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Author: Dan Bieler
14 November 2006
Telekom Austria reported its Q3 2006 results this morning. Operating revenues increased to €1.2 billion, an increase of 3.7%. Adjusted EBITDA increased by 0.7% to €550 million, translating into a 1.3 percentage point decline to 44.6%. As in the past, mobile acted as the main growth engine, with sales up 7%. Net debt decreased by 6% to €2.9 billion year-on-year (1.3x net debt/annualised EBITDA).
In a separate development, Telekom Austria had already announced that the supervisory board appointed Hans Tschuden as the new CFO.
Comment: Q3 2006 highlights the challenges Telekom Austria is increasingly facing in its domestic market. Wireline revenues declined by 0.4%, EBITDA by 9% and operating free cash flow (OFCF) by 9%. mobilcom Austria revenues declined by 1.3%, EBITDA by 6% and OFCF by 6%. We believe that Telekom Austria needs to address these issues head-on in order to remain on top of developments in its most important market. As the performance of Deutsche Telekom in Germany demonstrates, competition has grown up and is in a much stronger position to exploit any signs of hesitation by the incumbent.
To be fair, Telekom Austria is doing reasonably well in defending its market share. Its mobile market share declined only 0.7 percentage points to 38.8%. But with penetration reaching 111%, ARPUs inevitably came under pressure, falling by 7% to €34.90. Given the tough competitive environment, it has become 20% more expensive for mobilcom to attract and retain customers. The good news is that callers spent 16% more time making calls, helping to offset some of the ARPU decline.
In the fixed line market, Telekom Austria managed to actually increase its market share by 1.4 percentage points to 57.3% for total voice traffic. This is a respectable achievement given the fact that the number of minutes dropped by 18% (9% excluding the migration from narrowband to broadband Internet access). However, it must be worrisome that Telekom Austria has lost 4.5% of access lines to competition (including cable) and fixed-to-mobile substitution. It is therefore all the more crucial that Telekom Austria's IPTV offering attracts sufficient demand.
As in the past, group performance was driven by Telekom Austria's international activities, which together now account for 44% of wireless revenues. The Bulgarian operations grew by 26%, Croatia by 10% and Slovenia by 34%. Significantly, both Croatia and Slovenia actually boosted their EBITDA margins to 53% and 33% respectively. Only Bulgaria saw some margin erosion, but still kept it at a very high level around 60%.
Telekom Austria is of course right to pursue its aggressive international strategy. We welcome its decision to successfully bid for a GSM 900/1800 licence in Serbia. The rollout requirements point towards the emergence of another overseas growth engine for Telekom Austria. Given the positive mobile growth momentum in the region, we are confident that the planed investment of €250 million by 2009 in Serbia should generate a positive return for the group. However, we feel that Telekom Austria must intensify its efforts to defend its own backyard.
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