Tele2 AB (publ) (TEL2B) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Tele2 Q3 Interim Report 2024 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kjell Johnsen, President and Group CEO. Please go ahead.

Thank you very much, operator, and good morning, everyone. Thank you for taking the time to joining us, and welcome to this report call for the third quarter of '24. With me here in Kista today, I have Charlotte Hansson, our Group CFO; Stefan Trampus, our Head of B2B; and Hendrik De Groot, our Chief Commercial Officer, and they will soon present an update on the Swedish consumer business and B2B, which is just why we have extended today's call up to 20 minutes. Let's move to Page 2. I'm glad to report another solid quarter with good end-user service revenue growth of 3%, marking the 14th consecutive quarter of growth and with all business lines growing, whereas underlying EBITDAaL grew by 2%. We continue to generate solid cash flow, leading to a financial leverage of 2.3x, which is below our target range. In September, Tele2 announced the first Disney+ bundle offering in Sweden. New DTV customers will have this award-winning entertainment included from day 1, whereas it will be made available to existing customers over time. Once again, we were ranked as one of Sweden's most gender-equal companies by Allbright. And earlier this year, we were ranked as Sweden's second most gender-equal company by Equileap. And as you all know, I will be leaving the company after having had the privilege of leading Tele2 for the past 4 years. Together, we have achieved a great deal over these years. We have returned to growth in all major areas. We delivered strong cash flows, and we have taken our sustainability performance to new highs. And of course, all based on the Tele2 Challenger culture. Last week, our Board appointed Jean Marc Harion as Tele2's new CEO. Jean Marc is currently the CEO of Polish Telecom Operator Play, and he also serves on Tele2's Board. So let's move to Page 3 and look at the quarter. End-user service revenue grew by 3% organically, supported by growth across operations. Organic underlying EBITDAaL grew by 2%, mainly driven by end-user service revenue growth. Excluding the energy support in Sweden last year, growth would have been 3%, hence, in line with the end-user service revenue growth. We generated SEK 1.1 billion of equity free cash flow in the quarter, leading to a low 2.3x leverage ahead of the dividend distribution last week. In Sweden B2C, end-user service revenue grew by 1%, led by fixed broadband and mobile postpaid, partly offset by elevated legacy headwinds. In addition, we have previously flagged for tougher comps in the second half, as we executed price adjustments earlier this year than the previous year. Sweden B2B grew end-user service revenue by 2%, hence, a strong achievement given the prevailing macro headwinds out there. We continue to look forward to improving performance within a few quarters. The Baltics grew end-user service revenue by 7%, with growth in all markets. Underlying EBITDAaL grew almost I thought at 6%. And in Q3, we saw sequential revenue growth acceleration in Latvia and Estonia, driven by pricing. And then let's move to Swedish B2C. We added 20,000 postpaid RGUs in the quarter with positive numbers from both Tele2 and Comviq. ASPU grew by 1% year-over-year, which is obviously lower than the previous couple of quarters. The main difference is tougher comparables due to early pricing this year, whereas it was later last year. Fixed broadband returned to positive net intake with 4,000 RGUs in the third quarter, driven by both single play and FMC. ASPU grew by a strong 8%, mostly due to price adjustments. Digital TV, cable and fiber added 4,000 RGUs in the quarter, partly supported by the Disney+ launch towards the end of the quarter. The ASPU growth came from a combination of pricing and the cleanup of RGUs in Q1. Moving on to Slide 6, mobile end-user service revenue grew by 2%, driven by 3% in postpaid, partly offset by continued decline in prepaid. Fixed broadband grew end-user service revenue by 7% due to the strong ASPU. End-user service revenue for DTV declined by 4%, driven by an increasing decline rate in our legacy DTT business due to the ongoing migration, while cable and fiber remained largely stable. And then, let's move to B2B, Slide 7. While Swedish companies have continued to be affected by economic headwinds, we look forward to gradual improvements over the next year. Given the circumstances, we continue to perform well with a 2% end-user service revenue growth in the quarter. Mobile grew by 4%, driven by our IoT business, RGU base and ASPU. Our Solutions business grew by 2%, whereas fixed continued to stabilize following the closure of the copper business in the second quarter. And then, we will move to Slide 8 for a view of Sweden as a whole. End-user service revenue growth for the total Swedish operations ended at 2%. Underlying EBITDAaL growth was 1%, driven by the end-user service revenue growth, partly offset by the energy headwind from the SEK 25 million support we received last year. Adjusted for that, EBITDAaL growth would have been 2%. The cash conversion of 58% is reflecting 15% CapEx to sales in Sweden during the last 12 months. And then let's move to the Baltics. The number of Baltic mobile postpaid customers continued to increase, driven by Lithuania and Latvia. Blended organic ASPU increased by 3% with growth in all markets. This is due to the more-for-more strategy, continued prepaid to postpaid migration and not least price adjustments, which have supported sequential ASPU upticks in Latvia and Estonia in this quarter. And then looking at Baltics financials, Slide 11. The ASPU growth, combined with volume growth in all markets led to 7% organic end-user service revenue growth for the Baltics, as a whole and with sequential improvements in Latvia and Estonia. Underlying EBITDAaL grew by 6%, driven by 7% in both Latvia and Lithuania. Cash conversion remained strong at 73% during the last 12 months, reflecting 10% CapEx to sales due to ongoing 5G rollouts. And that -- with that, I hand it over to Charlotte, who will take us through the financial overview.

