Austrian empire

When Telekom Austria reported a 50 per cent drop in third quarter profit last November, the firm blamed a customer shift to multiplay bundles, increased competition in its eight markets across Central and Eastern Europe, and regulatory intervention. For Hannes Ametsreiter, the firm’s CEO, the first of these is to be embraced as the future, the second accepted as a fact of life and the third opposed as the most significant threat with which the company, and the European sector as a whole, is faced.

Ametsreiter, at the risk of understatement, is not a fan of European Commission regulation. He says he wants to see Europe regain a leading role in the global sector, which is an aim he shares with European Commissioner Neelie Kroes, but he does not believe that current regulatory strategies will yield the desired result.

“Regulation in Europe, over the last five years, has weakened the industry significantly,” he says. “There is a very simple measure of the impact of this regulation and that is EBITDA multiples. If the margins of European telcos were higher than the rest of the world then I would say that the regulation had done a good job. But at the moment the EBITDA multiples of European telecommunication companies are the lowest in the world. I believe it will be a tough job to bring Europe back to the position we held ten years ago, when we were leading the world.”

Of the eight markets in which Telekom Austria operates, four — Belarus, Liechtenstein, Macedonia and Serbia — are outside of the European Union. Asked what differences he notes between the two subgroups, Ametsreiter says: “The ones outside are more profitable. It’s that simple”.

Ametsreiter is not the first European executive to look West for inspiration. Light touch regulation in the US drove investment in infrastructure, he said, propelling the market to international leadership. “At the moment we in Europe are missing incentives for investment. We need those incentives and regulation should not focus so much on the consumer but should be more about industrial policy. It needs to be concerned with the future, and what infrastructure is necessary for Europe to be a leading industrialised region.”

Of course infrastructure investment in the US was led by operators with massive scale and the high number of operators in Europe compared to the US or China, says Ametsreiter, is another issue that requires attention. His predictions in this regard, given that Carlos Slim’s America Movil holds a 27 per cent stake in Telekom Austria, are very interesting:

“I believe we will see more consolidation in Europe, I believe international players from outside Europe will make acquisitions and I believe this means that the headquarters of some European operators might move outside of the region,” he says.

Since Slim’s failed bid to take control of another European operator in which it holds a stake, Dutch incumbent KPN, speculation has been mounting that the Mexican billionaire will look to increase his holding in Telekom Austria. In January Slim upped his stake by 3.14 per cent and, at the time of writing, Reuters has just cited sources close to Telekom Austria in a report that a much bigger deal is imminent. So is Ametsreiter speculating about the future of his own operation? “I am not talking about us, that is not the case,” he says. “I just see that there are many rumours in the industry that show there is a lot of interest from international investors in Europe.”

Scale and consolidation are not just about international investment, however. Indeed one of the trends of 2013 was the growth of in-market consolidation among different types of operator looking to develop multiple strands to their offerings. As an incumbent Telekom Austria has already bet on convergence and multiplay, Ametsreiter says.

“We were the first in the world to clearly declare that we believe convergence is the future,” he says. “We believe convergence means all-IP and that is happening, we are using fixed and mobile technologies to generate better products for the customer. Some 60 per cent of our customers are saying they want everything from one provider so we believe it is necessary to be a full communication provider, offering mobile, broadband, TV and content. This is why we acquired the biggest cable operator in Croatia and two fiber companies in Bulgaria, this is the way forward.”

Others have speculated that, in today’s world, TV is the element that will work most effectively in a bundled offering as a retention tool. But Ametsreiter insists that the bundle itself, rather than any of its constituent parts, is what really make a service sticky. Churn among customers that have taken Telekom Austria’s bundles has fallen by 80 per cent he says. Financial performance might take a short term hit because of the discounts inherent in bundling but operators just need to sell more bundles to compensate, he says.

“You need to work on your penetration of bundles,” he said. “This is the magic ingredient and the development we have seen is stunning. It gives us the opportunity to significantly increase average revenue per line or per user, it significantly reduces churn; it has a very positive effect on the business.”

Operators without such an offer will falter, he suggests. “Life will become more difficult for pure mobile players. You need to think about what your proposition for the future will be and if you don’t have any clear plan then I think you will miss out,” he says.

Nonetheless, it is essential for multiplay operators to keep their mobile play in shape and, in Austria’s frequency auction last October, Telekom Austria secured a substantial spectrum holding for an equally substantial price. The firm acquired half of all spectrum made available; four blocks of 800MHz, three at 900MHz and seven at 1800MHz, giving it 2 x 70MHz in total. It paid E1.03bn which, at the time, Ametsreiter described as “a bitter pill”.

He maintains, however, that the haul represented good value for money. “Today we have one of the best frequency situations in Europe,” he says, “and it also means that, for the next 10 – 20 years we’ll have the best network in Austria, and that is not a bad situation.”

Not for Telekom Austria, certainly. But the auction was criticised in some quarters for favouring the incumbent over its competitors and threatening the kind of investment, because of the high price paid, that Ametsreiter deems so important. T-Mobile Austria launched an appeal after the auction and the CEO of Hutchison’s local operation 3, Jan Trionow, described it as “a disaster for the industry”. So how does Ametsreiter respond to suggestions that the auction was fundamentally unfair?

“We are not a competition agency but the auction was set up so that everyone had the chance to buy spectrum and the outcome was the outcome. And we now know that we have the best frequency situation and we can offer the best products on the market,” he says.

How and when the operator uses that spectrum will be interesting to watch. Indeed, later in the discussion, Ametsreiter draws a direct correlation between cheap spectrum and infrastructure investment and the firm’s latest acquisition certainly wasn’t cheap.

He sidesteps the question of whether the industry should look to evolve beyond auctions, saying: “We are just an operator and this is a political discussion. We need political direction, whether or not it’s best to have cheap spectrum and a lot of investment in excellent infrastructure or whether it’s best to earn a lot of money for the local government. There are lots of discussions and that shows that nobody’s happy with industrial policy in the EU.”

Telekom Austria is one to watch. Straddling the Eastern boundaries of the EU, an avowed multiplay specialist and with one of the world’s richest men already a significant stakeholder and keen to expand his European presence, Ametsreiter’s company could well find itself at the centre of some very interesting developments in 2014.