Europe

Customer development

Total

Excluding the effect from the sale of Telekom Romania Communications, the number of customers in our Europe operating segment grew once again year-on-year, exceeding our expectations to some extent. For example, we recorded fixed-network net customer additions on an organic basis. Our MagentaOne convergent product portfolio, in particular, generated growth compared with year-end 2020 of 15.5 % in FMC customers thanks to ongoing demand. We are working flat out to build out our fixed-network infrastructure with state-of-the-art optical fiber. The number of broadband customers likewise increased by 5.8 % in organic terms. On the same basis, the mobile business also recorded an increase of 2.8 % in customer numbers, with increases in both the number of high-value contract customers and the number of prepaid customers. Our build-out of the 5G network is making good progress: most of our national companies have already launched the commercial sale of 5G products and services.

Mobile communications

Our Europe operating segment had a total of 45.8 million mobile customers as of December 31, 2021, marking a stable trend compared with the end of 2020. The number of high-value contract customers decreased slightly by 1.0 %, largely as a result of the effect from the sale of Telekom Romania Communications on September 30, 2021: Romanian FMC customers, i.e., customers who use both a fixed-network line and a mobile communications service were assigned to the fixed-network business in line with our steering definition. As a result, the corresponding SIM cards were no longer included as of the end of 2021. Without this effect, the number of contract customers increased by 3.0 %. By contrast, the contract customer base grew at our other national companies, especially in Poland, Hungary, and the Czech Republic. Overall, contract customers accounted for 58.0 % of the total customer base. In parallel with pure customer development, we have successfully pursued the more-for-more principle in our product portfolio, so as to sustainably increase value per customer. In addition, thanks to our integrated network strategy our customers benefited from greater coverage with fast mobile broadband. As of December 31, 2021, we covered 98.2 % of the population in the countries of our operating segment with LTE, reaching around 109 million people in total. The footprint countries of our operating segment are also making excellent headway with 5G. As of the end of 2021, our national companies covered 28.9 % of the population (in particular in Greece, Croatia, and Austria) with 5G.

The prepaid customer base recorded growth of 2.5 % compared with the end of 2020. Growth in countries including Poland and Austria more than offset the declines reported especially in Romania. In addition, we offer our prepaid customers high-value contract plans with the resulting number of contract conversions also contributing positively to contract customer business.

Fixed network

The broadband business declined by 8.1 % compared with the end of the prior year to total 6.4 million customers. Excluding the effect from the sale of the Romanian fixed-network business, the number of customers grew by 5.8 %. This increase was mainly driven by the national companies in Greece, Hungary, and Poland. By continuing to invest in innovative fiber-optic technologies, we are systematically building out our fixed-network infrastructure. At the end of the fourth quarter of 2021, a total of around 7.0 million households (coverage of 27.9 %) were provided with the option by our national companies to subscribe to a direct connection to our high-speed fiber-optic network with speeds reaching up to 1 Gbit/s. The number of IP-based lines increased to account for 99.6 % of all fixed-network lines in the same period. The number of fixed-network lines in our Europe operating segment declined by 14.1 % overall to 7.8 million. Excluding the effect from the sale of the Romanian fixed-network business, the number of lines grew by 2.1 % year-on-year.

The TV and entertainment business had a total of 4.0 million customers as of December 31, 2021, down by 20.4 % compared with the end of the prior year. Excluding the effect from the sale of the Romanian fixed-network business, the customer base grew by 5.5 %. 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. As of December 31, 2021, we had 6.3 million FMC customers; this corresponds to growth of 1.0 % compared with the end of the prior year. Excluding the effect from the sale of the Romanian fixed-network business, the customer base grew by 15.5 %. Our national companies, in particular in Greece, Hungary, Poland, the Czech Republic, and Austria, contributed to this growth. We have also seen accelerated growth in the marketing of our MagentaOne Business product to business customers.

Development of operations

Total revenue, service revenue

Total revenue generated in our Europe operating segment by the end of the reporting year was EUR 11.4 billion, a year-on-year increase of 0.4 %. In organic terms – i.e., adjusted for the sale of Telekom Romania Communications, which operates the Romanian fixed-network business, on September 30, 2021, and assuming constant exchange rate effects – revenue increased by 2.4 % year-on-year. Service revenue remained stable year-on-year, growing by 2.0 % in organic terms. Regulatory intervention, in addition to the consequences of the coronavirus pandemic, continued to have a negative effect on the organic development of revenue in the reporting year.

Organic revenue growth was mainly driven by the strong performance of the mobile business, especially the increase in mobile service revenues with higher margins, slight increases in roaming and visitor revenues, and higher revenues from terminal equipment sales. Fixed-network service revenues, by contrast, developed slightly better. The strong performance of the broadband business in particular helped to offset the declines in voice telephony revenues, which were in line with expectations. Systems solutions business declined overall.

Looking at the development by country, our national companies in Greece, Hungary, Austria, and the Czech Republic recorded the best organic development of revenue.