Thank you, Kjell, and good morning, everyone. So now we are on the Page 13. First, a few comments on the group P&L. In Q3, both total revenue and end-user service revenue grew by 3% organically, supported by growth across operations. Underlying EBITDA grew by 2%, both in SEK terms and organically. And underlying EBITDAaL grew by 2% organically, driven by end-user service revenue growth and savings from the Strategy Execution Program, partly offset by energy headwinds. In Q3, we had a SEK 17 million headwind from energy, mainly explained by the SEK 25 million of electricity support we received last year. As you can see on the slide, D&A declined by around SEK 80 million year-on-year, which is due to reduced regular depreciation and because the surplus value of the TDC acquisition has been fully amortized. Then our income taxes increased by around SEK 50 million year-on-year, mainly due to a Pillar 2 top-up tax relating to Lithuania. For those, who are not familiar with Pillar 2, this top-up ensures that we fulfill our obligation to have an effective tax rate of at least 15% in every country. By Q3, we had a debt mix of 59% fixed rate and 41% floating rate. With that follows that for every 1 percentage point rate change in underlying market rates, our annualized financial expenses on loans with floating rates move by around SEK 110 million. So let's move to the cash flow on Slide 14. CapEx remained high also in Q3 due to continued intense network investments and cash CapEx increased due to timing of payments. Changes in working capital were negative in Q3, mainly impacted by a decrease in liabilities following a temporary increase in the previous quarter. Our ambition to keep working capital cash flow neutral in 2024 remains unchanged. Taxes paid increased mainly as this quarter included approximately SEK 130 million of withholding tax payment, while the corresponding payment last year was made in the second quarter. All in all, our equity free cash flow for Q3 ended at SEK 1.1 billion, hence, around SEK 800 million lower than last year's level, largely due to the aforementioned reasons. Over the last 12 months, we have generated SEK 4.1 billion of equity free cash flow, corresponding to SEK 5.9 per share. So let's move to Slide 15 for our capital structure. By Q3, economic net debt amounted to SEK 24.6 billion, some SEK 1.1 billion below the level of year-end, as the cash generation exceeded the first tranche of the dividend. Our leverage ended at 2.3x, which is below our target range of 2.5x to 3x, ahead of the second dividend tranche, which was paid last week. Adjusted for that, pro forma leverage would have been 2.55x. And with that, I hand over to Kjell for an update on our strategy execution.

Thank you very much, Charlotte. And this is already our third update on the progress of the Strategy Execution Program, which aims to deliver radical improvements in customer experience. In Q3, our online channel delivered improved customer experience on iPhone launch day following a redesign of key aspects of our IT front end. We have also accelerated the pace of upgrading Boxer TV customers to modern technology ahead of closing down the legacy DTT service by year-end. On the TV side, we have enhanced our ability to deliver exceptional entertainment to our customers, thanks to the launch of the first Disney+ bundle in Sweden. And finally, our brand new 5G network continues to grow rapidly and is currently covering more than 80% of the Swedish population despite no low-band spectrum in use. And then we can go to the financials. As you know, we're targeting SEK 600 million of run rate cost savings by the end of '26. By Q3, we have executed on organizational changes and network optimizations worth SEK 225 million in annual run rate savings, of which SEK 55 million contributed to our underlying EBITDAaL in the Q3 year-over-year. So we won't see any major increase in the run rate in Q4, but we hope to add a couple of tens of millions. Then we'll move to Slide 18 for a reminder about our digitalization and customer value journey before I let, Hendrik in for an update on the Swedish consumer business. So we've shown this graph before about our Strategy Execution, and I think it's important to remind ourselves what we're doing here. Now we've done a lot of the back-end migration. Now that we have one IT stack for the mass market. And like everyone else, who integrates big complex IT systems, we've had some issues, but we have also overcome them. We have fixed them. So we are now on one platform, not 3 or 4, as we used to be. This means that gradually, we'll get better speed, quality. And of course, in this day and age, where we hear about cyberattacks every day, we also become stronger. We are more resilient against attacks and also less reliant on external providers. Going forward, it will be very important that we develop our front end and our digital channels, so we can improve our efficiency, and this frees up resources for a more dynamic strategy. And of course, we want to improve the customer experience. We know that the customer that addresses us in a digital way and can find their own solutions typically is more happy than a customer that has to go indirectly to us. We also will do a complete revamp of Tele2's go-to-market strategy and who could better speak about that than Hendrik. We will get back to that. And of course, we have talked a lot about the need to reduce third-party retail costs. So it's a cost issue, but it's also a relationship issue towards our customers. In contrast to Comviq, Tele2 was without handset binding for many years. That was finally fixed in Q3 of last year. And then since then and for strategic reasons, we are building an increasing base of customers in binding alongside efforts to rebalance the channel mix from third-party retail to owned stores. We do that because it makes sense long term, thanks to higher customer lifetime value through increased loyalty, reduced churn and lower expansion costs. But let that be an intro, and let me hand it over to Hendrik to talk more.

