Swedish mobile operators battle it out in Kazakhstan

By Sven Nordenstam and Olof Swahnberg

STOCKHOLM (Reuters) - A battle being played out in Kazakhstan between Sweden's two leading mobile operators has intensified this year as Tele2 slowly makes up ground on market leader TeliaSonera.

Kazakhstan is Central Asia's biggest economy and while it has a population of just 17 million, the number of mobile users is rising. TeliaSonera has been in the country for more than a decade, while Tele2 entered in 2010 and is investing in its network as it seeks to win market share.

Tele2 added 428,000 new customers in the country in the first quarter of 2015, while TeliaSonera's Kcell lost 363,000.

"We haven't asked all 428,000 where they came from, but some of them probably came from there," Tele2 Chief Executive Mats Granryd said when asked if his firm had won over Kcell clients.

Market leader Kcell had 10.8 million customers in Kazakhstan by the end of the quarter and No.3 player Tele2 had 3.7 million. The other two operators are Altel, owned by fixed-line monopoly Kazakhtelecom, and Beeline Kazakhstan, owned by Vimpelcom.

Granryd said he saw Altel as Tele2's main competitor as both have similar market positions as low-price brands, adding they were currently fighting a "brutal price war."

The region that TeliaSonera calls Eurasia - Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia, Moldova and Nepal - has long been a growth engine for Sweden's largest carrier and accounted for 20 percent of group sales last year.

TeliaSonera posted group first-quarter core profit largely in line with market expectations on Tuesday. In the Eurasia region, it returned to growth after a first-ever drop in the fourth quarter as an ailing Russian economy weighed.

Meanwhile, Tele2's quarterly core profit beat expectations, boosted by continued good growth and higher profits in its home market.

Kazakhstan accounted for 6 percent of Tele2's group revenue in the quarter and 7 percent of TeliaSonera's.

Jefferies analysts said of Tele2's earnings: "We consider the results solid, with an upside surprise in Kazakhstan where Tele2's strong intake is particularly impressive in the face of competitive pressures."

TeliaSonera said it needed to boost its competitiveness in Kazakhstan as it was losing market share.

"It doesn't look pretty at all," Chief Executive Johan Dennelind told a conference call. He added Kcell had introduced new price plans and that he was confident it would start gaining market share again this year.

Tele2 shares were up 3.2 percent at 0448 EDT, making them the top gainers on Sweden's blue chip index, while TeliaSonera shares were down 1.5 percent.

Tele2 entered the country through an acquisition in 2010 while it still had business in Russia. TeliaSonera's presence stems from the 2002 merger between Telia and Finland's Sonera which had interests in the region.

($1 = 8.7097 Swedish crowns)

(Reporting by Sven Nordenstam and Olof Swahnberg; Editing by Niklas Pollard and Pravin Char)