CEE markets in detail

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Bulgaria

Impairment creates new starting basis

The Bulgarian mobile market leader, Mobiltel, is responding to the intense competition, regulatory effects and weak economy by implementing its convergence strategy rigorously. The impairment in 2014 created a new basis for the future development of the company.

Bulgaria – hand (Illustration )

In 2005 the Telekom Austria Group acquired 100% of the shares in the leading Bulgarian mobile provider Mobiltel. In 2011 two fixed-line operators were also acquired, which serve as the basis for the expansion of the portfolio with convergent products. The Telekom Austria Group now offers convergent products for fixed-line and mobile telephony, broadband internet, value-added services and IPTV in Bulgaria. With a mobile market share of 37.6%, the Group is market leader in Bulgaria and has over 4.2 million mobile customers and around 153,600 fixed access lines.

Bulgaria – key figures (graphic)

Challenging conditions result in impairment

As in previous years, the Bulgarian telecommunications market in 2014 was characterised by intense competition, which was particularly driven by the third-largest provider Vivacom. In addition, macroeconomic conditions remain difficult with a persistent population decline, 12% unemployment and low purchasing power, which negatively affects demand. On a political level, 2014 was a turbulent year with the banking crisis in June as well as the dissolution of parliament and reelections in October. In June 2014 the rating agency Standard & Poor’s downgraded the country’s rating to BBB-. A further downgrade to BB+ occurred in December 2014. Mobiltel’s results are also still influenced by regulatory effects. For example, termination rates were cut by 5% year on year in January 2015.

In total, these developments resulted in changed expectations for the entire Bulgarian telecommunications market and the development of Mobiltel. The Telekom Austria Group responded to this with an impairment of EUR 400 mn in June 2014, of which EUR 59.4 mn were recognised in 2013 and EUR 340.6 mn in 2014 (see Note (1)).

New management implements numerous stabilisation measures

This impairment gives the Telekom Austria Group a new, solid basis for the future development of Mobiltel. At the same time, the company has taken a range of measures under a new management to improve its operating performance. In particular, new brand positioning aims to improve differentiation between the convergent premium brand Mtel and the no-frills brand bob. Mobiltel is therefore focusing on a multi-brand strategy and an improvement of brand image and customer experience. These market initiatives are accompanied by a range of measures to control costs and further improve network quality. The latter is being aided not least by the investment of EUR 30.6 mn made in April 2014 to extend the existing frequency spectrum.

Due to the generally growing demand for data and an increase in mobile broadband customers, the Telekom Austria Group continues to see medium-term growth potential for the Bulgarian market. The measures taken in 2014 lay the foundations for using this potential in the long term.

1) Average 2014E – 2016E, source: Global Insights

Croatia

Convergence strategy in a challenging market

With convergent products and LTE services, Vipnet is asserting itself as number two in the Croatian mobile market in a difficult economic and regulatory environment with intense competition.

Croatia – hand (Illustration )

With its subsidiary Vipnet, the Telekom Austria Group has operated in Croatia since 1998 and has over 1.7 million mobile customers and 219,900 fixed access lines. A market share of 36.0% makes Vipnet the country’s second largest mobile operator. Following the takeover of the largest Croatian cable operator B.net in 2011, the Telekom Austria Group enhanced its portfolio in Croatia with the satellite-TV provider Digi TV and four additional cable operators in 2013. In the Croatian market, the Group offers convergent products for fixed-line and mobile telephony, internet, data and IT solutions, value-added services and IPTV.

Croatia – key figures (graphic)

Regulatory cuts

Similarly to the Bulgarian market, the Croatian market is dominated by fierce competition and macroeconomic challenges. Regulatory measures following Croatia’s accession to the EU in 2013 — including in particular a cut of roaming fees and termination rates — are negatively affecting results in this previously unregulated market. In addition, a significant increase in frequency usage fees in July 2014 is putting considerable additional pressure on margins.

Convergence and streamlining the product portfolio

The Telekom Austria Group is countering these developments by simplifying its tariff portfolio. By doing so, it is not only cutting its costs but simultaneously creating transparency for its customers. In mobile business, migration into the contract customer segment is being pushed in order to further reduce the high proportion of prepaid customers.

Furthermore, the Group is making use of convergence to keep a low churn rate among existing customers with mobile and fixed-line bundles and to attract additional new customers. After several acquisitions in the fixed-line business, up- and cross-selling opportunities can now be exploited on a broader basis. Supported by the acquisition of four cable operators, Vipnet succeeded in enlarging its footprint in the fixed-line business and increasing the number of fixed access lines by 13.9% in 2014.

Despite the current challenges, the Telekom Austria Group believes in the medium to long-term growth opportunities of the Croatian market. After Austria, Croatia was the second market in which the Group offered LTE services in early 2012. Today, it has achieved coverage of 27% here.

1) Average 2014E – 2016E, source: Global Insights

Belarus

The Group’s largest growth market

As the second-largest mobile operator in the country, velcom is posting significant growth. The high demand for data is creating one of the Group’s strongest operational developments.

Belarus – hand (Illustration )

The Telekom Austria Group entered the Belarusian market in 2007 by acquiring velcom. The company has a market share of 42.4%, which makes it the second-largest mobile service provider in Belarus today. Its offering comprises mobile products for voice telephony, internet and value-added services. For selected business customers, velcom also offers unbundled fixed-line services.

Belarus – key figures (graphic)

Hyperinflation and currency risk

From a macroeconomic perspective Belarus has had to combat hyperinflation and wildly fluctuating exchange rates in recent years. In 2014 the Belarusian Rouble lost around 9% of its value compared to the Euro, thus slowing the devaluation somewhat year on year. Nevertheless, there were corresponding exchange rate effects in revenues and earnings in 2014. The high FX risks became visible again when the Belarusian Rouble devalued in January 2015, which however did not affect the 2014 consolidation.

