Telenor ASA: Presentation on Myanmar

Company: Telenor ASA Conference Title: Presentation on Myanmar Presenter: Meera Bhatia Date: Monday 10th February 2014

Meera Bhatia: Good afternoon and welcome to Telenor’s Presentation on Myanmar whether you’re present here at Fornebu, listening on the phone or watching this via webcast. My name is Meera Bhatia and I have the pleasure of guiding you through the presentation today. I would like to point out that we will present our Fourth Quarter Results on February 12 th on Wednesday and hence all comments today will be focused on Myanmar’s operations and so I would kindly ask you to focus your questions on that operation as well.

I hope you all have a copy of our presentation. The material is available on our website. There will be a Q&A session directly after the presentation, firstly from the audience and then from our phone participants. I would kindly ask you to limit yourself to one question and a few follow- up questions if needed. We aim to end today’s session at about 2 o’clock and after the Q&A there will also be the opportunity to speak to our executives.

To present the update today we have our group CEO Jon Fredrik Baksaas; and Telenor Myanmar CEO Petter Furberg. First I would like to leave the floor to Mr. Baksaas.

Jon Fredrik Baksaas: Thank you Meera and also good afternoon from me. This is a presentation which we have been looking forward to for quite a period of time, really to be here and to say that yes, we’re taking another step in Asia. We’re ready to go, I have to say that after a long period of preparation and formal work and we are ready to go and that is what we’re going to talk about today.

Petter-Børre Furberg who is with us on this presentation here in this studio this morning, this afternoon, he is also eager to get started and he has a team of 200+ people in Myanmar which is ready to go on this new project for us in Asia.

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Let me then take a little look on the history first. Telenor is a long standing operator in Asian environments for many years. We started as many of you will know in Bangladesh as long back as 1996. GrameenPhone has developed in what one can say a pretty similar market setup as the one in Myanmar from zero in 1996 to a very visible and a number one operator in Bangladesh offering modern telecommunication services to the whole of the country and engaging soon 50 million customers in Bangladesh. It has also grown to become one of the most visible companies in Bangladesh as a country, but beyond that it’s what telecoms brings that is the important question here because GrameenPhone is probably the most important and most visible example on what connectivity brings to a society and what kind of development that comes with it and from zero in 1996 we are in GrameenPhone the number one contributor on many aspects in the Bangladeshi society and in a way this industry has the power, the strength, the possibility to develop accordingly also in Myanmar when we now start on this new project.

In addition to Bangladesh of course the other operations that came some years later, firstly Malaysia in 1999 and Thailand the year thereafter, all these operations have developed into competitive, profitable, strong companies in their competitive environment. Then we entered Pakistan in 2004 after a pretty similar license competitive sequence as we’ve had now in Myanmar. In Pakistan since 2004 we had developed into the number two position with also 30 million plus customers, also serving the market with other services that comes with telecoms, most prominent and most visible the financial service setup that we have in Pakistan.

Now the time has come to Myanmar. Myanmar is a country of a very similar social setting, economic development as we’ve had in neighbouring countries and with these kinds of features and experiences that we have earned in the group through the years we believe that we are fit for also the development of the telecoms sector in Myanmar. This is what it’s all about. It’s to build a digital future for the people and the customers that we will engage with in Myanmar, this picture from Bangladesh, this will also happen in Myanmar.

What is this digital future? It is the ability to take part in the future. The world goes digital and while that is happening Myanmar has been standing still on this aspect, on modern society to

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build up. Now the time has come to Myanmar in order to also participate and pursue the journey to a digital society, the way we know it in our countries today. Here we are talking about opportunities of getting access to education, information, whatever there is that the net brings with you. Also in simple terms what we are coming from, namely that of people doing regular communication either by voice itself or by SMS or by other social media. So here we are embarking on what we take for granted in our societies. This is going to be built from scratch in Myanmar and 60 million plus people is actually waiting for this and one can also say that the industry is now mature, much more mature than when we started in Bangladesh in 1996. Concepts have moved into becoming much more industrialised. Vendors and vendor technologies have built capacities over the years, so in a way there will be the most modern, most efficient network operation that we probably have built, the way we’re going to do it in Myanmar.

It’s an opportunity, yes, but this opportunity is also of course associated with a lot of risks which I will come back to. It’s probably one of the last greenfields that we can envision for ourselves and it’s a sizeable market. The GDP per capita is at par with India, Pakistan, Bangladesh, so we are working in an environment that we are used to and we also claim that over the years we have both won and established competencies in the group from this 15 years kind of journey in Asia, different from many other telcos from other parts of the world that also tried to go for Asia in the 90s. We are now as Telenor Group when we get Myanmar on board covering a population of more than 1 billion people and in this setup of course there are some scale effects that comes from having been there for quite a while that will be utilised now in Myanmar, so we believe that we can leverage these competencies. We believe we have the capacities on board to handle this new market and to start the rollout immediately now when the license formalities is confirmed.

