Austria's largest mobile operator Mobilkom Austria AG & Co. KG just can't stop invading Eastern European countries. Mobilkom is rapidly expanding its empire in the region and mobile broadband services at home.

With 10.2 million subscribers, Mobilkom is one of Europe's mid-sized operators. The operator reported €2.9 billion (US$3.9 billion) in revenues in 2006, which is an increase of 16.8 percent from €2.5 billion ($3.4 billion) reported in 2005. (See Telekom Austria Reports 06 and Telekom Austria Updates.)

Mobilkom recently added Serbia and Macedonia to its Eastern European holdings by acquiring the third GSM licenses in those countries. In Serbia, commercial services will launch in June and by this fall in Macedonia. These markets will join Bulgaria, Croatia, Slovenia, and Liechtenstein, where Mobilkom has wholly-owned subsidiaries. (See TA Wins License and Telekom Austria Wins License.)

But that's not enough for the Austrians. Mobilkom is hungry for more acquisitions in the region. In a recent interview with Unstrung, Mobilkom's chief marketing officer Hannes Ametsreiter said the company is now looking at Bosnia and that its parent company, Telekom Austria AG (NYSE: TKA; Vienna: TKA), remains interested in acquiring a stake in Greek national operator OTE S.A. A share in OTE would be strategically important for Telekom Austria because the Greek operator has operations in Albania, Romania, and Bulgaria. (See Eurobites: Upheaval, M&A, and Disaster and Eurobites: M&A Hotbed.)

"[OTE] would complete a footprint," says Ametsreiter. "But it now depends on the government and what its plans are."

The Greek government owns 38.7 percent of OTE. Some time this year, the government plans to sell a stake up to 20 percent and hopes to raise up to €1.5 billion (US$2 billion) from the sale.

It's not just the high-growth potential that attracts Mobilkom to Eastern Europe. Ametsreiter says that these markets are great opportunities to develop mobile data services, particularly where mobile connections can substitute fixed-line broadband connections.

In Croatia, for example, Mobilkom's subsidiary VIPnet is the number-two mobile operator with 1.9 million subscribers. In September, VIPnet launched a fixed-mobile substitution (FMS) service based on the Vodafone Homebox. [Vodafone Group plc (NYSE: VOD) and Telekom Austria signed a partnership agreement in January 2003 for joint product development, global account management and product procurement.]

The Vodafone Homebox houses a SIM card and uses the HSDPA network to deliver 384-Kbit/s Internet access, cheap voice calls, and mobile connectivity. Users can keep their fixed-line numbers, but they no longer need the fixed line, which Ametsreiter describes as the "perfect situation for a challenger brand."

Ametsreiter says the home gateways sold out in just one week, but subscribers number in the thousands. Vipnet had to issue a statement in October asking customers to be patient as they could not meet the demand for the Homeboxes.

Fixed-line operators, naturally, complained to the regulator when this product was first launched.

Continue to Page Two

Data Cards Lead the HSDPA Way
Mobilkom has 140,000 data card subscribers, 30,000 of which bought HSDPA data cards in the last quarter of last year alone. Mobilkom charges €25 ($34) per month for as much data as users can consume up to 1.5 Gbytes. Ametsreiter says data cards are his fastest selling terminal right now. Mobilkom sells the Vodafone Mobile Connect 3G data card. Smartphones, he says, aren't needed right now.

Mobilkom's data ARPU was up from €5.2 ($7) per month in the third quarter last year to €5.6 ($7.6) per month in the fourth quarter, but that was not enough to offset a general decline in overall ARPU from €34.9 ($47) per month in the third quarter to €34.4 ($47) per month in the fourth quarter last year. The figures show too just how much Mobilkom is getting hammered by competitors' aggressive voice pricing.

"Voice is still extremely important and the price pressure is enormous," he says. "That's why we could not balance off the decrease we're facing in voice with data."

Ametsreiter says the barrier to further data take-up is handset usability, not his pricing strategy. Smartphones, he says, need to be "one click to service." In other words, easier to use. He points to the iPhone as the way forward.

Also, he wants to get subscribers to use his portal, which is Vodafone Live!, every day. "[Get] daily usage [on mobile portals] and you are earning a lot of money," he says. "We need to work on usability, the man machine interface (MMI), to use the opportunities of new technology to bring the services closer to the customer."

Mobilkom has one million subscribers to the Vodafone Live! portal, who pay between €1 ($1.4) and €5 ($6.8) per month. "The mobile portal is nice, it's working, but it's not fantastic," he says.

Ametsreiter maintains that there is no way to offer all-inclusive portal packages so long as content comes from third parties. This is one of the issues operators are grappling with as they look for the right charging models for new content and data services. (See Vodafone Takes MySpace Mobile.)

But the pricing issue hasn't stopped the launches of new services. Mobilkom recently launched voice over IP (VOIP) services and is running a DVB-H pilot for 400 users. The mobile TV trial customers pay between €5 ($6.8) and €10 ($13.6) per month, and 50 percent of them use it at home. Ametsreiter expects the Austrian regulator to issue DVB-H licenses in October. (See Mobilkom Austria launches VOIP, Mobilkom Launches VOIP, and Mobilkom Austria Pilots DVB-H.)

— Michelle Donegan, European Editor, Unstrung