Right. We can move to the next slide. Thank you, Kjell, and good morning. On 2021 Capital Markets Day, we shared our strategy to build a sustainable revenue growth for the Sweden consumer business. This was anchored on 3 core value drivers. The first one, capitalizing on our FMC potential from combining Tele2's mobile and Com Hem's fixed assets and customer base; the second, driving a balanced approach in the market between value and volume growth; and third, stabilizing our TV business by modernizing our TV portfolio, and to do this based on our leading consumer brands, Tele2 and Comviq. Today, I'm pleased to provide an update on our progress and how we intend to take the consumer business forward. We can go to the next slide, please. Let me start with a summary view of our key achievements and milestones so far. From an initial wider all products, all brands retention approach, we have focused our FMC approach on the combination of mobile and fixed connectivity for Tele2, now reaching 26% penetration of FMC customers in our mobile and fixed customer base. At the same time, we have reduced call volume to our call centers by 18%, driven by FMC customer base growth and related improvement measures. Across our portfolios, we have driven a responsible market posture, balancing both value and volume growth in the market. Our mobile postpaid RGUs grew over the period by plus 9% to 2.1 million RGUs, whilst our broadband ASPU grew by plus 11% to SEK 277. Together with stabilizing our TV business, we have seen our overall consumer revenue return to growth and picking up a pace of plus 3.1% year-to-date 2024. In returning the consumer business to growth, we have been navigating a number of significant changes and related headwinds in our legacy business. This was prepaid registration in 2023 and is the transition of Boxer TV out of DTT to OTT this year. We can move to the next slide, please. As Yogesh mentioned in his Q1 technology update, we have now transitioned to one IT stack for all consumer services. This IT stack enables significant portfolio simplification, a 360 customer view in our touch points, unified channel engagement and digital customer journeys and personalization. This makes Tele2 well positioned to capitalize on our FMC potential in a still immature Swedish FMC market. Our focus has shifted from cross -- across all brands retention to Tele2 main brand cross-selling of mobile and fixed connectivity. The foundation of our FMC approach is the combination of connectivity services for households. And so far, we are making good progress and can double-click on core FMC value drivers. We see significant churn reduction of around 30%. The product hold is growing and now stands at 3 plus driven by multiple mobile RGUs. Our approach is connectivity led and Tele2 main brand focused. Our share of sales now stands at 30% across our channels, whereby we see that direct customer contact channels achieve higher results. And our online channel will be ready in 2025, unlocking further growth potential in cross deep and prospect selling of FMC, as we move to full multiplay inclusion. We can move to the next slide, please. Tele2 holds a long-standing reputation as customer value champion, challenger and innovator. We are supporting our customers' demanding digital lives with innovations and increased connectivity, which allows us to drive balanced value and volume growth in the market. In 2022, Tele2 was first to introduce a new mobile 5G unlimited speed-based portfolio, making unlimited subscriptions available to a substantially larger part of the market. In 2022, Tele2 was also first to introduce bundled linear and video-on-demand TV packages to the Swedish market. In 2023, Tele2 introduced seamless broadband switch over to the mobile network as a service, which still today is unique in the Swedish market. In 2023, we also, as Kjell mentioned, corrected Tele2's mobile portfolio, reintroducing handsets and enabling this in our own channel. And this year, Tele2 moved to annual pricing, allowing for a more comprehensive and transparent pricing approach, executed early in the year, whereby we annually adjust our prices for all eligible customers based on general price level development and innovations. And finally, as already mentioned, last month, we announced the launch of the first Disney+ TV bundle in the Swedish market. In general, these innovations support both ASPU and RGU development. For Tele2 mobile, the development of a handset bound base means that in the initial 2-year buildup period from end of '23 to end of '25, mobile ASPU will be affected by IFRS 15 fair value treatment. Revenue will not be affected as this is balanced out by lower churn and profitability is improved from lower acquisition cost in our own channels, as commissions versus commissions in retail. We can move to the next slide, please. Our TV portfolio has seen the most profound transformation in order to capture the support of customers' changing viewing habits across different age groups. The modernization of our TV portfolio is anchored on 3 pillars. First, enabling relevant entertainment content by combining linear TV channels and video-on-demand streaming service into a superior viewing experience. From this, we have, for example, seen a significant increase in video-on-demand viewing for our older customer age groups. Second, upgrading customers to modern set-top boxes that enable the modern viewing experience. This has included so far upgrading over 100,000 customers from their old TiVo set-top box to our modern TV hub over the last year and includes the migration of our Boxer TV customers from DTT to a modern TV hub. Today, 52% of our customers are using a modern TV hub. The pace of adoption is accelerating with the Boxer TV migration, as you can see on the graph. The set-top box modernization allows us to achieve simplification and lower cost to serve. Our third pillar is our TV tech modernization program through which we enable an advanced aggregation platform and user experience. As a long-standing TV operator, Tele2 is uniquely positioned here with a deep TV tech competence at our disposal to work with our partner ecosystem to deliver and the pace of innovation of our TV portfolio will continue. So then how do we intend to take the consumer business forward? And we can to the next slide -- next and final slide. With the pace of transformation and innovation set, a lot of progress made, modern 5G and gigabit broadband networks and the unified IT stack at our disposal, our focus going forward will be on customer experience first. And how will we achieve this? The key to unlock customer experience advancement for us lies in becoming personally relevant. And since our customers, like we all do, use digital means to interact, our focus will be on enabling our customer journeys to start digitally first with full 360 customer recognition seamless across any of our touch points and with personally relevant interactions, which we believe will be increasingly AI supported and generated. We believe that consumers are increasingly climate aware, and we see it as our mission to contribute by bringing sustainability to our customers through responsible utilization of recycled materials and allowing our customers to contribute themselves by offering better circularity for devices through trade-in, refurb and returns. We will continue to build growth momentum based on our leading brands, the benefits of convergence, high-speed connectivity, modern entertainment and handset portfolios and its continued innovation. And finally, we aim to further reduce cost of acquisition cost to serve from a more efficient go-to-market based on online and own channels first, active handset engagement and renewal and own channels and increased FMC share to result in a more loyal customer base. These efficiencies are captured in our SEP program. This then concludes my consumer update. Thank you for listening. I'll now return the call back to Kjell.

Thank you very much, Hendrik. Very interesting to sit and listen and reflect on the journey we've been on in terms of technology, of course, many changes, but also the approach to the culture and the precision level, where we're focusing so much more on value. It's been -- it's quite an interesting journey. So thank you very much for taking us through it. And then we will turn to Slide 25 for our guidance again. So let me make it short. We reiterate both our 2024 guidance and the midterm outlook. For this year, we now expect an energy cost headwind of around SEK 40 million or broadly flat, excluding last year's energy support. And as a reminder of our CapEx profile in 2025, we expect 13% to 14% CapEx to sales driven by the final stage of the major 5G expansion in Sweden. And that means that we are replacing the 3G network by the end of 2025. From 2026, CapEx to sales is expected to come down to historical levels at 10% to 12%, as our network expansion will return to being demand driven. And with that, I will hand it over to the operator for Q&A.

[Operator Instructions] We will now go to the first question. One moment please. And your first question comes from the line of Andrew Lee from Goldman Sachs.

I just had a couple of questions around the -- your confidence levels in getting to that kind of midterm EBITDA growth guidance sooner rather than later. The 2 questions just revolve around 2 areas of the business, where the development wasn't quite as strong this quarter as it's been in previous quarters. So I just want to start out on consumer. Hendrik, thanks very much for your presentation. It's really helpful in terms of bottom-up analysis of what you've been improving upon. But could you help us just understand or how we should think about how that translates into overall growth. Obviously, B2C growth shrank to 1.4% this quarter. It's been arguably kind of artificially inflated by easy comps on pricing in the first half of the year. So given all the development and improvements you've been making, should we expect a gradual improvement in B2C revenue growth from here, as you suggested, can happen in B2B? And if not, why not? And then, just second question on the cost savings program. The annualized run rate only rose SEK 25 million, I think, in the quarter versus Q2. So a bit of a slowdown in the quarterly development of that -- of those savings. Obviously, this is a bit lumpy, but could you just give us a bit of an understanding about -- I think you mentioned that 4Q won't develop that cost saving much more either. So when should we see the kind of the next meaningful pickup in annualized run rate on the SEP?