This was a competition also getting to where we are today. More than 90 interested parties took part in the initial listing for this process. Eleven companies were shortlisted to the final round and there were two winners, two licenses available in that process. The government was drawing up a pretty tight timeline for this process and they managed to run the process according to that timeline. They got a couple of months sliding now in the closing part of this on

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formalities on license, however we cannot say that the process as such has been delayed. They have stuck to the process in a very transparent and level playing field setup. The criteria were a combination of rollout criteria, what kind of services will you deliver and that we deliver them at affordable prices: again being able to deliver these kind of services to the whole of the population in the same way as we do in other markets. Then we need efficient operations and we need affordable prices. This will be a low price prepaid market, that’s for sure and we have operated in that kind of market environment for many years already.

The final license award happened just some few days ago and here we see Telecom Minister Myat Hein delivering the license proof to Petter Furberg who is then the CEO of the operation. It’s at 900 megahertz and 2.1 megahertz spectrum setup. That’s the technology neutral definition on it and it has a 15 years duration but with something which is a new feature for many licenses, it’s renewable for another 15 years after the first 15 years and the spectrum fee for the renewal period will be dependent on the market size in the last three years of the first 15 year period. In the Telenor Group we look at this as a peak funding project of $1 billion including the 500 million license fee, financial license fee that we have put into our bid which is a combination of 50% up front and the other 50% payable after two and three years.

So the peak funding here is 1 billion and we will base our rollout upon deep cooperation with tower companies and other suppliers that will deliver both IT services and rental services as much as we can. This way of operation will then also give us the ability of getting a very price efficient operation, cost efficient operation which will give us affordable prices to the market. This is a 100% owned Telenor Group initiative. We don’t rely for the time being on local partnerships. It’s our experience that in such a start-up we feel that we are better off starting with one interested party around the table.

There are many risks associated to entering a new country and in particular for Myanmar is that the institutional capacity in the country given its history is quite weak, so in parallel with moving on with this rollout there has also been a long period on institutional building which is not finished. This will be ongoing. Both we and other operators and players in the industry as well as international institutions are working in cooperation with Myanmar authorities in order to build

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these institutions over time. The legal framework is the same, their telecom law was just launched last year and all regulations attached to the law is not necessarily finished at this point in time and again there will be dialogue between industry and authorities to formulate and delver these kind of things.

Telenor has a very strong platform for codes of conduct where anti-corruption attitudes have been very clearly spelled out for as long as I can remember because we formed it as early as 2002-2003, of course with all necessary revisions and given the license process, a high degree of transparency and dedicated willingness to take decisions upon what was given in the license process, the license process where we are now fully meets with these standards.

More domestic issues that have been mentioned as risk factors are the land issues. The land registry in Myanmar is very weak. The question on ownership to land is something that really people are concerned about. We will do our utmost to understand what is available on land registry from history as well as work with local authorities in order to find where the base stations are to be set up. In this setup we must also remember that we bring a kind of market as well with us because there will be activities indirectly coming in addition to being direct in our investments in the market. There will be a lot of indirect effects where we will create markets for people to serve. That goes both for constructing the towers themselves as well as in the logistics of getting it done as well as bringing energy to these base stations over time which is a pretty important logistical exercise. Moving that grid from a traditional point of view is not available. Only 25% of the population is considered to have regular access to electricity and this is again something that we are used to to the extent that you could say that we have been through this both in Pakistan and Bangladesh and India for that matter, however we’re working also with other operations over the issue because the problem is similar to them. So power sharing and sharing of necessary resources in this will be part of the picture.

Health & Safety comes then as a natural factor for us to address so that also we can develop over time an understanding for these elements also among suppliers and with the history that we have in Telenor in these spectrum before I think we are as prepared as anyone for this also

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in this country. That doesn’t mean that everything will be 100% from scratch – here we also probably have to learn on the way.

There is also a peace process ongoing in Myanmar. The President has been working very, very consistently on a plan to achieve permanent peace among the different areas and regions in the country and this concluded in a long process this autumn which also concluded a final product. All pieces are not in place on that so there are still areas that will have certain conflicts embedded. Here we have to work with local government and central government in order to address also these kinds of issues and I am pretty sure that there will be some events going forward in this or that format, but again I think we are in the Telenor Group reasonably both proactive and reactive when things are potentially happening.

