Telekom Austria (A1) - Q3 2014

SWOT Analysis

Strengths

  • Has dominant positions in Austria's fixed-line, broadband and mobile telephony markets.

  • Only operator to own network infrastructure for the provision of quadruple-play services.

  • Broadband offering is thriving. The company continues to account for the largest share of the market. Wholesale service providers and cable operators are losing market shares.

Weaknesses

  • Mobile, fixed-line and broadband segments in Austria are all highly competitive and saturated. As the home market accounts for most of revenue, there are concerns about long-term profitability.

  • Telekom Austria is increasingly sidelined in the broader European market by rivals and new entrants; it is viewed as an acquisition target.

Opportunities

  • A possible acquisition by América Móvil would strengthen Telekom Austria's capital structure and financial position and allow Telekom Austria to benefit from investment opportunities in Austria, in the countries in which it currently operates and in emerging markets in Central and Eastern Europe.

  • Acquisition of Yesss! increases presence in the lower-end youth segment of the market, giving it greater access to potential higher value customers.

  • International operations offer untapped potential in terms of contract customers and innovative data products.

  • Acquired half of the available spectrum from 800MHz auction for 4G, more than its rivals.

  • LTE coverage of over 33% (80% in urban areas) puts it ahead of rivals, meaning it should take the lead in the high value wireless data market.

  • New technology investments in Balkans and Eastern Europe may remain the few untapped opportunity remaining in Europe.

Threats

  • Telekom Austria faces cutting costs at a declining fixed-line telephony business, while hunting for growth in the mobile telephony and broadband markets.

  • Strong competition and the continued difficult economic situation in international markets are prompting price cuts.

  • Acquisition of Orange by 3 Austria creates a stronger rival in the mobile market.

  • Significant risk of potential increase of annual spectrum fees in Croatia could affect revenues and EBITDA.

Company Overview

Telekom Austria is the incumbent telecoms operator in Austria, providing fixed-line telephony (local, long distance and international), data and value-added communications, internet access and mobile communications services nationwide. It offers broadband TV services and mobile payment solutions and owns a growing portfolio of overseas mobile operations.

Strategy

Due to its prominent market position and early adoption of mobile broadband technology, Telekom Austria is well placed to capitalise on the growing trend for mobile multimedia use.

The merger of the mobile unit into Telekom Austria's other retail and wholesale businesses may help the company improve its focus on customer segments, but it is to be hoped that the firm's focus on successful product development is not sacrificed in the pursuit of cost savings and the ability to leverage the substantial fixed-line and broadband customer bases of the parent company.

In 2011 Telekom Austria announced plans to target growth in the machine-to-machine (M2M) sector with the formation of a dedicated M2M subsidiary. The subsidiary works on the development and marketing of M2M services. Telekom Austria Group M2M focuses on eight application areas: automotive, consumer electronics, healthcare, logistics and transport, retail and payments, security and surveillance, industrial and smart business, and energy and utilities.

During H213 Telekom Austria looked to extend its M2M offerings, as part of the Unlock M2M partnership with Microtronics Engineering. The operator had already launched its M2M connectivity platform Simplify and in October, extended its portfolio with Flexify. This is an M2M application enablement platform for remote monitoring, automation and control for metering devices, industrial plants and machines in the field. In November it launched SMARTify, a smart metering platform that enables meter data management utilities as software-as-a-service (SaaS).

In late May 2013 Telekom Austria denied reports it was considering options for further acquisitions in Central and Eastern Europe. Rumours of expansion have persisted since Carlos Slim acquired a stake in the incumbent in 2012. Despite the denial, rumours have persisted and in July 2013 it was reported that Telekom Austria was considering the acquisition of H1 Telekom in Croatia and Serbian cable TV and broadband providers SBB as part of a converged services expansion strategy.

Corporate Structure

Telekom Austria is 28.42% owned by state holding company Österreichische Industrieholding AG (ÖIAG), and 71.58% by the public. Of the publicly owned shares, Mexico-based América Móvil owns 26.81% through direct and indirect investments.

In 2010 Telekom Austria merged its domestic fixed-line and mobile units in response to growing uptake of converged services. The merger was expected to generate extra revenue potential through cross-selling opportunities, and to enhance the group's innovative strength, enabling the effective roll-out of joint future-proof network infrastructure. The A1 brand was adopted for domestic operations and services early in 2011 and, in September 2011, a new M2M business unit was established.

As part of the Orange- 3 Hutchison deal Orange's discount service provider business, Yesss!, was sold to Telekom Austria for around EUR300mn. In May 2012 Telekom Austria formally filed for the purchase of Yesss!. The deal was approved in December 2012 and subscribers were transferred to Telekom Austria's network in mid-2013.

Telekom Austria revealed it has no concerns regarding refinancing through to 2015. CEO Hans Tschuden, said the company does not need to refinance in 2014 and 2015. However, its refinancing requirement will be greater in 2016. Telekom Austria's CFO said the company's participation in a frequency auction in Austria will have no effect on the dividend offering of USD0.07 per share in 2012 and 2013. The company said it will not issue any further hybrid bonds to support any costs it may incur in the future.

Dutch holding firm Carso Telecom has completed the acquisition of 13.9mn shares in Telekom Austria Group, equal to 3.14% of the incumbent's share capital. Carso Telecom is indirectly controlled by América Móvil. The shares were bought from Control Empresarial de Capitales and Inmobiliaria Carso. This increased América Móvil's total indirect and direct shareholding in the Austrian group to 26.81%.

