8.7 billion) for 2002. Fixed telephony accounts for a little more than 40 percent of the group's sales; mobile telephony, at nearly 30 percent of revenues, is the company's fastest growing business segment. The company is also a leading Internet provider in both Sweden, where it is market leader with more than 1.3 million customers, and in Finland. Despite the merger, essentially a takeover of Sonera by the larger Telia, the company has maintained its two core brands--Sonera for the Finnish market and Telia for the Swedish market. Although Sweden and Finland remain the company's largest revenue markets, the company has extensive holdings throughout the Scandinavian and Baltic regions, as well as a strong share in Turkey, through its holding in that country's Turkcell mobile phone operator, and in such former Soviet Union states as Azerbaijan, Georgia, and Kazakhstan. TeliaSonera has also entered the Russian mobile telephone market, one of Europe's fastest growing. The company, which represented the first of an expected wave of cross-border European telecommunications mergers, has acknowledged its interest in future international mergers. Listed on the Helsinki, Stockholm, and NASDAQ stock exchanges, TeliaSonera has chosen Stockholm as its headquarters. The company brought in "neutral" Anders Igel, formerly head of Esselte, to lead the combined company.

19th-Century Scandinavian Telecommunications Background

Both Telia and Sonera had their roots in the 19th century. Sweden introduced its first electric telegraph line between Uppsala and Stockholm in 1853 (the company had in fact pioneered an optical telegraph network in 1794). From the start, the country's telegraph market was placed under the control of the government, which formed Kongliga Elektriska Telegraf Verket. The state body continued extending its telegraph network and, as early as 1854, had connected Sweden into a line that reached to the European mainland through central Europe. Elektriska Telegraf Verket shortened its name, to Telegrafverket, in 1860.

Finland's political situation--at the time the country existed as an autonomous Grandy Duchy under the Russian Empire--resulted in a more limited extension of the telegraph in that country. In 1855, the Russian government connected Helsinki to St. Petersburg. Traffic was initially restricted, however, to Russian governmental and military uses, and the Finnish Telegraph Office remained under imperial control until Finland's declaration of independence in 1917.

By then, however, the telegraph had given way to a new device. Telegrafverket laid Sweden's first telephone line in 1877, just one year after Bell was awarded his patent. The country's first private exchange was built in Stockholm in 1880. Sweden's poor road and transport system made the company fertile ground for the new communication system. By the end of the century, Telegrafverket's own phone network had more than 60,000 customers and, by World War I, the country boasted more than 170,000 subscribers.

The Swedish government was somewhat unusual in its tolerance of private telephone networks--most other governments had moved to take control of the sector by the beginning of the century. A major contributor to developing the early Swedish phone system was H.T. Cedergrens, who founded Stockholms Allmanna Telefonaktiebolag (SAT) in 1883 in order to counter the entry of the United States' Bell, which had already achieved dominance in a number of countries. SAT itself was to gain market dominance, setting up the country's largest telephone exchange.

In 1918, with Sweden's economy under pressure, SAT was merged into telephone equipment manufacturer Ericsson. The telephone exchange was then sold to Telegrafverket, giving the state body the monopoly on the country's telephone system. Telegrafverket, which became Televerket, or Swedish Telecom, in 1953, had never been formally established as the country's telecom monopoly, however.

The evolution of Finland's telephone system continued to reflect the country's political situation. The Finnish government was eager to prevent imperial Russia from gaining control of the country's telephone system. While the Finnish government created its own telephone body, which became Telecom Finland, overseeing the installation of the country's first phone lines in 1877, private companies were encouraged to wire the country as well. By the early 1880s a number of private phone lines had been set up, linking harbors or railroad stations or warehouses. In 1882, the first private local telephone company was established. The Finnish government favored the creation of a large number of local telephone companies, rather than creating a single, statewide organism, reasoning that it would be more difficult for the czarist government to take over such a fragmented market.

Regulation of the Finnish telecommunications market began in 1886, with the passage of the Imperial Telephone Decree, which created legislation requiring telephone companies to apply for licensing. Yet these were granted only to local, Finnish-owned companies, effectively locking Russia out of the market. By 1938, there were more than 800 local telephone companies operating in Finland--very nearly one company for each village. These small companies were later brought more or less under local government control, essentially becoming owned by their subscribers.