Overall high engagement with our people on the ground in Myanmar, ready to go, ready to start up a mass market approach where everyone is going to get the potential offer after a while. Remember to start today doesn’t necessarily mean that 100% of the population will have connectivity tomorrow. It will take some years and as Petter will tell you afterwards we have a break-even ambition on EBITDA after three years. He will tell you more about these details.

Distribution plays a very important role. This is a prepay market. Communication is bought where people are. We need to be present at street level where people do other things and last but not least the lowest cost operation is a necessity in order to create the affordable rates for connectivity, for voice, SMS and internet access. The potential to go in in a new country with 60 million people in an area of the world where we have been working extensively from before and to participate in making connections happen to 60 million people, this is really something we have a high degree of engagement for and really want to pursue. Actually I envy Petter who is going to do this as his main responsibility for the coming years, so Petter, the floor is yours.

Petter-Børre Furberg: Thank you Fredrik and good afternoon everyone. My name is Petter Furberg and I have been given this fantastic job in Myanmar to lead our development of Telenor in Myanmar, so let me start with the country. Myanmar is one of the largest countries in South East Asia. It’s actually almost twice the size of Norway and for those of you who love geography

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it’s actually 200 kilometres longer than Norway from south to north. The population is estimated to 60 million but there are a number of different estimates but there is no precise number as of today and the government is running a census which we expect will come out this year.

The country has a fairly young population, so 45% of the population is younger than 25 years and the majority of the population is living in rural areas. 40% of GDP is estimated to come from agriculture and forestry and the sector has huge potential for efficiency improvements. By normal GDP measures Myanmar is a very poor country and Fredrik mentioned it too, the GDP is at around $800-1,000 per capita which puts it close to Bangladesh, however Myanmar is very rich in natural resources and has huge potential for efficiency improvements which creates the opportunities and the optimism by many international investors.

However the biggest challenge for most international investors moving into Myanmar is the under-investment over many years in infrastructure. The basic infrastructure for instance related to transport is quite massive. We see that poor connectivity beyond the 20 cities. We also see that in the monsoon rainy season, approximately 50% of the roads are expected to be unusable for normal purpose, so if you look at the range from Yangon up to Mandalay, we will find pretty good roads, but beyond there infrastructure is very poor.

Electricity is the second area which is also under-developed. Roughly 25% of the population is estimated to be connected to the grid and the production capacity is very weak. As of today the World Bank is estimated that the demand is exceeding their production capacity by 100% which is leading to frequent outages and also rationing of electricity.

In addition to these more physical infrastructure problems we are also as Fredrik mentioned observing a problem or lack of capacity in the government to process normal approval processes which we will face for instance in the building permits. This is something that the government is addressing sector by sector and we see that particularly in telecoms where we over the last year have gone through the licensing process and also the development of new telecom laws and new regulations.

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The economic and political process that is ongoing is expected to drive a fairly strong GDP growth over the coming years up to the new elections in 2015. The political reform process is encouraged by the international community and as a result of it most of the international sanctions have now been removed. In parallel the government has encouraged foreign investments through new foreign investment laws and sector specific initiatives like the one we have seen in telecoms happening over the last year. In addition we are now seeing that the financial sector is being reformed. Last year a new Central Bank law was passed and this year we’re expecting the government to pass a new financial institution law.

The mobile market is by all standards underdeveloped. As of today we estimate that roughly 10% of the population...of 10% penetration which has been limited primarily for two reasons. One is investments that have happened through the state owned enterprise MPT has happened on multiple technologies. As a result of that GSM today only covers roughly 60% of the customers in the market. The second reason is that SIM supply has also been limited which has driven up the prices of SIMs to a level of around $150-200 per SIM card.

So what happens in the market today is that we are moving from a monopoly to a competitive environment where the two new foreign players, Ooredoo and Telenor, plus a potential fourth license will drive competition in the sector. The ARPU levels that we are observing today which are again estimates based on the current operator in the market are therefore artificially high. We believe that as competition and penetration is growing, ARPU levels in Myanmar will be at a similar level to what we are observing in other Asian markets of the same GDP level.

A little bit about the regulatory process that we’ve gone through and the state of it. The process has been and the regulatory framework has been developed with the help of foreign consultants and with the support of the World Bank. The license and the license awards and the negotiation process was run in cooperation with a well-known international consultancy firm; while the World Bank has supported the development of the telecom law and the telecom rules. The telecom law was passed by the parliament and signed by the President in October last year and the telecom rules which are built on the law were sent on a public hearing in

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November/December last year are currently being reviewed by the Attorney General in Myanmar and are expected to come out shortly. We do not expect any material effects or any material changes to the rules as the drafts we have seen due to the Attorney General process. The telecom rules are covering very important areas like competition regulation, interconnect regulations as well as licensing of infrastructure companies like the tower companies and fiber companies.