Strong operating results

Despite the macroeconomic challenges, the Telekom Austria Group succeeded in generating strong operating results in Belarus and turning the market into one of the best developing segments within the Group. Due to the high demand for data services, velcom was able to further increase EBITDA comparable on a year-on-year basis in 2014. It is also the only company in the Group generating a positive handset margin. The Telekom Austria Group counters the high inflation and volatility of the Belarusian Rouble with inflation-related price adjustments and the greatest possible decoupling of its expenses from foreign currencies — i. e. the endeavour to transact the highest possible proportion of its procurement in the national currency.

The Telekom Austria Group lays its strategic focus in Belarus on data growth and simultaneously aims for high efficiency both with regard to its operating costs (OPEX) and capital expenditure (CAPEX).

1) Average 2014E – 2016E, source: Global Insights

Slovenia

Extension of the frequency spectrum and customer growth

With a solid frequency spectrum and high LTE coverage, Si.mobil as number two in the Slovenian mobile market is strengthening its sound market position.

Slowenien – hand (Illustration )

The Telekom Austria Group entered the Slovenian market by acquiring Si.mobil in 2001. With a market share of currently 29.2%, Si.mobil is the country’s second-largest mobile communications provider.

Slowenien – key figures (graphic)

The competition in the Slovenian market — the most highly developed telecommunications market in the Telekom Austria Group’s Additional Markets segment — is becoming increasingly intense with four network operators and three mobile virtual network operators (MVNOs). This is also continuously increasing the pressure on mobile prices.

More customers, more frequencies

Due to the market-related price decline, the average monthly revenue per mobile user (ARPU) in Slovenia fell to EUR 19.1 in 2014, but is still the highest in the Group. At the same time, Si.mobil increased its customer base to 681,500 customers. Both additional contract customers and new mobile broadband customers were acquired. The multiband auction in April 2014 also yielded positive results; Si.mobil acquired nearly 50% of the auctioned frequencies for EUR 63.9 mn and thus laid the foundation for a further increase of network quality. In Slovenia, one of a total of four countries in which it provides LTE technology, the Telekom Austria Group now offers LTE network coverage of more than 75%.

Like in other countries, the Telekom Austria Group is also building on existing data growth in Slovenia. In order to use it, the Group continues to rely on a successful positioning as a provider with a convincing product range, an attractive price policy, a good brand image and high network quality.

1) Average 2014E – 2016E, source: Global Insights

Republic of Serbia

Higher revenues, attractive potential

The Serbian subsidiary Vip mobile is notable for considerable revenue growth and has established itself with smartphones and mobile broadband.

Republic of Serbia – hand (Illustration )

After acquiring a mobile telecommunications licence in 2006, the Telekom Austria Group entered the Serbian market as its third mobile operator with Vip mobile in 2007. Since then, Vip mobile has gained more than 2 million mobile customers. The company currently has a market share of 22.5%.

Republic of Serbia – key figures (graphic)

The regulatory conditions in the Republic of Serbia are being incrementally aligned to EU standards against the backdrop of negotiations on an association agreement with the EU. For example, the termination rates were further reduced by January 2015. In addition, Vip mobile is faced with the challenge of lacking access to large parts of the mobile spectrum because both competitors in the Serbian market were granted significantly more frequency spectrum. In response, Vip mobile concluded a national roaming agreement with the relevant providers and can thus offer good network quality also outside urban areas.

Increase in revenues and earnings

In 2014 Vip mobile increased its revenues by a considerable 16.8%; at the same time, EBITDA comparable was stable.

In order to use the growth potential of the Serbian market, the Group is aiming to expand its network, increase the proportion of smartphone customers and develop the mobile data segment.

1) Average 2014E – 2016E, source: Global Insights

Republic of Macedonia

New opportunities thanks to convergence

Thanks to the takeover of the fixed-line operator blizoo Macedonia in 2014, the Telekom Austria Group can now implement its convergence strategy in a fourth market.

Republic of Macedonia – hand (Illustration )

After acquiring a GSM licence, the Telekom Austria Group began its activities in the Macedonian market with Vip operator in 2007. As the second-largest mobile operator, Vip operator currently has a market share of 28.2%. The Macedonian subsidiary has had a 3G network and a LTE licence since 2013. Commercial LTE services have been offered since July 2014.

Republic of Macedonia – key figures (graphic)

Intense competition and a difficult macroeconomic situation also dominate the Macedonian market. In connection with negotiations on an association agreement with the EU, regulatory conditions are being incrementally aligned to EU standards here, too. For example, a new law on electronic communication took effect in 2014, and termination rates were cut drastically, which resulted in a decline of Vip operator’s revenues. The number of mobile customers fell slightly to 622,000, but the proportion of contract customers rose to 52.4%.

Takeover of blizoo, merger with One

The Telekom Austria Group achieved an important success in 2014 by taking over the fixed-line provider blizoo Macedonia. This makes the Republic of Macedonia the fourth market in which the Group can implement its convergence strategy and use a portfolio of combined mobile and fixed-line products for targeted up- and cross-selling. The Telekom Austria Group would also strengthen its market presence with the merger of its subsidiary Vip operator with One, the third-largest mobile provider in the Macedonian market. Subject to the pending approval by the authorities, the Group would hold a majority of 55% in the new company and therefore exercise sole control. The Telekom Austria Group is thus in a strong position to tap into the growth potential arising from the growing importance of modern communication applications in the Republic of Macedonia.

1) Average 2014E – 2016E, source: Global Insights

Woman with map of the CEE region (Illustration )
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