STOCKHOLM (Dow Jones)--TeliaSonera AB (TLSN) Friday said it will implement a major cost-cutting program to combat intense competition and falling prices after reporting a sharp drop in fourth-quarter net profit.
The Swedish telecommunications operator said it aims to slash costs by up to SEK6 billion. Most of the savings will come in Sweden, with SEK4 billion to SEK5 billion chopped off expenses in the coming three years. Another SEK1 billion of savings will be made in Finland.
"The actions we are taking will have a negative impact on our profits initially, but should be seen as an investment to build an even more competitive TeliaSonera," Chief Executive Anders Igel said in a statement.
The cost-cutting program comes after TeliaSonera reported a drop in net profit for the fourth quarter to SEK2.09 billion from SEK2.70 billion. Sales were little changed at SEK21.25 billion in the period.
Despite the all-round lackluster performance in the fourth quarter, investors focused on TeliaSonera's action to address cost issues. At 0813 GMT, the shares were trading up 4.6% at SEK43.20, outperforming the overall market.
Like rival incumbents in Europe, TeliaSonera continues to suffer a decline in fixed-line revenues amid intense competition from cut-price competitors and as more consumers turn to their mobile phones or the Internet to make calls.
"The next three years will be challenging, and investors should not expect strong growth in a business where price pressure is a natural phenomenon," said Claes Ahrel, an equity strategist Laensfoersaekringar.
"It's positive that Anders Igel continues to clean up after his predecessor. TeliaSonera clearly seems to be on the right track," he said. Laensforsaekringar holds TeliaSonera stock, and Ahrel sees the shares having potential to perform well as the valuation is not demanding.
TeliaSonera said underlying earnings before interest, taxes, depreciation and depreciation will be lower in 2005 than in 2004.
The company posted a 4.4% gain in underlying earnings to SEK7.46 billion in the fourth quarter, helped by the release of reserves and a good performance at the Danish operations.
Analysts surveyed by SME Direkt had predicted fourth-quarter underlying earnings of SEK7.33 billion.
TeliaSonera was formed in 2002 by merging Telia, the national telecoms operator in Sweden, with Sonera, the Finnish incumbent - a unique example in Europe of two national incumbents being merged.
The core operation in Sweden showed improved margins, but this was mostly because of the release of reserves related to the fixed-line activities. The Finnish business suffered from continued price erosion, and margins fell.
The company said that 2005 will be the first year in a three-year transition period with strong migration from fixed-line to mobile and Internet-based services, impacting in the first phase its home markets, particularly Sweden and Finland, where price pressure is expected to continue.
The mobile activities in Norway, Denmark and the Baltics and the non-consolidated operations in Russia and Turkey are expected to show growth both in terms of revenue and profitability, TeliaSonera said.
Urban Ekelund at independent research firm Redeye in Stockholm said that, overall, the report was slightly weak, and he noted in particular that there are no signs of price pressure subsiding.
Still, TeliaSonera said it has been successful in gaining market share in some key customer segments.
Company Web site: http://www.teliasonera.com
-By Magnus Hansson, +46 8 545 130 91, email@example.com
(END) Dow Jones Newswires "
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