Annual Report 2007 - Company Description A Review of Our Operations: Eurasia

A new frontier for strong growth but also well chartered waters for TeliaSonera and its majority- and minority-owned companies in Eurasia. Eurasia is one of the world's most dynamic regions where TeliaSonera is committed to continue exploiting growth and creating value for its shareholders. Operating in a more than 370 million people market with strong economic growth and tremendous potential, TeliaSonera's businesses in Eurasia, including Russia and Turkey, continued their stellar performance in 2007. The business area increased its operating income by approximately 28 percent to SEK 10,883 million, driven by rising subscription numbers, increased usage and acquisitions.

In the early 1990s, and long before the merger between Telia and Sonera in 2002, we were founding partners of some of the operations in Eurasia that are now key contributors to TeliaSonera's strong earnings and shareholder return. The excellent performance by minority owned operators MegaFon in Russia and Turkcell in Turkey, the seven majority-owned operators in Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia and Moldova, as well as assets in Afghanistan shows that TeliaSonera, with its vast local and international experience, is a company well equipped to be the leading telecom company in Eurasia.

Executing its growth strategy, TeliaSonera in 2007, added new growth markets to its footprint. The acquisition in July of mobile operator Coscom in Uzbekistan, Indigo and Somoncom in Tajikistan and a minority shareholding in Afghanistan's largest operator, Roshan, added countries where the combination of low penetration, large populations, strong economic growth and weak fixed line infrastructure leaves room for increasing demand for mobile services. With mobile penetration of only 21 and 30 percent, respectively, and a combined population of over 33 million, Uzbekistan and Tajikistan represent a valuable opportunity for rapid growth. Network rollout to expand coverage and capacity and re-branding started upon completion of the purchase and the operators were successfully integrated.

The emergence of a middle class together with increasing real wages, rising local consumption, foreign direct investment and the opening up of regulatory frameworks all add to the development in many of the Eurasian markets where exports of oil and gas are the largest underlying drivers of business activity and the strong economic growth. The share of telecommunications as a percentage of gross domestic product is still low in these countries and represents an opportunity for growth. Mobile penetration in the six markets where we have majority-owned operations ranged between 21 and 80 percent at the end of 2007, while penetration in Turkey was 83 percent and in Russia 119 percent. Increased usage both in the form of customers talking more on the phone and using more non-voice services gives room for continued strong demand in Russia despite high population penetration figures.

TeliaSonera, either directly or via Fintur Holdings, (in which TeliaSonera owns 74 percent), offers mobile services through operators K'cell, Azercell, Coscom, Somoncom, Indigo, Geocell and Moldcell. Being a good corporate citizen, the company is an important contributor to the societies it operates in. TeliaSonera is a significant investor in the region and plays an important role as an infrastructure builder as well as an employer and a tax payer. Being part of the local fabric is a prerequisite for succeeding in the region, in addition to a deep understanding of, and the ability to manage, local culture and keeping strong internal control. Political and economic risk could be a challenge but Fintur and TeliaSonera, with their combined experience and strength, are well equipped to handle such risks, which are outweighed by the opportunities in the region.

TeliaSonera's Eurasian operators offer a wide range of services for voice and data, good quality of networks and services and good customer support. All of them hold strong positions and the two largest of the Fintur companies, K'cell and Azercell, are market leaders in their respective countries, Kazakhstan and Azerbaijan.

The popularity of mobile services has grown dramatically due to larger network coverage; more developed international roaming and value added services and attractive pricing for service and handsets. The introduction of WAP, GPRS and EDGE-based mobile services are projected to be adopted by a wider customer base. 3G services were launched in Georgia in 2007. 3G licenses are obtained in Uzbekistan and Tajikistan and expected to be obtained in Kazakhstan, Azerbaijan and Moldova in 2008. MegaFon became the first Russian mobile operator to offer services in all of the 85 federal regions, after its launch in the Altai region in Siberia in July. In addition, MegaFon was awarded a 3G licence in April.

Targeting the mass markets in these countries, TeliaSonera focuses on younger and low-to-medium income users, by offering prepaid services, high usage subscribers and corporate clients by offering advance pay services and key corporate clients by offering post paid services. Given the demographics of the region, the youth segment was in focus in 2007 with special offerings like youth clubs, special prices and bundles to accelerate growth in the prepaid segment. K'cell launched V-Club, a youth club that has attracted more than one million members and Geocell and Moldcell will concentrate their offers on young users in 2008.

Strong growth obviously means sizeable investment needs. With the very good geographical coverage of the cellular networks in Azerbaijan, Georgia and Moldova, most of the investments in these countries will in the future be related to capacity increases and the introduction of new services. In Kazakhstan, which is as large as Western and Central Europe combined, the situation is quite different and only around four percent of the country is covered by a cellular network.

"There is so much dynamism in this region and industry. Growth in Eurasia is strong. We have a long history here and know how to manage and grow our assets. We are committed to the region and will continue contributing to these societies, and their rapid development. Overall I think the direction is clear - it's going up."

Tero Kivisaari, President, Eurasia

Introduction

TeliaSonera in Society

Financial Statements

Corporate Governance

Additional Information