Cutting Costs Not Enough For A T-HT Turnaround

BMI View: Constrained household spending from declining wages and high unemployment, combined with saturated telecoms markets and increased capital expenditures will continue to weigh on T-HT over the next two to three years. While managed services contracts and 3G/4G uptake are important, these will not have a strong enough impact to turn the company around.

The Croatian subsidiary of Deutsche Telekom, T-Hrvatski Telekom (T-HT), has announced its intention to initiate redundancy procedures to release 160 employees during the course of September and October, in order to bring overall costs down. This move follows the earlier August 2014 decision to transfer 640 staff to Ericsson Nikola Tesla Servisi, as part of a five-year managed services contract. The partnership with Ericsson will also cut costs of maintaining T-HT's wireline and mobile networks.

As the incumbent operator, T-HT holds a strong position across the Croatian telecoms industry, with a leading share of the mobile, fixed line and internet markets. Despite this, the company has suffered as a result of the slow recovery from the economic crisis, which has resulted in a deterioration of the telecoms market. In Q214, T-HT once again reported a decline in its revenue, to HRK1.680bn, a decrease of 4.3% compared to Q213. EBITDA and net profit also declined over this period, by 18.4% and 38.9%, respectively. T-HT has seen its mobile subscribers drop over the last two to three years, as well as ARPU, while capital expenditures have increased to rollout 4G networks. The rest of the mobile market has also been in decline, with overall penetration falling from 134.5% in Q211, to 116.1% in Q214.

Financial KPIs Under Pressure
HRKmn, 2011-2014

BMI View: Constrained household spending from declining wages and high unemployment, combined with saturated telecoms markets and increased capital expenditures will continue to weigh on T-HT over the next two to three years. While managed services contracts and 3G/4G uptake are important, these will not have a strong enough impact to turn the company around.

The Croatian subsidiary of Deutsche Telekom, T-Hrvatski Telekom (T-HT), has announced its intention to initiate redundancy procedures to release 160 employees during the course of September and October, in order to bring overall costs down. This move follows the earlier August 2014 decision to transfer 640 staff to Ericsson Nikola Tesla Servisi, as part of a five-year managed services contract. The partnership with Ericsson will also cut costs of maintaining T-HT's wireline and mobile networks.

Financial KPIs Under Pressure
HRKmn, 2011-2014

As the incumbent operator, T-HT holds a strong position across the Croatian telecoms industry, with a leading share of the mobile, fixed line and internet markets. Despite this, the company has suffered as a result of the slow recovery from the economic crisis, which has resulted in a deterioration of the telecoms market. In Q214, T-HT once again reported a decline in its revenue, to HRK1.680bn, a decrease of 4.3% compared to Q213. EBITDA and net profit also declined over this period, by 18.4% and 38.9%, respectively. T-HT has seen its mobile subscribers drop over the last two to three years, as well as ARPU, while capital expenditures have increased to rollout 4G networks. The rest of the mobile market has also been in decline, with overall penetration falling from 134.5% in Q211, to 116.1% in Q214.

T-HT has continued its mobile broadband investment strategy, as it looks to extract higher value from its customer base. At the end of Q214, T-HT's 4G network reached 36% of population and its 3G network had 77% population coverage. Its 3G and 4G subscribers have helped offset losses in other parts of the business but T-HT needs more customers to upgrade to these services if it is to experience a recovery. The moves T-HT has made to cut costs are therefore of no surprise to BMI, and we expect to see more operators seek managed service contracts around the globe to alleviate the dual pressures of saturated markets and increased capital expenditures.

High Unemployment Will Drag On Telecoms Spend
Unemployment, % Of Labour Force Average

However, we believe Croatia's economic recovery will lag behind the EU over the next few years unless structural reforms are implemented to tackle competitiveness issues and improve labour market flexibility. Household consumption, in particular, will be a drag on growth over the next five years, averaging just 0.4 percentage points (pp), with consumer confidence to remain low amid declining wages and high unemployment. In its decision to terminate the contracts of 160 employees, T-HT is feeding into our weak outlook for the Croatian economy and the telecoms sector as a result. Uptake in 3G and 4G will not be able to offset losses in other areas of the business and we do not see a turnaround for T-HT in the short to medium term.

Read the full article

This article is tagged to:
Geography: Croatia
×

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.