Telekom Austria: Converging fixed-line and mobile operations

15 January 2011 | Guy Matthews

Guy Matthews investigates Telekom Austria’s decision to converge its domestic fixed-line and mobile operations, only three years after separating the entities.

Telekom Austria has been driven by domestic competition to expand operations internationally

Telekom Austria may not enjoy quite the global prestige of fellow European incumbents such as Orange, Deutsche Telekom or BICS, but within its more localised sphere of influence it is a substantial and successful presence.

The company enjoyed a particularly active 2010, converging its domestic fixed-line and mobile arms into a single operation, thereby reversing a move made in 2007 when the two lines of business were spun out as separate entities.
Telekom Austria, which ran the fixed line business, and mobile operator Mobilkom Austria have fused to become A1 Telekom Austria. A holding company called Telekom Austria Group also exists to oversee operations in the eight European countries where it enjoys a presence. The company has estimated the reorganisation will be saving it about €100 million a year by 2015, the break even point coming in 2012.

“The convergence mimics a strategy deployed by many other European telcos who have merged their mobile and fixed-line businesses to target the converged services market,” says Henry Lancaster, senior analyst for Europe with the BuddeComm consultancy. “The move is largely a response to consumer demand for convergent products provided by the two business arms.”

International ambition

A1 Telekom Austria is the largest telco in Austria, providing fixed telephony, data, internet, broadband and mobile services. It is the only player in the country with nationwide infrastructure and consequently has the biggest share of the access market. It’s certainly not crushingly dominant at home any more, thanks to enforced unbundling of local loop and the market entry of a number of alternative telcos that now operate their own backbone networks, some also running their own access networks in parts of the country.

The result of this increased competitive pressure has in recent years driven A1 Telekom Austria to expand operations internationally. It has a mobile licence in Serbia, branded Vip Mobile, and also in Macedonia, where it’s known as Vip Operator. In 2007, it bought a 70% interest in Cyprus-based SB Telecom which controls Belarusian mobile player MDC. It acquired the remaining 30% last year, stressing the potential it sees in the underserved Belarusian telecoms market. It also has either internet or mobile businesses in Bulgaria, Liechtenstein, Croatia and Slovenia. Between these seven countries and Austria, it has a customer base in excess of 21 million subscribers, including some 19.4 million mobile phone subscribers.

This roll call of foreign interests has a clear strategic theme. Telecoms markets in central, eastern and south-eastern Europe are in the main underpenetrated, ripe for picking and fertile ground for developing both retail and wholesale business. It is Austria’s geo-political good fortune to enjoy proximity to so many underdeveloped economies, an advantage that A1 Telekom Austria is keen to maximise.

Regular regulating

It is not all plain sailing though, according to Josef Trimmel, head of wholesale at A1 Telekom Austria and also head of group wholesale operations with Telekom Austria Group: “A lot of the countries we’re in are much more heavily regulated than Austria,“ he explains. “It can be difficult when you’re in competition with a powerful incumbent. In most of them we’ve built backbones for the use of other carriers, and we want to sell that.“

Trimmel says the plan is now to address the eight markets more efficiently through leveraging the critical mass created by the newly converged operation. “We want to use group volume for creating synergies in wholesale markets,” he says. “We also want to push direct sales, as well as engage in cross selling new products and services.”

Trimmel makes it clear that the company is open-minded about opportunities that may arise in new territories, so long as those territories are not too far from home. The company is not about to emulate Orange and dive into Africa or Asia.
Steady and methodical appear to be the watchwords: “Our approach is always driven on a business case basis, basing any future projects on profitability KPIs,” says Trimmel. “We continuously analyse the potential of new PoPs in the areas surrounding our current coverage, particularly major cities in the CEE region.”

Closing the gap

Lancaster of BuddeComm believes that A1 Telekom Austria has backed the right strategic horse in addressing eastern and south-eastern Europe, particularly with service types like broadband and 3G that are still a novelty with many customers in those countries. “There remains a gap in broadband development between these areas and the leading western European nations, a gap which the EU is keen to close if it is to keep on track with its Agenda 2020, which calls for universal broadband access by 2013,” he says.

He points to the more than €4 billion A1 Telekom Austria has already invested in infrastructure in these new markets: “Its involvement will help increase the historically low broadband penetration rates in markets like Slovenia, Croatia, Serbia and Bulgaria with their below EU average levels of fixed broadband penetration. Similarly, mobile broadband penetration is about 42% in western Europe and about 18% in eastern and south-eastern Europe.” 

The next step

Steady transition to next-generation technologies is another facet of the company business development strategy: “Voice is still one of the most important revenue and margin contributing products,” Trimmel says. “Thus a careful migration to IP-based networks is a top priority. The migration to next-generation technologies is mainly motivated by equipment facing end of life and the prospect of lower operating expenses. We foster the availability of fibre-based broadband connectivity in Austria. And within our wholesale business line, we’ve created new products like virtual unbundling, or infrastructure-based services like duct sharing, for the needs of our wholesale customers.”

Trimmel says he accepts that A1 Telekom Austria will never enjoy the size and power of a Deutsche Telekom, but that an important degree of scale has been achieved through the process of fixed/ mobile convergence, and by strategic acquisition in new markets. This year already holds the prospect of breaking into 4G services, after spectrum to support LTE in the 2.6GHz band was secured at auction in late 2010. LTE services for Austria will be followed by those in the other seven countries it serves as spectrum is allocated. It is also actively pursuing the purchase of a 51% state stake in Serbian fixed-line provider Telekom Srbija. “I’d call us a niche player, but one with a heavy role to play in our given ecosystem,” says Trimmel.

key facts 

History: In 1996 , Telekom Austria was formed out of a previously 100% stateowned monopoly. In 1998, the Austrian telecoms market became fully deregulated. In 2010, A1 Telekom Austria was launched to respond to the global trend towards convergence of fixed and mobile communication services. Telekom Austria Group has over 16,500 employees and achieved revenues of €4.8 billion in 2009.

Ownership: The company is still 27.4% owned by the Austrian government.

CEO: Hannes Ametsreiter is CEO of Telekom Austria Group and A1 Telekom Austria.

Financials: In 2010, the company was on track to meet its full-year targets after net profit for the first nine months of the year rose following a cost-cutting programme and a wider economic recovery. It expects full-year EBITDA to come in at between €1.6 billion and €1.65 billion, and sales to be about €4.7 billion, or €100 million less than in 2009.

Customers: Telekom Austria Group serves more than 2.3 million fixed-line and over 19 million mobile customers in the retail market, and a number of service providers in central and eastern Europe on the wholesale side.

Services: The company’s product portfolio covers voice telephony, data and IT solutions, internet access and media, value-added services and wholesale.



  Source: BuddeComm