Mobile services

Telekom Austria Cutbacks Fuel Profit Growth

Telekom Austria has more than doubled its net profits for the first three months of the year despite reporting sales declines in every one of its geographical markets bar Croatia and Macedonia.

The Austrian incumbent hailed the success of its cost-cutting program and claimed that savings had allowed it to increase investments in the rollout of higher-speed networks.

Net income soared by 127.5%, to €92.7 million ($100 million), compared with the first three months of 2014, while revenues shrank by 2%, to €956 million ($1.03 billion), over the same period.

Telekom Austria Group faces challenging macroeconomic and competitive conditions in most of the countries where it operates and has continued to blame adverse regulation for putting a further squeeze on revenues.

But it reiterated expectations that sales will grow by 2% this year as it funnels €700-750 million ($756-$810 million) into capital expenditure on 4G and fiber-based broadband networks. Capex rose by 21.8% in the first three months of the year, to €121.1 million ($130.8 million), compared with the same part of 2014. (See Net Loss Prompts More Cuts at Telekom Austria.)

The company is now 60% owned by Mexico's América Móvil S.A. de C.V. and says the financial support of the Latin American telecom giant will give it the flexibility it needs to pursue its strategy.

Indeed, with América Móvil's backing, Telekom Austria has already been able to reduce net debt to just twice its annual EBITDA from a ratio of about 2.8 at the end of 2013.

Investors seemed relatively unimpressed with the earnings update. After opening 1.4% higher on the Vienna stock exchange on Wednesday, Telekom Austria's share price had fallen back to its closing level on Tuesday by mid-morning.

There is bound to be some concern about the situation in Austria, where the recent influx of MVNOs has triggered a loss of customers at Telekom Austria's prepaid mobile-phone business.

Generating nearly 64% of its revenues in Austria, the incumbent finished the recent quarter with about 5.38 million mobile customers -- almost 5% fewer than in the year-earlier period -- and a market share of 40.4%, down from one of 42.1% in March 2014.

It has looked to the higher-income segment of the market to offset these losses and also managed to strengthen its position in Austria's broadband market during the quarter.

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In complete contrast, Telekom Austria increased its mobile market share in Bulgaria but saw price-based competition erode its average revenue per user (ARPU), reporting a 4.1% drop in sales, to €87.5 million ($94.5 million).

Unfavorable foreign exchange movements were chiefly to blame for a slightly steeper rate of decline in Belarus -- where revenues fell by 4.7%, to €77.2 million ($83.4 million) -- and the operator was forced to acknowledge that currency "risks remain substantial" in the country.

Croatia stood out as one of just two markets to report revenue growth, but the increase of 1.5%, to €84.6 million ($91.3 million), was mainly due to sales of costlier smartphones. Although ARPU inched up, the VIPnet -branded subsidiary finished the quarter with 4.5% fewer customers than a year earlier, blaming its losses on a mixture of competition and adjustments to account for inactive prepaid subscribers.

The additional markets segment -- which includes smaller operations in Macedonia, Serbia and Slovenia -- suffered an 8.7% decline in revenues, to €105.3 million ($113.7 million), due to "negative pricing trends and regulatory cuts" in Serbia and Slovenia.

The June 2014 takeover of a cable operator called blizoo fueled a 17.6% increase in sales at the Macedonian subsidiary, to €15.9 million ($17.2 million). Revenues would otherwise have fallen by 3.7% in Macedonia.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

Mitch Wagner 4/22/2015 | 12:23:08 PM
Cost-cutting Cost-cutting is of course a short-term and dangerous way of boosting profits. But if the cost savings are redirected into investment, that can work. 
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