Thank you, Andrew. Let's try to address these things step by step here. So I've talked in my CEO letter and also in interviews about the expectations for a gradually improving economy and particularly in Sweden. We have seen a historic high level of bankruptcies over the last year. And of course, Swedish consumers, as you know very well, are very much impacted with higher interest rates because of a high proportion of variable rate loans. Now we've already seen a couple of rounds of interest rate reductions. And we -- when we listen to the chief economists of different banks in Sweden, we hear a much more upbeat tone -- tonality for 2025. Now whether we will grow 2% or 2.7%, I don't know at the end of the day, but people are giving these kinds of numbers. And of course, that will help any business, especially ours, which is a consumer business more than a B2B. But in B2B, we expect, of course, businesses to improve their outlook for next year. I think that's an important component that when the tide comes in, it lifts all the boats, and it should also help us. And I would go through a couple of specific things. You talked about the SEP. The previous program we had where we saved SEK 1 billion was very back-end loaded. We did a lot towards the end. This one, we have said we're going to save SEK 600 million. And by the end of this year, we are closer to SEK 250 million, SEK 230 million to SEK 250 million here. So we do it much more -- in a much more gradual way, and we get quite a lot of it out this year. And Hendrik talked about the importance of changes in our go-to-market, that is a carrying component on it that we're going to move more, and we talked about it several times before, towards internal sales and digital sales, and it's going to happen gradually, as we have now consolidated our systems. And one thing that I'd like to mention that also Hendrik mentioned, which is quite important here is the fair value treatment in IFRS because clearly, we were at Tele2 for historical reasons without a handset binding proposition. And I think it was absolutely right and necessary to get that in place. And while we are building that base, the fair value year-over-year comparison, as Hendrik also said, in '23 and throughout '25 for the period when we're building the 2-year retention base will, of course, impact the year-over-year comparison, then it will more level out. This is the absolutely right thing to do regardless how it plays out in our books, and it's going to be an important part of our success formula going forward with lower churn and higher customer lifetime value. So to summarize it, the SEP delivers actually more than 1/3 of its weight of the program in 2024, and the next steps are detailed out. The fair value plays into it when you look at our ASPUs. And of course, we expect the improving economy to help us. And I have talked in interviews about the order book of B2B that has also improved. We have won some good contracts, not basically only on price. We're winning on quality and a good sustainability reference. So there are a few things that speak to an improvement into next year. Was that okay.

Yes. That's really helpful, Kjell. Just one point -- I think you were saying that consumer is more sensitive to the macro backdrop than B2B, and so, as you get the improvements in macro, you should see a bigger improvement in consumer or [ more away from consumer than B2B ]. Is that right?

Yes. Well, let me -- let me say it like this. Swedish employees have had a negative disposable income, real disposable income development for a bit of time. And when you face that situation and you have higher interest rates, it means, of course, that the purchasing power is going down. There is no way to avoid that. It speaks to the resilience of this company and this industry that we are still growing in that environment. And I think because very many people in Sweden have variable rates [ or bound ] for 3 months and these kind of things, when the interest rates go down, people will feel it relatively soon, and most people will have started to feel that by the end of this year or early next year. And of course, if consumers can spend a bit more, it's helpful to businesses. And we should be out of the woods, I hope, on the record number of bankruptcies that we live through. And again, also to our B2B team to deliver growth throughout this period of time is really, really strong. I think that's actually something to be proud of.

We will now take the next question, and your question comes from the line of Ondrej Cabejsek from UBS.

I had [Technical Difficulty].

Ondrej, we don't hear you, unfortunately.

Hello. Can you hear me now?

Yes. Now, we hear you. Yes.

Apology for that. I have one direct question or a simple question, one more of a high-level question, please. So the first question would be just on working capital. So you had a SEK 400 million positive in 1H. You talked about a neutral balance for the year. We saw a bit of an unwind or a big unwind to be precise in the third quarter. I just want to confirm that for the full year, a neutral net working capital number is still the target. And then, second question, just on specifically B2C mobile. So we had, I guess, an unexpectedly high growth rate in 1Q and 2Q and now the drop in the growth rate, I think, is maybe also quite large more than people expected. So can we just maybe dig into the drivers of that? I'm aware there were overlapping price increases that you explained well in the slides, but was there anything more than that, specifically maybe some pressure more recently from any of your competitors, maybe some shift. If you could maybe talk about the shift or the mix in Comviq versus Tele2, that would be helpful. That's something we haven't had an update on for some time. So basically, just to explain what is causing now the sharp kind of drop in the mobile B2C run rate in Sweden specifically, please?

All right. So if I start regarding the working capital, and I think that what you're saying is correct. We had the negative impact this quarter, but we also had a very positive impact last quarter in Q2. So what we are aiming at is still to have a neutral working capital by the end of this year. Yes. Go ahead.

Yes. Shall I take it on the -- Ondrej, on -- just to add some more color on B2C mobile. I think it's good, just good to remind the cycle we're in, right? There's 2 big changes that sort of in a year-on-year comparison are happening that are both affecting how you look at the numbers. As we've been pointing out, the first one is that we have basically put Tele2 mobile on a very much, so stronger footing by reintroducing handsets. And so, this is the first big measure. The second big measure is that we completely changed the way we do pricing. And if you then sort of compare these in the year-to-year, then, of course, it's important to understand some of that underlying detail. And the result of the pricing has been that for one, has been that the first 2 quarters of this year has been sort of exceedingly strong because, of course, we are basically changing a back-loaded cycle to a front-loaded cycle. So that's the first big part of it. Year-to-date, we still stand at [ 3 plus 1% ] growth in the quarter at [ 1 plus -- plus 1, plus 4% ]. The second element is that we -- as we have moved Tele2 mobile into handsets, we have done this in 2 steps. I think we have said in the past that our IT development wasn't ready until September last year to move basically into our own handsets and our own channels. But in Q4 '22, we already introduced handset binding in retail. So the effect in '23 has been that we had immediate, I guess, churn benefits coming in as we, of course, reintroduced that in retail. But we could only then add our own channels from September last year. The effect -- it is clear that acquisition in own channels is a way more profitable way of doing things than in retail. So we had the benefits of churn reduction. But from September last '23 and moving it increasingly to our own channels, we, of course, also got the fair value treatment to start growing. And if you add those 2 together, then that sort of explains a little bit the cycle and that this just needs to normalize out. So pricing will be normalizing out throughout this year because we are now in an annual pricing cycle. And as we've said and also Charlotte reiterated, the value -- the fair value treatment will be a -- buildup over the next 2-year period, and you could say we're now halfway. So hopefully, that gives you a little bit more color.