Meanwhile, the Finnish government, following the country's independence in 1917, established the Telegraph Office as the state-owned telecommunications arm. In 1927, the Telegraph Office was merged with the country's Post Office, forming the Finnish Post and Telegraph Office, or PTT. That body was charged with hooking up the country's sparsely populated northern and eastern regions, where setting up private telephone operations would have been too costly. The PTT, which became the country's regulatory body, also began acquiring a number of local companies, yet, in the early 1930s, the PTT's share of the Finnish market amounted only to 1.2 percent. In 1935, however, the PTT bought out the country's largest long-distance provider and gained a monopoly on Finland's long-distance and international telecommunications markets.

Over the next decades, the high cost of investment in new technology led to a concentration in the Finnish telecommunications sector. By the mid-1950s, the number of telephone companies had dropped back to 550. By the beginning of the 1960s, the number had shrunk to just 200, then to 73 in 1970. By the 1990s, there were only 49 predominantly regional telephone companies in Finland.

Leading the Deregulation Movement in the 1980s

Telegrafverket remained at the forefront of the telecommunications industry, particularly through the presence of the Ericsson company, which established itself as one of the world's leading telecommunications equipment suppliers. The state-owned body had begun automating the country's telephone system as early as the 1930s; in the 1ate 1940s, Telegrafverket debuted one of the world's first mobile telephone systems using a closed radio circuit. By then, the country's telephone market was undergoing a boom in connections, and by the 1950s Sweden boasted one of the world's highest per-capita telephone connection rates.

Televerket, as it was called after 1953, began offering data transmission services in 1965, then, forming the Ellemtel partnership with Ericsson in 1970, began developing the world's first digital switching network. The company also began offering satellite-based services that year. The company later began diversifying its operations, launching a cable television service and an early cellular telephone network. In 1978, Televerket, which had been publishing telephone directories for Sweden since 1889, began commercial telephone directory services, launching the Gula Sidorna (Yellow Pages) that year, then publishing business-to-business directories starting in 1982. The directories operation was later developed into a separate division, InfoMedia (later Eniro), which began providing directory publishing services on an international basis.

By the mid-1980s, most of the Scandinavian countries began preparing to deregulate their telecommunications industries. Sweden proved a pioneer in this development, ending government funding of Televerket in 1984. Televerket was now expected to operate on a for-profit business, although it remained owned by the Swedish government. Through the remainder of the decade, the government began taking steps to liberalize the Swedish telecommunications market. As Televerket saw its monopoly positions compromised on the domestic front--the country fully liberalized the telecommunications sector in 1991--it began seeking international partners to protect it against the expected incursion of the world's largest telecommunications groups. In 1990, Televerket created Unisource in partnership with The Netherlands' KPN partnership. Later joined by Swiss Telecom, Belgacom, and others, the Unicom partnership, which intended to provide telecommunications services to large corporations, produced only limited results.

Nonetheless, the 1990s marked the start of Televerket's internationalization. If at the start of the decade, nearly all of the company's 49,000 employees were based in Sweden, by the end of the decade, a majority of the company's employees were stationed in its international operations. In 1993, Televerket, underscoring its international ambitions as well as the shift in the telecommunications market away from a focus on telephone communications, changed its name to Telia AB.

By the mid-1990s, Telia faced competition from some 30 different companies. Yet Telia remained the dominant player in the Swedish market, especially by capturing a leading share of the booming mobile telephone market. In 1995, Telia launched its own Internet access service, quickly gaining a leading share in the country.

By then, too, Finland had deregulated its telecommunications sector, a process begun in 1981 with the renaming of the Post and Telegraph Office as Posts and Telecommunications of Finland, a step toward converting the state-controlled body into a limited liability company. In 1987, the Finnish government passed a new National Telecommunications Act--replacing the original Imperial Telephone Decree of 1886--which among other things drafted new registration rules for telecommunications companies. The new legislation also removed Post and Telecommunications' regulatory powers, which were transferred to the Ministry of Transport and Communications.

In 1990, Post and Telecommunications took the next step toward private enterprise when government funding was cut off and the company was now expected to operate on a for-profit basis. In 1994, the two functions, postal services and telecommunications, were separated, and a new limited liability company was formed, Telecom Finland. In that year, Telecom Finland lost its monopoly on the country's long-distance market. By then, the Finnish telephone market had been reduced to just 49 companies, which joined together to create Telegroup of Finland in 1991 (renamed as Finnet Group in 1995).

