The key elements of the turnaround strategy

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More for the customer

As part of the ‘more for more’ concept the Telekom Austria Group offers its customers more performance while at the same time improving price differentiation. The optimisation of the tariff structure relates to the A1 offering as well as the ‘no-frills’ brands. In that way the Telekom Austria Group meets particularly the continuously increasing demand for data with a greater wealth of options. While e. g. data speeds used to be throttled if the data limit was exceeded, customers now have the option to buy additional data volume if they need to. Both customers and the Telekom Austria Group benefit from this: Customers do because they have a choice between additional data or an upgrade to a different tariff if they reach their data limits, and the Telekom Austria Group does because it can ‘monetise’ the increasing data volume, i. e. convert it into tangible revenues. The result: satisfied customers and rising revenues commensurate with performance.

Key elements of the turnaround strategy

Key elements of the turnaround strategy (Illustration )

Convergence ensures customer loyalty

In addition to concentrating on high-value customer segments, the Telekom Austria Group is relying mainly on convergence to stabilise revenues: Bundles of mobile and fixed-line services with far-reaching household coverage clearly differentiate the company from its competitors in Austria. This approach is also advantageous for customers and for the company. The customer can obtain various services from a single provider and pay for everything with just one bill. In addition, customers increasingly want to use services and content with different devices. As a result, the Telekom Austria Group has already sold over one million fixed-line product bundles. As well as bringing additional revenues, the focus on convergent products entails in particular a stable customer base for the company: Contract customers who use mobile and fixed-line services in one bundle change mobile providers less often. The level of churn of these convergent customers is up to 35% lower than among customers who use mobile services only. The churn rate for contract customers is now back at a record low of 0.6% (monthly average) after rising following tariff adjustments in the second quarter due to the extraordinary cancellation rights.

Successful convergence strategy key
for turnaround target

Successful convergence strategy key forturnaround target (bar chart)

Despite the migration of customers from fixed line to mobile, the Telekom Austria Group was able to grow its customer base in the fixed-line business. While voice telephony has almost completely shifted to mobile networks, fixed access lines for broadband services are growing in popularity as a result of rising demand for data volume. The demand for A1 TV is also growing. With A1 the Telekom Austria Group is among Europe’s leaders in this regard and one of very few European incumbents to see growth in fixed access lines.

Best network quality as foundation

The excellent network quality of the Telekom Austria Group provides a solid foundation for the high-value strategy and is a precondition for all services. It is maintained and expanded by means of ongoing investment. At the Austrian multiband auction in 2013 the Telekom Austria Group invested around EUR 1 bn in the acquisition of 50% of the auctioned spectrum. A1 therefore has by far the best frequency spectrum in Austria, especially in the valuable low frequency bands. On this basis, and by means of further expanding the LTE network, network coverage in rural areas in particular can be made considerably more efficient.

The Telekom Austria Group will continue to invest in the quality of its networks in future. Subject to the annual budget approvals as well as the announced government broadband subsidy programme, EUR 400 mn will be spent additionally on the accelerated fibre rollout from 2015 to 2018. The broadband subsidies announced by the Federal Republic of Austria, stemming from the proceeds of the multiband auction in 2013, will support this rollout. Specifically, subsidies of EUR 300 mn have so far been granted for 2016. All in all, the government held out the prospect for subsidies of EUR 1 bn.

The establishment of the 30 Mbps product as the standard offer stands at the core of Telekom Austria Group’s fibre strategy. From 2018 it shall replace the current standard offer of 8 Mbps. The intelligent combination of different technologies presents the basis for this, which also ensures an efficient use of the invested funds. The focus is on fibre, vectoring and G.fast — a new technology which makes possible significantly higher transmission rates with the existing copper technology. This will allow the Telekom Austria Group to satisfy the rapidly rising demand for higher bandwidths and data volumes, especially for existing customers.

connect – winner and futurezone – best network (logo)
award medal (Illustration )

Prize-winning network quality

The quality leadership of the Telekom Austria Group is regularly confirmed by top marks for its infrastructure in tests and rankings. The 2014 futurezone network test e. g. confirms that A1 offers the best mobile network in Austria. A1’s network also met the highest quality standards in the 2014 connect network test. It was designated the best network in Austria and the second-best network in the German-speaking region, nearly on par with Swisscom.

Targeted cost optimisation

In addition to measures that primarily affect the revenue development of the Telekom Austria Group, cost efficiency also makes an important contribution on the way to achieving the turnaround in Austria. Extensive measures have been implemented for this purpose in the last two years. A crucial element was the increase in cost efficiency in market management. Specifically and above all, handset subsidies were considerably reduced. Subscriber retention costs thus fell by 27.2% and subscriber acquisition costs by as much as 75.9%. Nevertheless, in February 2014 the Telekom Austria Group introduced the option to pay for handsets in instalments, so as to make it easier for customers to purchase new devices. This option has been received extremely well by customers: Around 17% of new customers have since used this option.

A range of efficiency programmes presented the second cost optimisation focus point, which in some cases led to considerable process improvements and savings thanks to targeted structural measures. These projects affected departments including IT, purchasing and technology, and brought considerable relief both in terms of operating expenses and capital expenditure.

Turnaround strategy bears fruit

As a result of the successful implementation of these measures, Telekom Austria Group again achieved a slight growth of EBITDA comparable in Austria for the year 2014.

The new Austrian strategy has therefore been successful and will be continued with the same force in the years to come. It is thus also a model for successfully overcoming the imminent challenges in the other markets of the Telekom Austria Group.

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