That's great. And if I may, just one follow-up. In terms of working capital outlook into '25, just to be clear, I think previously, there was a comment that working capital should also be neutral in 2025 and then only reversing with some positive impact, as the 5G rollout kind of ends in 2026. Is that still the expectation?

Yes. We said that much about '25 already. I think we need to come back to the '25 when we do the guidance.

We will now go to the next question. And your next question comes from the line of Andreas Joelsson from Carnegie.

Maybe a question for Hendrik on the FMC. You mentioned that the penetration is quite low. The market is immature. Can you say something about what is holding back that penetration and the maturity and also how you can and will change that? You mentioned, for instance, increased degree of personal offerings or personalization of the solutions. Can you describe that a little bit more? And the second question is also maybe on the offers you have. I understand that some of the content that maybe should have been included from one of your content providers isn't included. And therefore, I guess, you will have discussions with them. Without going into details, how important is sport content for you, for instance? And you saw content cost increase quite a lot in, I think, 2022, 2023. What is the risk that we see another step-up in content costs going forward?

Sure, Andreas. Happy to give you some color on FMC, it's part of our core strategy, as I've been sort of talking you through. So there's a couple of steps. So first of all, I think if you look at Sweden versus some other European markets, I think that's the context in which I said it is pretty immature. There are, of course, other markets out in Europe, where you see typically that the penetration of FMC on the base is substantially higher, as you would on average, I think, see here in Sweden. For us, in particular, as we've been talking through, to really do FMC well, you need to be able to see the customer fully, and that means you need to be able to have your supporting IT working for you. And of course, that has been part of our transformation, and that brings us into a situation that we're pretty ready now. Although, as I pointed out, the -- for example, our online channel still needs to be further readied so that we can also completely use that channel for full FMC -- drive our FMC into our customer base. With the penetration we have today, we're quite happy. We're also quite happy that we started with what I feel is the true foundation of fixed mobile convergence, and that is basically combining connectivity. And with the IT readiness we have now, we will be introducing full multiplay into our FMC approach. And that -- these are very important drivers for us to further accelerate. We have done -- and we're doing a lot of work also with regards to cross-selling. And also there, the share of sales at the moment stands at 30%. You can see in my slides, I gave it a light green tick. There's still an awful lot more potential that we need to unlock, not only in online, but also in our customer operations, for example. And these are all kind of programs that are sort of rolling out now, but they're all based on the fact that now through the one IT stack, we have the full Customer 360 at our disposal. And then when I talk about making it more personal, now that we have the Customer 360, we need to hook up, of course, all our data analytics, all our supporting systems so that we have a relevant personnel, seeing the 360 that customers want, but being very relevant, understanding their needs, understanding, for example, the number of calls they've been making, their behavior, enables us to be way more on to the customer themselves. And then last comment to make. When we talk about content, it's very important. You've seen that content costs have been very quite flat over the last period, and we are driving content for families and households. Sports is important, but it is not the most important thing as such. It is about a relevant entertainment experience, and we're quite happy actually to have Disney+ with us. Operator?

We will now go to the next question. And your next question comes from the line of Stefan Gauffin from DNB.

I have 3 questions, please. First, on the order intake. You mentioned that you have seen that you won some good contracts. Can you first just explain when these will be visible both in terms of volumes and P&L effect and some more color on these. Secondly, you mentioned that you've seen that you think that you have a low FMC penetration. And on your comment, it sounded that, that could have more to do with your readiness on the IT side. Or do you see other explanations to why we see a low FMC penetration in Sweden? And then just thirdly, you are migrating your terrestrial B2B business, and you've already mentioned that a large share of the old DTV customers are already migrated. But can you give some more details, as to what the risks are related to the DTV revenues?

Quickly on order intake, B2B and then I'll let go.

Sure. Hello, Stefan. Stefan here. Thanks for the B2B question. I think Kjell was alluding to the performance that we had over this recession period. And I think all developments that we've seen on all segments and product lines should be seen in that light. But looking at the development lately, which Kjell was alluding to on the order intake, we have seen signals that is positive and pointing in the right direction. And when returning from the summer vacations, we have seen good activity level basically in all our segments, which has ended up in a good trajectory for us. But you should also see it in a perspective of the mobile RGU growth. In Q2, we reported good growth on the mobile RGUs. Now we have a second quarter with a good mobile RGU growth summing up to 32,000 RGU growth for these 2 quarters. If you compare that with the period of Q1 last year, '23 to Q1 this year, we only had 13,000 RGU growth, which points to the direction that we are seeing positive signals. Thirdly, we had really good equipment revenues in Q3. It's actually year-on-year, the best figure since Q2 last year, and that is materialized basically already in the quarter. So -- and also, we have a fourth thing being the solutions business, where we have a good growth in Q3 versus Q3 last year. So some of this order intake, we are already seeing in the numbers. But of course, we're not still, as Kjell said, out of the woods. These are signals together with the macro KPIs that we're picking with us, that is pointing and then giving signals that we will see better trajectory during next year. And I would say it's in the next year, and I don't want to give you a certain quarter, we will see a better development.

Okay. And in the interest of time, I'll go quickly on the other one. The low FMC presentation, I think, is partly a market maturity issue. And I think that's going to be developing throughout the whole of the '20s, basically. We're going to see that increasing, and to some extent, a readiness issue, but we have taken big steps on the preparedness. So that is a part of the '25, '26 program to really fix our preparedness for FMC step by step. And the terrestrial TV, that we're shutting down, clearly, it's a system that is very energy consuming. It has had its useful life, so to speak. And we are moving those customers over to other ways of receiving broadband signals, broadband entertainment and TV, and that is a very good thing. Obviously, many of those, who use them have been in more rural areas and are of a higher age group. So it's an extra effort to transition them over to new technology, but we are making a big effort to help them with that. So I hope that answers the terrestrial one, and we can then maybe move.

Your next question comes from the line of Erik Lindholm-Rojestal from SEB.

So I'll start with a question on the EBITDA guidance. You left guidance unchanged here for the full year heading into Q4, quite a broad range still on EBITDA. What are sort of the main puts and takes here into Q4 that is, would you say, creating this uncertainty? And I mean, what could put you towards the higher or the lower end of this range? And then just a second question, you talked about your move to annual pricing with greater transparency and more sort of tied to general inflation. If we think about this for next year, what sort of price increases do you think is likely for Sweden mobile B2C?