Telecom Finland remained controlled by the Finnish government until 1998, when the company was formally privatized. Renamed Sonera, the company went public, listing on the Helsinki stock exchanges and NASDAQ. By then, Sonera was regarded as one of the most technologically advanced telecommunications companies in the world. While the group held an approximately 30 percent share of the Finnish fixed line market, it had been particularly active in the mobile telephone arena, capturing some 65 percent of a market that had already reached 60 percent of the country's population by the late 1990s--the highest penetration in the world at the time. Sonera was also the first to offer mobile Short Message Service (SMS) and to link the mobile system into the Internet through Wireless Access Protocol (WAP) services. Sonera also became the country's leading Internet service provider.

First Cross-Border Telecoms Merger in the New Century

Sonera's ambitions turned decidedly international as the Finnish market matured at the end of the 1990s. The company began buying stakes in mobile telephone operations in other countries, particularly in Latvia, Lithuania, Estonia, Russia, and Hungary. The company also bought up 41 percent of Turkey's Turkcell for $116 million--an investment that was valued at some $7.5 billion by 2000. From Turkey, Sonera turned to the former Soviet republics of Azerbaijan, Georgia, and Kazakhstan, building mobile networks in those countries. Back at home, the company, aided by fellow Finn Nokia, was building one of the world's most advanced mobile Internet networks, including its wireless Internet portal Zed. The company's developments in this area helped boost its share price--and by 2000 the company's market value had soared to some $25 billion. In that year, the Finnish government moved to cut its stake in the company, reducing its position to 54.5 percent.

Yet Sonera also had launched an ambitious attempt to enter the bidding war for Europe's next-generation UTMS high-speed mobile telephone licenses. The company spent billions of Euros, winning a 48 percent share in a German UTMS license. The purchase sank the company heavily in debt in time for a massive downturn in the global telecommunications industry. By the end of 2000 Sonera's share price had plunged by some two-thirds. By then, the company had already acknowledged its interest in being acquired by a larger telecommunications group, with Vodaphone stepping up as a potential suitor. The collapse of the telecommunications market had put an end to that effort, however.

Telia, too, had been emphasizing its international growth, particularly in the Scandinavian region, where it acquired a stake in the Norwegian and Danish mobile telephone markets. Telia also entered the mobile telephone markets in the Baltic states, where its investments found the company working alongside Sonera. After leaving Unisource in 1998, Telia began looking about for a new international partner. In 1999, the company announced that it had agreed to a merger with Telenor, of Norway. The "merger of equals" soon collapsed, however, notably because of disagreements about where to locate the new group's headquarters.

Instead Telia turned to smaller Sonera, and in 2002, the two companies announced their agreement to merge into a new entity, TeliaSonera. To avoid the mistakes of the Telenor merger attempt, the two sides agreed to maintain their existing Finnish and Swedish operations more or less intact, creating a corporate headquarters in Stockholm only for companywide decisions. Telia and Sonera also agreed to bring in a "neutral" CEO with no connection to either firm, choosing Anders Igel, former head of stationery company Esselte, for the role.

This time the merger proved a success, and in January 2003 the new company was born--marking the first of an expected wave of cross-border European telecommunications mergers. With nearly EUR 9 billion in pro-forma 2002 sales, TeliaSonera remained somewhat of a minnow in the fast-moving telecommunications sector. Nonetheless, the company held key positions in its core Scandinavian market, as well as a major role in the mobile telephone markets in the Baltic regions. As it entered its first year as a combined company, TeliaSonera looked forward to expanding its international presence, through acquisitions--or by allowing itself to be acquired.

