Europe

Customer development

Total

After customer development was hampered by the corona-induced shop closures during the first lockdown, our crisis management paid off over the remainder of the year. The focus on expanding digital sales channels, such as our service app and service center services, almost brought customer development back to normal. It did not slump again, not even when lockdown measures were reimposed at the end of 2020 during the second coronavirus wave. Our MagentaOne convergent product portfolio, in particular, generated double-digit growth of 19.5 % in FMC customers thanks to ongoing demand. We are continuously building out our fixed-network infrastructure with state-of-the-art fiber-optic-based lines (FTTH, FTTB, and FTTC), with Greece, Hungary, and Slovakia in particular seeing the greatest rollout progress in the reporting year. Since the start of the year, the number of broadband customers has increased by 4.2 %.

In mobile business, we recorded growth in high-value contract customers, which only partially offset the decline in the prepaid customer base. In 5G, we reached the first milestone a year ago with the market launch in Austria. Following Hungary and Poland, our national companies in the Czech Republic, Slovakia, Croatia, and Greece also launched 5G commercially in the fourth quarter of 2020.

Mobile communications

In the Europe operating segment, we had 45.6 million mobile customers as of December 31, 2020, a slight decline of 1.2 % compared with the end of 2019. The number of high-value contract customers increased by 2.6 %. The contract customer bases grew or remained stable in almost all of our national companies, with particularly strong growth recorded in Romania, Austria, Poland, and Hungary. Overall, contract customers account for 59 % of the total customer base. Our innovative services and rate plans are now joined in all countries by a new product portfolio, which we revamped in line with the “more for more” principle. Customers in these countries can now select high-value add-on services – e.g., more data – for a small additional monthly fee. The new portfolio also satisfies the growing demand for data volume driven by video streaming and gaming services. In addition, thanks to our integrated network strategy our customers benefited from greater coverage with fast mobile broadband. As of December 31, 2020, we covered 97.6 % of the population in the countries of our operating segment with LTE, reaching around 108 million people in total.

By contrast, the prepaid customer base declined slightly, in line with expectations, in particular in Romania and Greece. This was due in part to the negative impact of the coronavirus pandemic. But also, our market approach is focused on contract rate plans and we offer our prepaid customers attractive high-value contract rate plans. Already, more than one third of new contract customer adds are former prepaid customers who have taken advantage of these offerings. Furthermore, inactive SIM cards are deactivated from the customer base at regular intervals.

Fixed network

Broadband business continued to grow despite the coronavirus pandemic, with the customer base increasing by 4.2 % compared with the end of the prior year to a total of 7.0 million. The customer bases of almost all of our national companies, especially in Greece, Hungary, the Czech Republic, and Slovakia saw substantial growth. Romania was the exception. By continuing to invest in innovative fiber-optic-based technologies, we are systematically building out our fixed-network infrastructure. Thus, we increased household coverage with optical fiber at our four largest national companies to 4.1 million households as of December 31, 2020. The number of IP-based lines increased to account for 92.5 % of all fixed-network lines by the end of December 2020. The total number of fixed-network lines in our Europe operating segment was on a par with the prior-year level at 9.1 million.

The TV and entertainment business had a total of 5.1 million customers as of December 31, 2020, up 2.3 % compared with the prior year. With both telecommunications providers and OTT players offering TV services, the TV market is already saturated in many countries of our segment.

FMC – fixed-mobile convergence

Our portfolio of convergent products, MagentaOne, was highly popular with consumers across all of our national companies. At the end of 2020, we had 5.7 million FMC customers; this corresponds to growth of 19.5 % compared with the prior year. Our national companies in Greece, Hungary, and Austria in particular contributed to this double-digit growth. We have also seen substantially accelerated growth in the marketing of our MagentaOne Business product to business customers.

Development of operations

Total revenue

Our Europe operating segment generated total revenue of EUR 11.3 billion as of December 31, 2020, a year-on-year decrease of 2.2 %. In organic terms, i.e., assuming constant exchange rates and adjusted for the sale of Telekom Albania, revenue remained on a par with the prior-year level, despite the deterioration in economic conditions due to the coronavirus pandemic. Overall we therefore fell slightly short of our expectations on account of the coronavirus pandemic.