Well, on the guidance, I think it's hard for us to put you in the direction of decimals here, but we're doing some more around the transformation plan. And of course, the volumes in those important weeks towards the end of the year will have some level of impact. We're seeing the trends from Latvia coming through that is also net-net positive. But I think we are a little bit reluctant to guide you on decimal points on the EBITDA. We're feeling quite okay momentum. We feel that we are able to add profitability on top of the price increases from last year. So that's good. But I feel a little bit awkward going too granular, so to speak. And on annual pricing, Hendrik, I guess, you will not want to be calculating percentages.

I'll keep it short. Annual pricing for us is a method to -- first of all, to capture transparency, all eligible customers. So many more customers than we typically would have done with more-for-more. And annual pricing is an orientation maybe to price developments, but also driven by innovations. So we do believe also going forward, it will be a very good way to capture the value we want.

Your next question comes from the line of Titus Krahn from Bank of America.

Just very quickly, one follow-up, maybe I've missed this before. But could you talk about how many Boxer customers you still have on terrestrial TV? So it would be interesting to hear any number from that. And maybe then staying on this topic, can you talk a bit about kind of how the frequencies are kind of going to be used in the future? Would that be kind of an upside for the telecom sector maybe? And else on the cost side, to what extent do you see the cost savings on the energy side offsetting any potential revenue losses?

On -- Titus, I'll just start and then sort of maybe hand over to on cost savings to Charlotte. But basically, our intention is to move out of DTT holistically. So that means by the end of this year, all of our customers will be moved out of the DTT network. We are moving those customers, as I said, to OTT to over-the-top to our TV Mini hub, and this is a program that is in full swing at the moment given the 31st of December, of course, at the end of the year. And that's a program we're running. Will we be able to move all of our customers over? Well, some of them are in a bit more remote rural areas, where connectivity may be an issue. So that's what we're at the moment managing. So there will be a level of customers that will not move over. But I think we're seeing at the moment good traction on customers moving to OTT. And actually, what we're getting is responses that customers once gone over, see the benefits of sitting on modern TV technology. With regards to cost savings, Charlotte, I don't know, whether you want to comment on that?

Yes. So when it comes to the energy, of course, we are doing some things that will lower the cost when it comes to energy because we're having more efficient. We -- 3G network, for example, which is quite costly. But at the same time, as we are reducing the consumption there, we also see a higher data usage from our customers, and that then implies that there will be more consumption or higher consumption. So it's -- I can't say exactly what the outcome of this will be, but I would say that more in the line of easing it themselves out on those 2 specific items. That's what we're seeing right now anyway. That is driving, of course, higher consumption on data.

We will now take the next question. And your next question comes from the line of Felix Henriksson from Nordea.

I'd like to follow up on fixed mobile convergence. Could you please elaborate on the CapEx needs that you see to drive up the FMC penetration in your customer base, and also comment on what role potential fiber M&A plays in your desire to increase your FMC ambitions in Sweden?

I don't see FMC as a massive driver of CapEx. I mean the main CapEx is being used for building the 5G network. And of course, some upgrades with Remote PHY. But these are not -- when we are finished with the main 5G rollouts, the Remote PHY CapEx is relatively limited. So FMC is, in my view, more of a front-end development and a digitalization exercise than a massive CapEx exercise.

Yes. No, absolutely, Kjell. So it's 5G, that's basically the network we're rolling out. It's Remote PHY, as Charlotte was saying. And we do hope that as we go into next year, we see [ TPS ] moving on regulation and SDU. However, that means that the current fiber operators will need to open up at a wholesale level and that also is not a huge CapEx driver. It does mean, of course, that we need to interconnect -- but that's, I would say, is minor CapEx. However, it opens up a big opportunity. I'm sorry, Felix, the second question was...

M&A.

Fiber M&A.

M&A. Okay. Well, we have said it before, we haven't done anything. We haven't done any M&A. We said that it's an option if there's something that we think has the right price, we can do a lot of FMC without doing any M&A. If we do M&A, it's the icing of the cake.

We will now take the next question, and the question comes from the line of Keval Khiroya from Deutsche Bank.

I've got 2 questions, please. So firstly, you're quite clear on the potential macro improvements helping B2B. Can you say a little bit more about the competitive environment and also the scope for front book price increases as well? And secondly, just following on from the previous question. You've also highlighted the Baltics, as an area, where you could consider M&A with respect to convergence assets. Is this idea still supported by the Board? And how do we think about the likelihood and timing of any potential deals in the Baltics?

Well, the competitive environment is largely unchanged. We do have a rotational segment that lives its own life. And I can't really see that is producing massive value creation in terms of what goes on with Hallon and Vimla and these kinds of things. But we'd also see a relatively okay discipline among the players that focus on postpaid and FMC and going in that direction. So I think there is a relatively okay pricing discipline in the market. And my personal prediction is that this rotation market has found more or less its shape. I don't think there is going to be very much more volume coming in there. So there should be scope for a relatively healthy pricing environment for the premium brands, the more catering to families and businesses. When it comes to M&A in the Baltics, I think that goes with the comment that we made before here. If the right opportunity is there, then yes, that we would look at it. We haven't seen things that we have felt we wanted to go for, and we still have a lot of legs. We're building a great 5G network now at maximum speed in the Baltics. We have a lot of capacity to use for a mobile-centric convergence game. So we have plenty of time to develop based on the assets that we have.

Your next question comes from the line of Ajay Soni from JPMorgan. Hello, Ajay, you are very quiet. We cannot hear you.

Hi, there. Any better.

Yes.

On your postpaid ARPU, obviously, that's been slowing a bit. I just wanted to understand if there's further headwinds in Q4 and more specifically on the Comviq brand, what the 2023 price increases were? And are these going to be done in 2024? And then on your leverage, even after the dividend, it's still towards the lower end. So could you target a lower range? Or do you see the balance sheet headroom for higher shareholder returns or potentially M&A, as well?

Well, I think I can take the third one and then, Hendrik takes 1 and 2, maybe with Charlotte. So on the leverage, yes, you're right. We're at the lower end, and we're almost at the lower end even after paying the dividend. So I choose to see that as a positive thing. I think my successor and the Board will have significant freedom of action, whatever they choose to do on that. So I think that's a good starting point for the next stage. Hendrik?

