Muted economic environment and intense competition

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The overall economic development has a pronounced influence on available income and consumer behaviour — and hence on the telecommunications sector. The Telekom Austria Group’s markets are currently characterised by mixed developments. Croatia and the Republic of Serbia actually saw a downturn in economic output in 2014, while the Group’s remaining markets enjoyed low single-digit growth. In Belarus the course of business was impacted by hyperinflation and considerable fluctuations in exchange rates. In addition to general consumer reluctance, developments in Bulgaria were adversely affected by high unemployment and outward migration (for more details on the economic environment, see the Group Management Report).

The revenue and earnings potential of telecommunications companies is determined not only by available household income, but also by the market structure and the number of providers. The European market that is relevant for the Telekom Austria Group has a far higher provider density than the corresponding markets in the USA or China, for example: Whereas more than 100 telecommunication companies and cable network operators and a wide range of media companies are in competition in Europe, the mobile market in the USA is dominated by four major telecommunications providers. The Chinese market is home to just three providers.

Mobile communications market penetration

Mobile communications market penetration (bar chart)

This results in a substantially lower price level for telecommunications services in Europe in general and Austria in particular. The Herfindahl-Hirschmann Index (HHI), which serves as an indicator of competition in national mobile markets, declined by 6.8% in Europe in the period from 2008 to 2012, thereby illustrating the increase in competitive intensity.3) This is exacerbated by the fact that a large number of providers are operating in an increasingly saturated mobile market by international standards. In Europe, the SIM card penetration rate has comfortably exceeded 100% in almost all markets, meaning that there is only limited growth potential in the traditional business areas of voice minutes and text messages.

In this difficult environment particularly high cost efficiency and a product range that meets market and customer requirements are essential for telecommunications companies. Convergent products that bundle fixed-line and mobile services offer additional earnings potential depending on the maturity of the respective market and ensure reduced churn among customers. Above and beyond this, the strong growth in demand for data in particular is providing new momentum for market development and opening up additional earnings potential.

3) GSMA, The Mobile Economy 2014, p. 26

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