Principal Subsidiaries: 724 Solutions Inc. (Canada; 11%); AS Eesti Telefom (Estonia; 25%); Baltic Tele AB (Sweden; 50%); Business Sviaz (Russia); Datatel (Latvia); Lattelekom SIA (Latvia; 49%); Latvijas Mobilais Telefons SIA (Latvia; 25%; Sonera Corporation (Finland); Sonera Plaza Ltd.; Sonera SmartTrust Ltd.; Sonera Zed Ltd. (85%); Telia A/S (Denmark); Telia Asia Ltd.; Telia Electronic Commerce AB; Telia Foretag AB; Telia International Carrier AB; Telia Carrier Danmark (Denmark); Telia Carrier Poland Sp.zo.o; Telia France sa; Telia International Carrier Hongkong; Telia Networks Belgium S.A.; Telia Networks Italy SpA; Telia Networks Luxembourg S.A.; Telia Networks the Netherlands B.V.; Telia Networks S.A. (Switzerland); Telia Networks Spain S.A. ; Telia North America Inc.; Telia Telekommunikation GmbH (Germany); Telia UK Ltd. Network Division; Telia Internet Partner AB; Telia Latvija (Latvia); Telia Light AB; Telia Megacom AB; Telia Nara AB; Telia Promotor AB; Telia PubliCom AB; Telia Swedtel de Colombia; Telia Swedtel Inc. (U.S.A.); Telia Swedtel Philippines; Telia Swedtel Thai Ltd. (Thailand); Telia TeleCom AB; Telia UK Ltd.; Tess S.A. (Brazil; 45%); Turkcell Iletisim Hizmetleri A.S. (Turkey; 37%); UAB Omnitel (Lithuania; 28%); Xfera Móviles S.A. (Spain; 14%); ZAO North-West GSM (Russia; 24%).

Principal Competitors: Verizon Communications Inc.; Vivendi Universal S.A.; France Telecom SA; AT&T Corp.; WorldCom Inc.; Vodafone Group Plc; Bce Inc.; British Telecommunications plc; Telefonica SA; Telecom Italia SpA; Nokia Group; TRACTEBEL SA; Bouygues SA; Ericsson LM Telephone Co.; Bell Canada; Royal KPN NV; Cable and Wireless Ireland Ltd.; Lucent Technologies Inc.; Telus Communications Inc.; Scottish Power PLC; Cable and Wireless PLC; Telenor AS; Portugal Telecom SGPS SA; Union Fenosa SA; BELGACOM.

Chronology

• Key Dates:
• 1794: The first optical telegraph line in Sweden is inaugurated.
• 1853: The first electrical telegraph line is opened between Uppsala and Stockholm; the Swedish government creates Kongliga Elektriska Telegraf Verket to oversee the telegraph network.
• 1855: The first electrical telegraph line is opened between Helsinki and St. Petersburg, but the telegraph network in Finland remains under the control of imperial Russia.
• 1877: Telegrafverket constructs the first telephone line in Sweden; the first telephone line in Finland is constructed.
• 1880: The first private telephone exchange in Stockholm is opened.
• 1882: The first private telephone exchange in Helsinki is constructed.
• 1883: Stockholms Allmanna Telefonaktiebolag (SAT) is founded in order to build the country's largest telephone exchange in Stockholm.
• 1886: Finland passes the Imperial Telephone Decree, which encourages the growth of local phone companies in order to maintain control of the telephone system under the Finnish government.
• 1917: The newly independent Finnish government establishes the Telegraph Office to oversee the telecommunications sector.
• 1918: Telegrafverket buys SAT's telephone exchange, gaining a de facto monopoly on the Swedish telecommunications market.
• 1927: The Finnish telegraph office is merged with the post office to create Post and Telegraph Office (PTT).
• 1935: PTT acquires a monopoly on Finland's long-distance and international communications market.
• 1947: Telegrafverket debuts a mobile, radio-based telephone system.
• 1953: Telegrafverket becomes Televerket.
• 1965: Televerket launches data transmission services.
• 1970: The company forms Ellemtel with Ericsson to create the first digital switching system.
• 1981: Post and Telegraph Office is renamed as Post and Telecommunications of Finland.
• 1984: Televerket is separated from the Swedish government and becomes a for-profit state-owned enterprise.
• 1990: Televerket forms a Unisource partnership with KPN of The Netherlands.
• 1993: Televerket changes its name to Telia.
• 1994: Post and Telecommunications is separated and Telecom Finland is created.
• 1998: Telecom Finland changes its name to Sonera and lists on the Helsinki and NASDAQ stock exchanges.
• 2000: Telia lists on the Stockholm stock exchange.
• 2002: Telia and Sonera announce their agreement to merge operations.
• 2003: TeliaSonera begins operations as a combined company.