Yes. Ajay, on Comviq, Comviq, as of '25 will be fully in the annual pricing cycle. That's what I can say on this. And it wasn't included this year fully in given that in September '23, we already did a more-for-more pricing on Comviq.

And was that the question on postpaid ARPU, was that related to fair value? Or where did that come from, Ajay?

No, no. So I was just more looking at the mobile pricing. And then just on Comviq itself, did you do any price increases in 2024?

We did a second branch of more-for-more in early '24, yes. But we did the majority of it in September '23, which was still a more-for-more pricing cycle, and it will now move into full annualized pricing, as we go forward.

Your next question comes from the line of Fredrik Lithell from Handelsbanken.

I would like to start with saying, Kjell, it has been a pleasure to get to know you, and I wish you all the luck going forward. I hope we meet again. With that, a lot of questions have been asked. Maybe one that I would like to have a more color on is the ongoing rollout of 5G and you've come a far away, but can you sort of give us some more incremental sort of experiences from that work? Or if you are on or above or ahead of competition on several of your sites or something like that. Some more color on your 5G network, how it stands to competition right now would be interesting?

Yes. That's a very, very good question. I'm glad you asked it because -- and I'm talking a bit about it in my CEO letter. But when we started the process of 5G, we had to start with a high-end spectrum at 3.5, which gives fantastic speeds, but bad coverage. So you have to build very many base stations to get the same coverage, as you do with the low-end spectrum. And one of our main competitors could start in a little bit different way. And it's not because they did something wrong or right or we did something wrong or right, it's just related to the regulatory approach that we have to take given that we have to take Huawei from our networks. And I'm very happy to see that in OpenSignal, which is completely independent. It's not bought by an operator, and in a way, tailor-made for testing out a network for some operators. This is OpenSignal. And they gave us very good feedback now on the network, best video experience, and they also put us on the list of the companies that had the best acceleration of coverage. And also, for those who are interested, very good feedback on gaming experience. And the reason why we get this fantastic video experience is that we have had been forced to build out the high-frequency spectrum first. So when we don't get the coverage, you get a fast 5G experience that you physically cannot get with a 700 or a 900 network. It's a good thing to have. It's great, and we're going to do it ourselves also, but we really got positive feedback on that. So we have now come to the point, where we cover more than 80% of the population. And during 2023 -- sorry, 2025, when we replace sooner the 3G network, we will do the area coverage for 5G. So I think we have come to a turning point, where it's becoming visible that we have for certain high-quality standard needs, the best network available in the Swedish market.

Sounds great. Just a follow-up on that then. When you do the implementation of the maybe low bands in '25, do you do that in any specific order in order to capture the best sort of low-hanging fruits from that in the start? Or how do you go by then?

It's such a big project that we have to do it sort of like a machine rollout. It's very hard to cherry pick when you have such an enormous transaction volume. This is the biggest volume swap upgrade rollout that has happened in the history of telecoms in Sweden. And of course, we want to make sure that, that delivers. What I would like to highlight is that we still are slightly below 50% handset -- 5G handset penetration. So another effect of these upgrades that we do is that those, who have a 4G handset also get an improved experience, which is almost even more important in the Baltics, but also important in Sweden. So it's not only for 5G, but we get a better 4G experience also. That's important. And going from a 3G network to a revamped 4G plus 5G network, it's kind of a sea change.

We will now take the next question, and the question comes from the line of Usman Ghazi from Berenberg.

I've got 2 questions, please. The first one was just going back to the annual price increase strategy in Sweden. Is it -- I mean, is it fair to say at this point that inflation is a fair barometer for what a fair annual pricing strategy looks like? Or do you consider that we should be thinking about above inflation type of stuff? So that was the first question. The second question was just going to the cost savings program that you have of SEK 600 million. And I just wanted to understand that as we look out for 2025 and 2026, is it fair to say that the bulk of the savings for '25 is related to the Boxer migrations, which, as you said, are progressing well. And then in '26, that's when the savings from the -- move to your own channels, as opposed to third-party channels, those savings then kick in after the base has been built up on the handset binding contracts.

I can take the first one, Usman, on annual pricing. The way to think about it is that inflation orientation is maybe a baseline. But we will every year look at how we want to move and innovate our portfolios. And the combination of those 2, one makes -- gives us as wide as possible a customer base that we can transparently touch, but also that we can innovate on. And the old more-for-more pricing was way more cohort driven and with smaller subset of customers that you would move. So we're now combining a baseline and innovations to sort of drive the type of values that we think that we can capture in the market.

Yes. And I guess, on the cost savings, clearly, Boxer will lead to some cost savings. It will also lead to some churn, and we are writing about absorbing that effect, but it is an element of it. And I would like to highlight, maybe Charlotte will say some more. But I would like to say that the Boxer migration we do now is the last big customer movement that we're doing at Tele2. We are now almost out completely of DSL businesses, legacy business like that. We have been through a prepaid registration that has been a big job. And of course, we did the migrations now when we moved customers to one consumer IT platform and now we do Boxer. And then it will be easier to keep the focus on the business and not have these disturbances from migrations. But clearly, there is a cost saving element from shutting down a legacy high energy consuming terrestrial network.

And just slightly commenting as well. So what the savings that we've seen this year has been largely when it comes to the reorganizations that we made and also a lot through the network optimizations. And some of this will also have an impact going forward, but to a much lower extent. So what we also talked about as part of the SEP program, Strategy Execution Program is also the B2B transformation, digital transformation. So that's one part that we are looking forward to in the coming years. And of course, the sales channel optimization that you were also mentioning, but that's actually more towards the end of the program. So basically, as planned, I would say.

Got it. Can I perhaps just follow up on the Boxer migration? Where is the churn impact coming from? Because I guess, if you -- I mean the customers at the back end are being -- have already understand been moved or at least they have the opportunity -- or let me rephrase that. So I understand that they have access to the new platform already, right? So is it that come the end of the year, most of these customers might realize that they're paying for something that they don't want and therefore -- or that they weren't consuming and therefore, shut down the service or something? Or I mean, just trying to understand why you would be expecting a churn impact?

