Telekom Austria Hit Hardest At Home

Sustained price competition, a focus on higher-end customers and the impact of regulator-mandated cuts to mobile termination rates continued to weigh heavily on Telekom Austria 's domestic mobile operations in Q113. This surprises no-one, least of all the operator itself, but it does see some light at the end of the tunnel as number of contract subscribers rise and consumption of non-voice services grows steadily. Nevertheless, BMI believes that the business environment will remain challenging over the next couple of years, a situation that may frustrate the company's new shareholder as he looks to exploit growth potential in frontier markets.

Domestic subscriber numbers grew by 13.1% during Q113 to 6.085mn, but much of that growth came from a one-off event: the acquisition of the discount subscriber base of Yesss! from Orange Austria at the start of January 2013. The more profitable contract user base grew by just 2.2% q-o-q, by comparison, reaching 4.254mn. Yesss! helped the mobile broadband customer base grow by 17.1% q-o-q to 909,000 in Q113, but the disinclination of budget-conscious discount customers weighed on minutes of use (MoU) and blended ARPU, which were down by 10.7% and 11.4%, respectively, in the quarter.

The Changing Face Of Competition
Mobile Broadband Market Shares (Q113)

Telekom Austria's A1 mobile unit remains the market leader in terms of subscriber numbers and service revenues, but the amalgamation of Orange with and into Hutchison Whampoa 's 3 Austria means that competition to win ownership of Austria's mobile broadband subscribers has intensified through the introduction of aggressive new pricing strategies. The Austrian market was already leaning heavily towards no-frills discount brands such as T-Mobile 's tele.ring , A1 's bob and Orange's Yesss!, and this trend is continuing unabated. As such, operators are having to spend more to attract and retain customers, and these costs are offsetting the gains from increased spending on value-added services. A1's ne w focus on profitability and sus tainability - which has included a much-needed review of hands et subsi dies - is helping to cut those costs and will eventually lead to improved profits.

However, the Orange-3 Austria merger paved the way for the introduction of full mobile virtual network operator (MVNO) models in Austria and it is expected that up to 16 significant MVNOs will enter the market in the short term. By working with MVNOs, operators such as A1 can help attract customers into the market, but this comes at the cost of loss of direct control over such customers.

Furthermore, the auction of digital dividend spectrum later in 2013 could lead to the introduction of a new player - though potential investors may be deterred by the challenging business environment which has already forced Orange's withdrawal. For now, though, A1 controls 41.6% of the Austrian mobile broadband market, closely followed by 3 Austria (38.3%) and the T-Mobile/tele.ring partnership.

Mexican billionaire and telecoms entrepreneur Carlos Slim Hel ú acquired a significant stake in Telekom Austria in 2012 as part of a plan to use the company's assets in emerging Europe as a springboard for expansion there. However, with mature markets such as Croatia and Bulgaria also recording negative or insipid growth, despite the introduction of price-led value strategies, BMI continues to believe it will be some time yet before his investment gamble pays off and ma y even necessitate the withdrawal from certain markets.

This article is tagged to:
Sector: Telecommunications
Geography: Austria, Bulgaria, Croatia

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