Fixed-network business proved to be solid over the year as a whole. We thus recorded an increase in revenue from broadband business in organic terms, in part as a result of the ongoing build-out of our networks. In many places, we have been rated the telecommunications company with the best network (e.g., Connect readers’ choice 2020, Ookla tests in Greece and Croatia), which is paying off, especially in these times of lockdowns, with the associated demand for broadband connections. Thanks to the wide range of services we offer, the TV business also recorded slight growth rates. The systems solutions business grew year-on-year, especially in Greece and Poland; the wholesale business also recorded positive growth rates, driven in part by higher revenue in Romania. We recorded a slight organic decline in mobile revenues compared with the prior year, primarily driven by declines in roaming and visitor revenues as a result of travel restrictions, some of which are still in place or have been reimposed, and by a conscious reduction in low-margin terminal equipment business. These negative effects have been partially offset by increases in higher-margin service revenues (excluding roaming and visitor revenues).

For more information on our award-winning network quality, please refer to the section “Highlights in the 2020 financial year.”

Looking at the development by country, our national companies in Austria, Poland, and the Czech Republic recorded the best organic development of revenue in the 2020 financial year. This offset the decline in revenue in Romania, Croatia, and Slovakia in particular. In Romania, the downward trend was mainly due to declining revenues from mobile communications and systems solutions business, which were partially offset by higher wholesale revenues.

Revenue from Consumers declined by 1.5 % compared with the prior-year period. Lower revenue from mobile terminal equipment business and from roaming was only partially offset by gains in higher-margin service revenues (excluding roaming). In the fixed network, revenue from broadband/TV business increased thanks to our innovative TV and entertainment offerings as well as the continuous rollout of fiber-optic technology. This offset the decline in revenue from voice telephony. In addition, the higher number of FMC customers had a positive impact on revenue.

The coronavirus pandemic posed huge challenges for the European companies in 2020. This is clearly reflected in our Business Customers operations. Revenue decreased 2.6 % year-on-year, with declines in mobile communications, fixed-network, and ICT business. As a result of coronavirus-related travel restrictions, our European subsidiaries were unable to realize the majority of the planned roaming revenues (especially in tourism countries such as Croatia). As of the end of 2020, these losses were not offset by revenue from the Europe-wide increase in demand for mobile data and broadband lines. In the first and third quarters of 2020, our ICT business recorded above-average new business with our cloud solutions (e.g., in Greece). However, by the end of 2020, the second lockdown had caused further postponements of customer orders from our corporate customers and from the public sector, which resulted in a slight decline in revenues from ICT business (in particular in our most important ICT market, Hungary).

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 3.9 billion in the 2020 financial year, which was on a par with the prior-year level, despite the impact of the coronavirus pandemic. In organic terms, i.e., assuming constant exchange rates and adjusted for the sale of Telekom Albania, adjusted EBITDA AL increased by 2.1 %, thus continuing to make a positive contribution to earnings. Savings in indirect costs (primarily due to lower personnel, marketing, and travel costs) were the main factor contributing to this development.

Looking at the development by country, the increase in adjusted organic EBITDA AL was largely attributable to the positive trends at our national companies in Austria, Romania, Hungary, Slovakia, and Poland. Contrasting developments were reported primarily at the national company in Croatia, where decreases in mobile revenues, especially from roaming and visitors, terminal equipment business, as well as decreases in voice telephony in fixed-network business, were only partially offset by positive revenue effects from systems solutions as well as broadband and TV business.

EBITDA AL decreased by 1.8 % year-on-year to EUR 3.7 billion. Expenses arising from special factors were up EUR 47 million year-on-year, mainly on account of the higher expenses for staff restructuring measures. The agreed sale of the Romanian fixed-network business prompted a reversal of impairment losses in the course of the year that had been recognized on property, plant and equipment in the past. This had a positive effect on EBITDA AL in the amount of EUR 50 million. In organic terms, EBITDA AL recorded modest growth of 0.7 %.

Development of operations in selected countries

Greece. In Greece, revenue remained on a par with the prior-year level at EUR 2.9 billion. The fixed-network business recorded a further increase: the broadband business posted particularly strong growth as a result of the intensive rollout of fiber-optic lines and vectoring. The systems solutions business also recorded significant growth, firmly driven by higher contract volumes in the public sector. The wholesale business recorded modest growth. In addition to good operational development, mobile business was heavily impacted by the coronavirus-related decline in roaming and visitor revenues as a result of reduced travel activities. These declines were only partially offset by the increase in the number of mobile devices sold. Business with the convergent product portfolio enjoyed a positive trend, generating revenue growth, thanks in particular to higher customer numbers.

In the 2020 financial year, adjusted EBITDA AL in Greece stood at EUR 1.2 billion, which was a slight decrease against the prior year of 1.1 %: the slightly lower net margin, driven largely by higher direct costs, was only partially offset by savings in indirect costs, in particular personnel costs.