Finally Telenor also as part of this process in addition to our telecom license has received a foreign investment license which allows us to be a 100% foreign entity in Myanmar.

The mobile market is expected to grow rapidly based on the reforms that I’ve talked about and based on the competition, so it will be stimulated by us reducing prices on simcards and services. It will be stimulated by the increased competition and it will be stimulated by the fact that we are increasing the coverage and also widening the distribution reach of people. Since Myanmar is starting this mobile race slightly later than most other markets in the world we believe that the development of internet and internet based services will happen in parallel with the uptake of more normal basic voice services and we believe that data as such represents a significant upside in our business case.

Then quickly back to what also Fredrik mentioned as our strategy to become the market leading in this market and it’s built very much on the experience that we have from working in Asia for the last 17-18 years. We have focused on a very simple mass market offering. This is as Fredrik said a prepay market and our core offering will focus on attracting the mass prepaid market. We know that distribution is crucial in terms of reaching the customers and we’re building a strong distribution machine based on the experiences from other Asian markets. To maintain a long term, sustainable business model in a market which will experience fairly low ARPU levels we are focusing on building a low cost operation.

We have committed to launching our services within eight months from receiving the license and we will reach the mass market through offering affordable voice and data services. We will use 2G and 3G to offer these services. 3G will mainly be focused on the heavy data traffic centric

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areas which is typically the cities and villages while we will use 2G to give us mass coverage in more scarcely populated areas.

One of the most important factors for driving the uptake of mobile services in Myanmar faster than what we have seen in previous rollouts is the fact that handset prices have come down significantly. We are expecting the handset prices in this market to be around $10 for a basic feature phone and down to $35 for basic smartphones and this is not including any subsidies.

As I said distribution is crucial. To reach the mass market we believe that distribution through independent retailers is the way to do it. Independent retailers means mom and pop stores and it’s crucial for Telenor to be the preferred partner for the mom and pop stores and the small shops across Myanmar. We will at launch reach around 25,000 points of sales and this will grow through the rollout of our network to around 100,000 top-up points out of which 70,000 roughly will be selling simcards as well.

We have a so-called single layer distribution model which we have developed in our Asian markets and is proven to those markets. It includes a direct relationship with the retailers to ensure that we are paying them on time and we are paying them correctly and it’s based on systems and technologies which we have developed among the Asian companies over the last few years.

Low cost operation is critical for us to be able to sustain a profitable business model in Myanmar and we are trying to focus our services mainly on what we are best at which is sales and marketing and we are outsourcing as much as we can beyond that. We will outsource IT, our IT model is based on the same as we have in Uninor. We will outsource powers including energy to tower companies. We will outsource managed services and we will outsource call centres and because of this we believe we will be able to keep a capex light model and still a long term opex to sales ratio similar to what we see in other Asian operations, but because we are using tower companies you can also see that tower lease becomes a significant part of our opex in this operation.

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The regulator and the government has encouraged passive infrastructure sharing. Under the licence it’s also permitted with active sharing, but that’s requiring additional approvals, so as of now passive sharing is allowed and is encouraged and Telenor is supporting it. We believe that in Myanmar we can avoid making the same mistakes that we’ve done in many other markets where we have been building multiple towers to cover one particular village. It will be good for the country because it will secure a faster roll-out, it will secure lower cost overall and of course it is significantly better for the environment.

We have signed up as of today two tower companies. We have network vendors who are Huawei and Ericsson and with their support we are expecting to cover 90% of the population within the five year period. As I mentioned earlier rollout will be based on both 2G and 3G technologies where 2G and 3G will be used in the heavier traffic dense areas with a high probability of smartphones and then 2G will be used in more remote areas. The backhaul in Myanmar will be based on a combination of microwaves and fiber. There is a limited build-out capacity today on fiber, then the beginning a significant portion of the backhaul will be based on microwave.

To support the overall thinking of a lean operating model we are also having a very lean organisation because a lot of functions are outsourced. We have picked the management team which has a broad and long experience in Asia and we are already around 200+ people employed in the organisation. Long term we expect to be around 1,000 directly employed under Telenor Myanmar whereas we will have around 2,000 indirectly employed through our outsourced partners.

Myanmar is a challenging market with respect to competency as the university system has been underdeveloped for many, many years. We are still receiving a very high number of applicants. Up until now we received more than 10,000 applicants for the positions we have posted and we are using ex-pats actively for the first two years to teach and train our Myanmar colleagues so that over time we can go down to a number of ex-pats in Myanmar similar to what we have in other markets in Telenor.