Sure. Usman, so first of all, it is -- as Kjell mentioned, the Boxer base and the Boxer network is the -- I think the last big legacy move that we're doing. And this part of the customer -- this part of the business has been declining year-after-year. So this is not -- so there's inherent decline in this business to start with. We're now moving them to OTT, which we can see, and you've seen that our cable and fiber business has -- we have been able to stabilize that with the modernizations we did on the portfolio. So we do believe once customers move over to OTT and a new viewing experience, it inherently is better for retention. And that is actually what's happening. This has been happening throughout the year. So first of all, the Boxer base is declining throughout the year like it has done any year. But now with the migration, we've been moving customers over to OTT. And underlying, we already see, once they're on OTT, the retention rate is anyway much better and also the NPS we're getting is way better. Towards the end of the cycle now, there may be some customers, right, that either choose to move, either choose to, for example, only move to the free-to-air part of the terrestrial distribution that still will be ongoing because ours is a pay TV part. But that will, of course, very severely limit the number of channels they have to 1 or 2 public channels. So may be a cohort of customers making that choice, and that's where we are. So it is a declining base. It's managing the legacy. It's driving, of course, the cost efficiencies for us into our SEP program, and it's basically moving to our modern platform by which we have an inherently better viewing experience and also retention rate.

And I think we can say that many -- some of these customers are also relatively elderly people, who may not have the best of coverage where they live. So that is an element that plays into it. And we can cover that maybe with mobile as we build out. So there are -- we have to help the people in their transition, so to speak.

We will now take the next question, and the question comes from the line of Adam Fox-Rumley from HSBC.

I have 2, please. The first one was an operational one on consumer. And I guess, your aspirations to be digital first down the line. I was wondering to what extent there's a customer education element here. And to the extent there is, what's necessary to help them kind of drive more of their business digitally. You didn't mention any kind of app or anything like that. Is that some kind of engagement by that process, something on your agenda? And then the second question was on AI in telecoms and your customer insight, which I think you mentioned in the presentation. I guess, I'd love to hear you talk about the balance between partnership and in-house development there. I was wondering if Tele2 needed to work more closely, say, with one of the larger telecoms groups to get more access to the relevant data centers or whether or not you can do that all in-house.

Yes. Adam, good questions. The -- so on digital first, we can see that when we offer the right digital channels to our customers, that customers do very much use that. So it's not a question of overcoming that much. It's more a question of us being able to sort of present the right digital touch points to them. You can see that, for example, if you look at Comviq versus Tele2 in channel mix, we have a very much highly driven digital channel mix for Comviq, and we still have a lot of opportunity for Tele2 to get there. But given that we have not been able to present the right digital interface, we, of course, see that there's still an opportunity that we need to cater for. And that, of course, also includes the right platform, which, given that we're increasingly and predominantly mobile has to be app-based. And that is all part of the next steps we're taking now that we're on one full IT stack and that we can move forward into really moving the investments into the customer-facing part. And then on AI, definitely, of course, it's a buzzword anyway, but it's also something that is absolutely that we're working on. It will take a number of steps. It starts with having our data, our customer data at our fingertips fully and our data analytics there. And we have, of course, moved quite a bit already in NBA and NBO, and these sort of platforms. But to make them fully AI-driven is the next step. And for us, just to give you a little bit of color, the first step we're doing now is basically on the customer support interface. So our chatbots that we have been sort of working on and that are now fully in production for Tele2 also, they are in a first step now becoming, first of all, hooked up to all our back end so that they can be personalized, but they are also starting to get elements of AI into them. So -- and there's a whole road map that we need to unveil and build, but that was also what Kjell mentioned before that now we can really move the whole sort of approach and investment cycle into the front end, into that customer interface and making that more relevant, more digital and more personalized.

And of course, now when we are -- approach -- seeing the end of the main 5G rollout, we will do the earlier stage of AI that is not so fancy as generative AI or general AI, but we will do much more automation of how we're running our networks. That is clearly in our plans. And we are comparing those with other telcos to see where we can learn and where we are good. So we have interactions, of course, also with Iliad and Play, but with others. So we are actively collaborating with others to speed up.

We will now take the next question, and the question comes from Viktor Hogberg from Danske Bank.

So Kjell, now when you're passing the torch reflect on the years now, as CEO of Tele2, anything you would have done differently? If so, what and why? And also, just what you think have been the most important parts during your time as CEO? And then, I have a follow-up on that.

Okay. Well, my mother thinks I'm a patient person and she's wrong. But -- so when I look back, I'm always looking at what could we have done faster because your -- speed is important, but accuracy is also important. And that's why we have worked a lot with, first, the strategy, then the values and then to build the culture. So if we had gone -- if we had gone at full speed just after formulating the strategy, the organization wouldn't have been able to keep up with that. So we would have to take it in steps. And I'm very pleased to see that the value-driven culture that we are developing here, which is more about precision and it's more about value, a bit less about volume is paying off. That is one of the key reasons why we've had growth for many quarters in B2B and also Hendrik and his team has turned B2C back to consistent growth. It is a question of accuracy and having a clarity of mind. So I'd say almost in any company to work on the culture is super important and be clear about where you're headed. But I will probably never be satisfied with myself about if we did this fast enough. And then your follow-up.

And a bit more detail, short term. Free cash flow, we are thinking interest paid. Given the amount paid now year-to-date, any changes to your full year expectations given the rate moves we've seen, just a short-term comment about Q4 basically.

You mean, whether the interest rate moves would impact our free cash flow in the fourth quarter?

Yes. Given the -- I was positively surprised in consensus as well by the low amount in Q3. And just what to think about the Q4 number, the full year number basically.

Yes. So I can take that, and it's more timing. So we have a seasonality when it comes to the interest payments in the year. So it's expected from our point of view, Q3 is usually always lower than other quarters [Technical Difficulty] at least in Q4. Yes.

We will now take our final question for today. And your final question comes from the line of Siyi He from Citi. Hello, Siyi He, is your line muted. Hello, Siyi He. Due to no response, I will hand the call back to Kjell for closing remarks.

Yes. Okay. Thank you very much for joining us today to go through the development of Tele2 in the third quarter. I think we're showing again that we are able to grow in a challenging environment. And I'm hopeful that as we progress with interest rate reductions and a better GDP growth environment, maybe we can see even better performance over time, although it's going to happen gradually. And of course, I would like to thank you, who have been on these calls with me. This is my 17th quarterly call for your questions and your support and sometimes tough questions, which is fair. That's what you're doing. I will see some of you today and also tomorrow on the roadshow. To those that I don't see, once again, thank you very much for following us, and I'm sure that you will have interesting discussions with the team also going forward. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.