In April 2014 América Móvil announced that it had entered into a shareholders' agreement with ÖIAG with respect to their participations in Telekom Austria. ÖIAG and América Móvil have agreed to support a capital increase in Telekom Austria of EUR1,000mn, making Américan Móvil operationally responsible for Telekom Austria. The agreement is subject to regulatory approval,

Recent Financial Performance

Telekom Austria reported group revenues in Q114 of EUR975.9mn, down 7.0% year-on-year (y-o-y), and operating revenue of EUR259.2mn, down 9.0% y-o-y. Group EBITDA for Q114 declined 5.0% y-o-y to Q114, reaching EUR319.9mn. Net income also fell, down 26.5% to EUR40.8mn, attributed to the squeeze on performance in Austria.

In FY13 group revenues were EUR4,183.9, down 3.4% from FY12. Revenues were affected by ongoing regulatory issues, particularly cuts to mobile termination rates, intense price competition. Group EBITDA for FY13 fell 11.6% to 1,287.4mn (USD1,770.4mn). Net profit on the other hand increased by 5.5% to EUR109.7mn (USD150.8mn). Capital expenditure increased 144.3% to EUR1,779.1mn (USD2,446.6mn). Telekom Austria said that revenue losses in 2013 was were result of internal competitive price pressure and regulatory cuts in termination, and market pressure on interconnection and roaming revenues.

Operational Developments

Telekom Austria is engaged in the replacement of its core switching and transmission network with a new all-IP next-generation network (NGN), with fibre at the heart of the new platform. Eventually, the new network will be capable of offering data transfer rates of up to 100Mbps, which would allow it to offer advanced internet-based services and HDTV.

In 2009 Telekom Austria started the roll-out of VDSL2 technology over a nationwide fibre-optic network, dubbed Giga-Net. By the end of 2011 Gigaspeed services offering data rates of up to 30Mbps had been made available to a total of 2.2mn households. The operator also made good progress with its plan to deploy fibre-to-the-curb (FTTC) and FTTH. By the end of 2011 FTTH had been deployed in selected districts of Vienna, making data transfer rates of up to 100Mbps possible for the first time.

Operating under the A1 and bob brands, Telekom Austria is the leading mobile communications network operator in Austria, as it operates the country's most extensive nationwide digital cellular (GSM 900/1800/GPRS) and 3G UMTS networks. In July 2010 the mobilkom austria unit was merged into its parent. As a result, mobile services in Austria began to be offered under the A1 Telekom Austria brand name.

In May 2013 Telekom Austria launched its commercial 100 Gigabit transport network in Central and Eastern Europe. The 100G capacity will satisfy the demand for high-speed services, as well as increase profitability. The company has 42 points of presence, most of which are in Central and Eastern Europe.

In July 2013 it was reported that Telekom Austria upgraded its 1,000 th base station to support LTE services. The network was made available in all state capitals, and nine other urban areas, giving population coverage of over 33%. The operator planned to extend coverage to a further 26 metropolitan areas by the end of 2013.

A1 secured 14 blocks of the 28 spectrum blocks available in the October 2013 auction, bidding EUR1.03bn, more than any of its rivals. It added 800MHz to its existing resources and augmented holdings in the 900MHz and 1800MHz bands. In November Telekom Austria launched a bond with a volume of EUR750mn and a maturity of eight years in order to pay for the spectrum. The offering generated strong demand with an order book amounting to more than EUR5bn and attracted primarily European investors, particularly from France, Germany and Austria.

A1 Telekom Austria expanded its LTE network to 200 locations across the country, using the 800MHz spectrum it has already required. A1's latest expansion also covers several rural areas, which were not covered by its 3G network previously. Following the expansion, A1's 4G network now covers 45% of the population in the country. In October 2013 A1 acquired two units of 20MHz blocks of 800MHz spectrum in the Telekom Control Commission's 'combinatory clock' auction.

Financial Data

Group revenue

  • 2011: EUR4.455bn

  • 2012: EUR4.33bn

  • 2013: EUR4.18bn

  • Q114: EUR975.9bn

Group EBITDA

  • 2011: EUR1.527bn

  • 2012: EUR1.421bn

  • 2013: EUR1.287bn

  • Q114: EUR319.9mn

Net income or loss

  • Loss, 2011: EUR252.8mn

  • Income, 2012: EUR103.8mn

  • Income, 2013: EUR109.7mn

  • Income, Q114: EUR40.8mn

Capital expenditure

  • 2011: EUR739.0mn

  • 2012: EUR728.2mn

  • 2013: EUR1,779.1mn

  • Q114: EUR99.4mn

Operational Data

Fixed-line subscribers

  • 2011: 1.063mn

  • 2012: 970,100

  • Q313: 909,600

Broadband subscribers

  • 2011: 1.273mn

  • 2012: 1.312mn

  • Q313: 1.364mn

Mobile subscribers

  • 2011: 5.271mn

  • 2012: 5.38mn

  • 2013: 5.71mn

  • Q114: 5.64mn

Mobile broadband subscribers

  • 2011: 744,941

  • 2012: 743,467

  • 2013: 816,439

  • Q114: 788,296

Other data

  • Year established: 1990

Company Details

  • Telekom Austria AG

  • Address line 1

    Lassallestrasse 9

    Vienna

    1020

    Austria

  • Tel: +43 50 6640

  • www.telekomaustria.com

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Geography: Austria, Austria
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