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Our financial ambitions. We will be EBITDA break-even three years after the licence awards. We have talked about the capex light model based on tower sharing and outsourcing and the peak funding will be around $1 billion including the licence fee. Long term cash flow margin is estimated to be around 30%.

As we have pointed out investments in Myanmar represent a solid business opportunity for Telenor but it’s not without risks and I will touch on some of these risks. Key risks are among others the development on the political front towards the elections in 2015 including also the peace process as Fredrik mentioned. There are also more normal market assumption risks related to the ARPU, the currency and the competition but maybe more specifically to the Myanmar market is the network rollout risks particularly because we are basing the whole model on tower sharing and a heavy reliance on tower companies’ ability to deliver in a market where there’s limited sub-suppliers today.

The two specific risks that I would like to point out when it comes to the tower companies’ ability to roll out is the fact that they are requiring a tower licence which will be regulated by the rules as well as the fact that once we start rolling out we are dependent on local governments across the country to be able to process building permits at a very high speed. Those two factors are factors which potentially could slow down the rollout. If it does slow down it could affect performance bonds which is covering up our licence in Myanmar. It’s a $200 million performance bond which is related to coverage requirements as well as quality requirements under the licence. The performance bond will be stepped down year by year as we meet the rollout requirements and will therefore be smaller and smaller. If for certain reasons Telenor is unable to meet its rollout requirements the government can draw on this but there is also a clause in the performance bond which gives us the opportunity to the extent that it’s outside Telenor’s control to claim that we have made best efforts in achieving the rollout requirements and as such can avoid a draw-down under the performance bond.

In summary Myanmar represents a unique opportunity in a core Telenor region. We are leveraging Telenor’s experience across Asia and re-using concepts in Myanmar. We have a very

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clear mass market strategy and we are building a low cost operation. In summary it’s a solid business case with a limited financial exposure. Thank you.

Meera Bhatia: Thank you Petter. Could I now invite Fredrik back to the stage please and we will now be opening up to the Q&A session. We will start with the audience present and a microphone will be handed out to you.

Espen Torgersen: Espen Torgersen, Carnegie. I have two questions. The first question is on pricing and price strategy. Obviously I know you’re not going to tell us exactly how you’re going to go to market but in the past we’ve seen different strategies and I’m just wondering, since mobile data is fairly new in the greenfield and there’s a lot of focus on mobile data monetisation if you could give us some thoughts relating to that? The second question relates to the rollout requirements. Is it correct to assume that you will not under any circumstances invest in towers?

Jon Fredrik Baksaas: Let me begin on that Espen and then Petter can fill in. I think you pick on a pretty important aspect because here data will be more visible in the first or the initial stages of this rollout. In the previous greenfields that we’ve done then voice and SMS has been the first driver for services being promoted; whereas this one I think the internet based services have now matured to find its way also to the Myanmar market earlier and more in parallel with voice and SMS than sequential. That doesn’t mean that the market basically will be ready to go to 4G, the question also why don’t take 4G in the first leap year? We don’t believe that the broader part of the market is ready for that service level already now, not to mention the fact that handsets in that category doesn’t play at this price level to find the affordability. So the data will definitely be part of the initial service offering, more visible than what has been the case in other markets. Number two and again top down, of course we will probably also own some towers ourselves but the big majority of this will be a joint effort. It’s only natural I think that the very first period from now on until launch will be done more on own infrastructure and then you pool it at a later stage and you can elaborate Petter.

Petter-Børre Furberg: I probably won’t go in too much into details on the pricing strategy as such but I can since as Fredrik said we are foreseeing that this will be a combined data and voice market

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growth but where a significant part of the population probably will still go for very basic phones, we will have to cater for both the smartphone market with types of bundles as well as the more classical basic phones which will be much more voice and data and basic CPA oriented services. So I think you will see data pricing which will include bundles and voice and data bundling specifically for the smartphone market. You will also see a lot of bite-sized type of pricing for data concept which can be either on an hourly basis or related to specific services. I think for data and voice services that’s the combination you will see. A follow-up on the comments regarding the towers too, it is clearly our ambition to avoid setting up our own towers also because it complicates the picture in the future when you are trying to then offload the balance sheet and give it away to the tower company and it seems like a competitor has a fairly similar approach to it, so our hope is that this market with potentially now four players rolling out very rapidly in the next few years that we will be able to avoid the mistakes as I said that we have done in most other markets where we were building multiple towers next to each other.

Meera Bhatia: Thank you. Any further questions?

