Downgrading Tele2 to No Moat From Narrow; Fair Value Estimate of SEK 120

Tele2 is Sweden’s second-largest player in the mobile and broadband markets. Although Sweden’s consumer market is relatively stable, we expect Telia, and not Tele2, to be the main target of any pressures coming from Telenor or HiG3. Telia is by far Sweden’s most expensive telecom provider, with prices 15% to 30% higher than peers in mobile and broadband, respectively. Tele2 executes moderate price increases every year, which customers seem to accept, but the pricing gap with Telia is still large. We therefore expect Tele2 will maintain or slightly grow its subscriber numbers steadily, while it moderately increases prices.