Telia's Q2 Earnings Beat and Strategic Divestments: Assessing Long-Term Value in a Low-Growth Telecom Environment

The telecom industry in 2025 remains a paradoxical landscape - one where technological revolutions like 5G coexist with persistently flat demand for traditional connectivity services. Telia Company (TLSN.ST) has navigated this challenging environment with a strategic trifecta: cost optimization, 5G-led innovation, and disciplined asset rationalization. The Swedish telecom giant's Q2 2025 earnings results and strategic actions provide a compelling case study for investors seeking long-term value creation in a sector where growth is no longer taken for granted.

The Earnings Beat: A Tale of Two Metrics

Telia's Q2 2025 results revealed a textbook example of strategic cost management. While revenue fell short of expectations at SEK 19.8 billion (SEK 20.2 billion in 2024), the company delivered a 2.9% year-over-year increase in adjusted EBITDA to SEK 7.97 billion - a 40.3% margin versus 38.3% in 2024. This performance gap between revenue and EBITDA highlights Telia's successful cost optimization initiatives implemented in late 2024, which have proven particularly valuable in a market where subscriber growth is no longer automatic.

The geographic performance divergence was telling: Norway's 9% earnings decline contrasted sharply with 5% growth in both Sweden and Finland. This regional disparity underscores the importance of Telia's strategic focus on high-performing markets while restructuring underperforming ones - a theme that will become even more critical in the coming quarters.

Strategic Divestments: The TV&Media Exit

Telia's most significant strategic move in 2025 was the July completion of its TV&Media divestiture, valued at SEK 6.55 billion. This exit from Sweden's TV4 and Finland's MTV operations was not merely a one-off transaction but a calculated move to refocus the company on its core telecom competencies. The divestiture has already improved Telia's net debt-to-adjusted EBITDA ratio to the lower end of its target range (2.0-2.5x), while securing a multi-year content distribution agreement with Schibsted ensures continued value for Telia's customers.

This asset rationalization demonstrates Telia's willingness to make tough decisions that may seem counterintuitive in the short term but align with long-term value creation. By eliminating a lower-margin segment and redeploying capital to higher-return telecom infrastructure investments, Telia is positioning itself to capitalize on the next phase of its evolution.

5G: The New Growth Engine

In a low-growth telecom environment, Telia's 5G strategy emerges as its most promising growth vector. The company has positioned itself at the forefront of 5G innovation across its Nordic-Baltic footprint:

1. Sweden: Recognized as the country's best mobile network for the fifth consecutive year by umlaut, Telia is leading the MORANE-2 project with Ericsson and the Swedish Transport Administration to test 5G-based rail communication systems. The company's partnership with the Swedish Armed Forces in the NorthStar 5G Innovation Program is exploring military applications of 5G technology.

2. Finland: A world-first trial in March 2025 demonstrated seamless 5G standalone slice handover between three countries during a live network exercise with Nokia and the Finnish Defense Forces. This achievement highlights Telia's ability to deliver mission-critical 5G solutions for defense applications.

3. Lithuania: The launch of a 5G standalone network trial at Klaipėda Seaport represents Telia's commitment to industrial 5G applications. The company's IoT platform and smart healthcare offerings in Lithuania are creating new revenue streams beyond traditional connectivity.

These initiatives are not just about network speed - they represent a fundamental shift in how telecom operators create value. Telia is transforming from a connectivity provider into a platform for digital transformation across industries, from healthcare to transportation to national defense.

The Convergence Strategy: More Than Just Bundling

Telia's convergence strategy in Sweden has proven particularly effective in a mature market. With over 1 million convergent customers, the company has reduced household churn by approximately 50% with each additional service added to a customer's portfolio. This bundling strategy not only improves customer retention but also creates cross-subsidization opportunities that enhance overall profitability.

In Finland, despite service revenue declining by 0.7% in the first half of 2025, EBITDA grew by 9.8% due to cost efficiencies. This demonstrates the power of Telia's simplification initiatives in improving profitability even in the face of revenue headwinds.

Investment Implications: Balancing Prudence and Innovation

Telia's 2025 outlook - 2% service revenue growth and at least 5% EBITDA growth - appears conservative given its cost optimization tailwinds and 5G momentum. The company's CAPEX guidance of below SEK 14 billion and free cash flow target of around SEK 7.5 billion suggest a disciplined capital allocation approach that prioritizes returns over mere scale.

For investors, Telia presents an attractive case study in how a telecom company can navigate a low-growth environment through strategic reinvention. The combination of:

1. Disciplined cost management that has improved EBITDA margins despite revenue challenges
2. Strategic divestments that have enhanced capital efficiency and focus
3. 5G-led innovation that is positioning Telia for next-generation revenue streams

creates a compelling value proposition. While the telecom sector as a whole may not offer the growth rates of technology disruptors, Telia's strategic approach demonstrates how a traditional operator can evolve into a digital infrastructure leader.

The Road Ahead: A Test of Strategic Execution

The coming quarters will test Telia's ability to maintain its momentum. The company's success will depend on:

• Execution of its cost optimization initiatives in underperforming markets like Norway
• Continued progress in 5G deployment and monetization across its Nordic-Baltic footprint
• Effective integration of new acquisitions like Bredband2 in Sweden
• Ability to maintain its leadership in mission-critical 5G applications

For patient investors, Telia offers a compelling mix of defensive characteristics (stable cash flows, improving leverage) and growth potential (5G leadership, digital platform expansion). The company's strategic clarity and operational discipline provide a solid foundation for long-term value creation in an industry that demands constant innovation even when growth appears limited.

In a market where many telecom companies struggle with legacy costs and uncertain 5G ROI, Telia's balanced approach of prudence and innovation sets it apart. As the digital transformation of industries accelerates, Telia's position as a 5G infrastructure leader could prove particularly valuable - a position earned not just through technological investment, but through strategic foresight and operational excellence.