Christer Roth: Thank you, Christer Roth from DnB. Just a few quick questions. When you say capex light, could you please explain that in terms of for example capex to sales over the next 3-5 years? Also when you say that the long term ambition with respect to the operating free cash flow margin of 30%, does that entail some time after you’ve reached the 90% population coverage five years from now? Thirdly in terms of the obvious population clusters which are present in Myanmar, could you say something about how the build-up or rollout of infrastructure is really going to be in terms of population coverage overall? It’s probably not going to be linear; and fourthly and lastly the connectivity or electrical connectivity of only 25% of the population, does that entail that you will be selling solar chargers with the handsets?

Jon Fredrik Baksaas: That was a whole set of questions. Capex to sales, I think it’s too early to say what capex to sales will be 2-3 years from now. The first milestone here will be the EBITDA break even three years after we receive the licence, so actually three years from now. I think that would be the first layer. On the other side if you look at what goes on in India which is a similar operating model where the sourcing from partners both on the IT side and on the tower

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side should probably give an indication of how these things might look like in a more mature phase, but then also in three years’ time you will have a development on technology, so things might change. When you say 30% operating free cash flow, yes, that is five years plus. This is a long term ambition when we are there so to speak. If you look at it, when we were doing Pakistan in 2004 and we were thinking ten years ahead which basically is 2014, we wouldn’t have been able to answer the profile of your question back then, but now we see after ten years it’s a mature market, 4-5 players there and an operation that has good financial metrics. So this is of course something that we are looking to also for the coming ten years, knowing that ten years seems like an awful lot of time. You can continue Petter.

Petter-Børre Furberg: Coverage strategy, yes, we are of course going for the population first. The challenge in Myanmar is that there are generally very weak population maps and they are counting the population now but that is of course the main objectives. In the first 1-3 years you will see that it is really about covering a lot of populated areas. As we are moving out there will be less and less populated areas of course covered under the requirements that we have from the government. The government also has very specific requirements under the licence with respect to covering all the states for instance and certain roads and economic hubs as an example. There are city requirements etc too. Electricity, I think the biggest challenge for us is actually electricity for our base stations and we will to a very large extent have to use both solar and the diesel backup for the sites. I think for the general population they will find ways of charging their phones if they can afford to buy a phone and a very good quality solar panel for a household in Myanmar would cost around $300 and they can go to the neighbour and charge as well. There will be a market development I’m quite sure.

Jon Fredrik Baksaas: This will also be the market that we will probably have the highest factor of solar based base stations compared to both Pakistan and Bangladesh where we have set up before and that kind of technology is also maturing. I have always challenged the vendors to come up with the first energy neutral base station where the base station takes care of itself and why not? It’s possible, there’s both wind and sun out there and then suddenly electricity is the backup, not the diesel.

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Meera Bhatia: Just one follow-up question please.

Christer Roth: I’ll limit myself to the one follow-up. The financial services, could you say something about what the future holds in Myanmar for that?

Jon Fredrik Baksaas: I think that financial services, the way we know it both from Pakistan, Bangladesh and for other cases around in the world financial services will be early in this one; however there are no whatsoever banking facilities for customers at the countryside, so you can only think of the opportunities that comes with a similar concept of what we have in easypaisa , in Pakistan. There are different regulations on telecoms and banks in Myanmar compared to what is the case in Pakistan, so there will probably be a different entry mode for that; but yes, financial services in the form that we know it from easypaisa will be part of our service offering early on. Not from day one, but from early on.

Meera Bhatia: Are there any further questions from the audience? If not could I kindly ask the operator to open the phone lines.

Operator: Thank you. If you would like to ask a question at this time please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. We will take our first question from Nick Lyall of UBS. Please go ahead, your line is open.

Nick Lyall: Good afternoon, it’s Nick Lyall from UBS. Could I ask two please? Could you tell us initially what your agreements are on interconnect and roaming with the MPT please just so we can try and work out some costs for calls off-net? Then secondly it’s a slightly odd relationship with the government still involved so are there any plans for the MPT and the government to exit that entity at any point or how do you safeguard yourself against the government making sure it maximises its profits and minimises yours in its government entity? Thanks.

Petter-Børre Furberg: With regards to the interconnect regulations they are all covered by the rules which are then as I mentioned being reviewed as of now by the Attorney General. The principles

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that interconnect regime will be based on is a cost base interconnect regime and negotiations are about to be started with MPT and their regulator in this respect. MPT will be forced to open up and as I said on a cost base principle. The exact rates are not known as of today, they will be resolved in the negotiations.

Jon Fredrik Baksaas: How can we avoid being ripped off? That was the question via too high interconnect rates or whatever. As we have known it from other markets, Norwegian for that matter. There are no guarantees on that, however the consultation practices and the process leading to the licence conclusion, it has been put up in such a way that we feel that this platform for dialogue is quite good. Does that mean that we are in a way, do we have a life insurance premium against what you pointed to? Not, we don’t have that, with two operators with new international licences being the frontrunners on foreign direct investments to a country also have some leverage to play in that respect.