Hungary. Revenue in Hungary totaled EUR 1.7 billion in the 2020 financial year, a decrease of 7.4 % against the prior year. This decline was due to negative exchange rate effects. In organic terms, revenue was on a par with the prior year. Mobile business grew, driven by higher service revenues (excluding from roaming and visitors), due in part to much higher data usage. This offset the decrease in roaming and visitor revenues resulting from the negative impact of the coronavirus pandemic. Higher revenues from the sale of mobile devices also contributed to this increase. In fixed-network business, systems solutions saw a decline due to a lower order volume in the public sector. By contrast, both broadband and TV revenues increased substantially, driven in particular by a larger customer base. Our MagentaOne convergence products also continued to perform well, with substantial customer additions and a corresponding increase in revenue.

Adjusted EBITDA AL stood at EUR 520 million, down 5.6 % year-on-year. In organic terms, adjusted EBITDA AL increased by 2.0 % compared with the prior year. This growth is attributable in particular to savings in indirect costs, including lower personnel costs and marketing expenses. Lower direct costs also had a positive impact on organic adjusted EBITDA AL.

Poland. Our revenue in Poland decreased by 2.2 % in the 2020 financial year to EUR 1.5 billion. This decline was due to negative exchange rate effects. In organic terms, revenue increased by 1.1 %. This growth is based on higher fixed-network revenue, especially in systems solutions business. The fixed-network core business also generated substantial revenue growth thanks to a larger customer base. Overall, this growth offset the negative effects from the decline in wholesale business. Higher service revenues in the mobile business (excluding roaming and visitors) were almost sufficient to offset the declines, particularly in terminal equipment sales and roaming and visitor revenues. The increase in high-value service revenues was attributable to both volume-driven increases in revenues from voice telephony and a higher-value customer base.

Adjusted EBITDA AL stood at EUR 378 million, down 1.3 % year-on-year. In organic terms, adjusted EBITDA AL increased by 2.0 %, mainly on the back of a higher net margin.

Czech Republic. In the 2020 financial year, revenue in the Czech Republic stood at EUR 1.1 billion, down 1.5 % on the prior-year level. This decline was due to negative exchange rate effects. In organic terms, revenue increased by 1.6 %. The fixed-network business was a strong driver of growth, recording substantial year-on-year increases in broadband and TV business in particular. The continuous investments in new fiber-optic networks paid off with a higher number of customers. Mobile revenues were down slightly on the prior-year level. In operational terms, service revenues (excluding roaming and visitors) increased year-on-year. The customer response to our “more for more” offers and the associated increase in revenue per customer contributed to this positive trend. However, the negative effects of the coronavirus pandemic on roaming and visitor revenues neutralized these gains.

Adjusted EBITDA AL decreased by 4.0 % year-on-year to EUR 430 million. In organic terms, earnings declined slightly by 1.2 % against the previous year: the positive organic revenue trend was offset by overall increases in direct and indirect costs.

Austria. Revenue in Austria totaled EUR 1.3 billion in the reporting year. This increase of 2.0 % was mainly attributable to higher mobile terminal equipment sales. Business with higher-margin service revenues also contributed positively to revenue. These two effects more than offset the declines in roaming and visitor revenues resulting from the coronavirus pandemic. The Magenta product portfolio has been very well received by our customers. This can be seen in particular in the development of the fixed-network business: broadband in particular generated positive growth rates, as a result of a larger customer base and other factors.

Adjusted EBITDA AL increased substantially by 6.2 % year-on-year to EUR 496 million. In addition to the positive revenue effects, stability in the development of costs also contributed to this growth.

EBIT

Our Europe operating segment recorded an increase in EBIT of EUR 169 million in the reporting year. In connection with the agreed sale of the Romanian fixed-network business, an ad hoc impairment loss of EUR 160 million was recognized in 2020 on non-current assets of the Romanian mobile business, which is to remain in the Group. This impairment was the result of the discontinuance of the previously existing MVNO agreements. Impairment losses totaling EUR 0.3 billion were recognized in Romania in the prior year. Depreciation and amortization were down slightly on the prior year.

Cash capex

In the reporting year, the Europe operating segment reported cash capex of EUR 2.2 billion, up 22.0 % year-on-year. This increase is largely due to a rise in cash outflows for the acquisition of spectrum licenses, primarily in Hungary and Greece. Even adjusted for spectrum acquisitions, our level of investment was up year-on-year. We continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.