Petter-Børre Furberg: I think it’s also important to remember that MPT has a customer base of around 7 million today, so unlike many other markets where the incumbent was very dominant, they are not in Myanmar and as such the power in such a situation is also significantly low.

Nick Lyall: Thank you.

Jon Fredrik Baksaas: Ok Nick, thank you.

Meera Bhatia: Operator, next question please.

Operator: We will take our next question from Thomas Heath of Handelsbanken. Please go ahead, your line is open.

Thomas Heath: Thank you, Thomas Heath here with Handelsbanken. Two questions if I may. Firstly you mentioned 1,000 base stations at launch and then 5,000 within a few years. It seems quite a lot given you’ve got 500 million to spend on capex and opex altogether and I just wanted to cross- check if you’ll be using delayed payments to circumvent the peak funding along the lines that

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you’ve done previously with the licence costs in India? Then secondly you compared to Bangladesh for price levels. Do you foresee a low entry point in the market or will we have a transgression because looking back at old price levels in Bangladesh, they started out quite high as well? Thank you very much.

Petter-Børre Furberg: In terms of if there’s any tricks behind our peak funding? No. The DTSs are as I mentioned close to 8,000 by the end of the rollout period but it is a capex light model because we are going with power sharing for the entire number of sites. In terms of the prices we have committed to a certain maximum price for voice services etc. These prices are actually fairly high as of today relative to what you observe in countries like Bangladesh and India.

Thomas Heath: A follow-up if I may: is it possible to say anything about what sort of share of the peak funding will be going for mobile infrastructure? Thank you.

Petter-Børre Furberg: I am not in a position where I can give you any more numbers than what I have given in the presentation earlier.

Thomas Heath: Ok, thank you. That’s clear.

Meera Bhatia: Next question please.

Operator: We will take our next question from Jakob Bluestone of Credit Suisse. Please go ahead, your line is open.

Jakob Bluestone: Hi, I’ve got two questions as well. Firstly just on the tower companies, can you talk a little bit about how your payments to the tower companies evolve? Presumably they start low and there’s a payment per site as they roll out or on what basis do they grow? How geared is it into your own revenue growth, the growth in your cost base? Then actually on the towers as well you mentioned two tower companies, is it sort of 50/50 between the two or is one more important as a partner than the other? Then secondly just following on on your comment on price caps just from before, just if you could share what they were with us? I think over the

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summer there were some press reports that it was 25 kyat which is about $0.03. Is that still the price cap in the telecoms rules? Thank you.

Petter-Børre Furberg: The tower companies will be paid on their ability to present a cluster of sites, so we have designed the network in such a way that they will deliver sites that can then be turned on and start generating revenue right away, so it doesn’t help them to deliver individual sites scattered around. We have as of today signed agreements with two companies. They have around 1,000 sites allocated to the first and 1,400 sites allocated to the second. We might have more tower companies. We might also use others in the long run, that depends on their ability to perform. There is no specific price cap other than what we have actually committed in our bid which was as you mentioned 25 kyat which is what you also said approximately $0.03.

Jakob Bluestone: That’s very clear, thank you.

Meera Bhatia: Operator, next question please.

Operator: We will take our next question from Peter Nielsen of Kepler Cheuvreux. Please go ahead, your line is open.

Peter-Kurt Nielsen: Thank you. Just one please Fredrik. In your introductory comments you said you have no plans for a local partner for the time being. Does that mean that you will consider or are perhaps already planning that to introduce a local partner at a later stage? Thank you.

Jon Fredrik Baksaas: I think you have to consider that for the time being as a kind of an oral expression to fill a sentence, so no talks about that.

Peter-Kurt Nielsen: Ok, thank you.

Meera Bhatia: Next question please.

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Operator: We will take our next question from Ranjan Sharma of JP Morgan. Please go ahead, your line is open.

Ranjan Sharma: Hi, good afternoon and thank you for the presentation. Just one question from my side, can you tell us if you have any royalty sharing agreement or royalty fees agreements or profit sharing agreements with the government? Thank you.

Jon Fredrik Baksaas: There is a licence fee related to revenue which is 2%; then there’s also a use of fee which at the earliest will kick in from 2017, but potentially also delayed two more years.

Meera Bhatia: Next question please.

Ranjan Sharma: Thank you.

Operator: We will take our next question from Barry Zeitoune of Berenberg. Please go ahead, your line is open.

Barry Zeitoune: Hi, yes. I’m just interested in your comments that you expect Myanmar to remain a 4-5 player market. If we’re looking at other capex light markets like India it seems that the barriers to entry are often quite low and you can end up with a high number of operators. As Myanmar develops its infrastructure would you not expect there to be low barriers to entry and a far more competitive environment or do you have any kind of assurances that the number of operators will be limited? Thank you.

Jon Fredrik Baksaas: Assurances, you will in a way never get guarantees for how things can evolve; but on the other hand look at how this round of frequencies have been distributed. Then there will not be space for the Indian number of players in the Myanmar market. The Indian structure is as we all know very, very special and it stimulates a high degree of competition in the cities, however it falls out when it comes to create a strong national coverage. What suffers is the coverage really and that is also why India comes out with low penetration all in all compared to

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neighbouring countries, so guarantees are of course not there but the share structure makes it more difficult to think in the Indian way so to speak.

Barry Zeitoune: Thank you very much.

Meera Bhatia: Next question please.

Operator: We will take our next question from Mabay Singh of Morgan Stanley. Please go ahead, your line is open.

Mabay Singh: Yes, hi. Thank you. Just a couple of questions, firstly on ARPU levels you said the current ARPU levels seem quite high, about $11. How fast would you expect them to fall to your expected levels similar to say other neighbouring countries, $2 or $3? In how many years would you expect that to be the case?

Petter-Børre Furberg: I won’t be too specific but I can say that we believe it will happen very quickly.

Jon Fredrik Baksaas: The reason for that basically is that we direct our services to the whole of the population under the solid belief that the mobile phone is at the centre of all individuals really. Now there are 7 billion handsets out there and still 40% of the population of the planet do still not have a regular use of a mobile phone, daily access, and this is what we’re going to do something about in Myanmar – bring as many people as we possibly can, bring them on board; give opportunities to participate in the modern world development and see the economic growth that comes with it both at the micro level and also at a national level going forward.

Mabay Singh: Just to follow up on that, given that you are going to start with data as well and generally data adds to the ARPU, so wouldn’t that be a factor in keeping the ARPU levels a bit at higher levels compared to say other regions?

Jon Fredrik Baksaas: Ideally yes, but here we need to find the balance between what’s affordable services and what kind of handsets are also affordable to the marketplace and it was only when

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the mobile phone in its early days, 2005, 2006, when it hit below $50, hit below $30, reached $25, that was when the whole thing exploded and we reached 7 billion users. Now the smartphone will say take the same development. The smartphone has crossed below $100, below $80, $70. Now we see smartphones in India all in the 20s already and then you can in a way start to think that you have the same kind of development curve on smartphones for the coming years to come.

Meera Bhatia: Thank you. We have time for two more questions.

Operator: Thank you. We will take our next question from Parin Shah of Espirito Santo. Please go ahead, your line is open.

Parin Shah: Hello guys, just a quick question from me. It was interesting to hear about your distribution strategy...

Meera Bhatia: Any questions? Ok operator, move on to the next question please.

Operator: Thank you. We will take our final question from Richard Barker of Credit Suisse. Please go ahead, your line is open.

Richard Barker: Thank you very much. Just a very quick one from me. I just wondered to what extent you gain an economic or commercial or a technical benefit from being present in Thailand and I guess to some extent in India as well? Does that give you some kind of advantage as regards to your business model compared to competitors? Thank you.

Jon Fredrik Baksaas: We hope that the competitive edge that we are now putting into play in Myanmar comes from the fact that we have been in neighbouring markets for quite a number of years, so I hope that Petter is an example of that. You have been in Asia for ten years already. He tried himself out for a couple of years back here in Norway two years ago but you didn’t spend much time to ask for getting back there, so that means that the competencies that are in his head and other colleagues’ heads is what we are going to put into play in Myanmar and to

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bring that into a competitive edge, and then it’s up to him and other guys to find out what kind of commercial offerings that could come from the fact that we also have an operation in Thailand for example.

Richard Barker: Just a follow-up, in terms of infrastructure advantages or perhaps ability to move equipment around the country or anything like that, you don’t see major benefits there?

Jon Fredrik Baksaas: Then you’re back to local competition. Telecoms is a local play. Base stations stand locally, customers are locally, the service offering needs to have a local flavour and that local dimension comes into a kind of national framework, so that’s not where the scale effects are. The scale effects are from the fact that we have a lot of people which have had their first time experience on what is going to be done in Myanmar right now once more before and that’s what’s going to be replicated in an even smarter way I hope.

Richard Barker: Great, thank you.

Meera Bhatia: This concludes our session today. Thank you all for your participation. We also are still available for some comments to the media and myself and my colleague Glen will take lists for the interviews. A reminder: we will not make any comments beyond Myanmar today. Our fourth quarter results are out on Wednesday. Thank you.

Operator: Thank you. That will conclude today’s conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.

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