Revenue from Consumers increased in organic terms by 2.5 % year-on-year, due mainly to higher mobile revenue: both service revenues and sales of mobile terminal equipment increased. 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 more than offset the decline in revenue from voice telephony. In addition, the higher number of FMC customers had a positive impact on revenue.

Revenue from Business Customers remained stable year-on-year in organic terms. The stable upward trend in mobile business over the course of the year offset the slight decline in demand in the fixed-network business. The number of SIM cards increased by 3 % year-on-year on the back of the development of business in Poland, Hungary, and Austria. This was a consequence of the widespread utilization of mobile working in our European companies. The strong IT revenues of the previous year could not be replicated in 2021 due to the sale of the Romanian fixed-network business and the new licensing rules in Croatia. Nevertheless, we reported sustained growth in demand and revenues in our productivity, cloud computing, smart cities, and security solution portfolios.

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 4.0 billion in the reporting year, up 2.5 % year-on-year. In organic terms, i.e., adjusted for the sale of the Romanian fixed-network business and the transfer of the Austrian cell tower business to the Group Development operating segment, and assuming constant exchange rates, adjusted EBITDA AL increased by 5.4 %, thus continuing to make a positive contribution to earnings. In addition to the positive revenue effects, savings in indirect costs, including due to lower personnel costs, contributed to this development.

Looking at the development by country, the increase in adjusted organic EBITDA AL was largely attributable to the positive trend at virtually all of our national companies, but in particular in Greece, Austria, Romania, Croatia, and Hungary.

EBITDA AL increased by 8.0 % year-on-year to EUR 4.0 billion. Special factors improved from EUR ‑188 million to EUR 11 million. The reason for this change was the reversal of other provisions for personnel costs recognized by OTE in 2010 and 2011 in connection with an additional payment of EUR 134 million to the Greek social insurance fund IKA-ETAM as a result of corresponding proceedings concluded in September 2021. The sale of Telekom Romania Communications resulted in a loss on deconsolidation of EUR 29 million, which was recognized as a special factor. In organic terms, EBITDA AL grew by 11.1 %.

Development of operations in selected countries

Greece. In Greece, revenue increased by 4.7 % year-on-year to EUR 3.1 billion. The encouraging development in mobile business is mainly attributable to the addition of new contract customers, with associated increases in both terminal equipment sales and service revenues. As travel activity increasingly returns to more normal levels, there was also a positive trend in visitor revenues. The intensive fiber-optic and vectoring build-out, together with the resulting higher numbers of customers, had an increasingly positive impact on the fixed-network business. Fixed-network revenues increased in the reporting year, mainly driven by strong growth in the broadband business. The systems solutions business also contributed to revenue growth.

In 2021, adjusted EBITDA AL in Greece stood at EUR 1.3 billion, a significant increase of 5.5 % against the prior year. This is attributable to a revenue-related increase in the net margin. Savings in indirect costs had a positive effect.

Hungary. Revenue in Hungary totaled EUR 1.8 billion in the 2021 financial year, an increase of 2.0 % despite negative exchange rate effects. In organic terms, revenue was up 4.1 % against the prior-year level. The biggest driver of this increase was mobile communications business, mainly on account of higher service revenues. In addition, growth in the number of contract customers had positive effects on terminal equipment business. Fixed-network operations also increased slightly year-on-year, with rising TV and broadband service revenues, both driven once again by larger customer bases. Systems solutions business posted a slight decline in revenue. Our MagentaOne convergence products continued to perform well, with further customer additions and corresponding revenue.

Adjusted EBITDA AL stood at EUR 536 million, up 3.1 % year-on-year. In organic terms, adjusted EBITDA AL grew by 5.1 %. This growth is attributable in particular to higher revenues, which more than offset the rise in costs.

Poland. Our revenue in Poland decreased by 1.8 % in the reporting year to EUR 1.4 billion. This decline was due to negative exchange rate effects. In organic terms, revenue increased slightly by 0.9 %, with the mobile business posting the largest increase. Growth in the number of contract customers had a positive effect on terminal equipment business. Higher roaming and visitor revenues were also recorded. Systems solutions business grew markedly in 2021. The number of FTTH customers in the fixed-network business also increased significantly, creating the basis for further broadband growth. This is reflected in higher broadband and TV service revenues, and is also thanks to our successful partnership agreements on network infrastructure.

Adjusted EBITDA AL stood at EUR 385 million in 2021, up 1.9 % year-on-year. In organic terms, adjusted EBITDA AL increased by 4.6 %, mainly on the back of the increase in revenue.

Czech Republic. In the reporting period, revenue in the Czech Republic stood at EUR 1.1 billion, up 6.9 % on the prior-year level. Organic growth was 3.6 % on account of positive exchange rate effects. Mobile revenues were a major driver of this trend, mainly on the back of increased service revenues (excluding visitor revenues) with higher margins, and higher terminal equipment revenues. In addition, broadband and TV business in the fixed network were yet again the key driver of growth in service revenues, thus bearing out our fiber-optic investment strategy. The number of broadband customers increased substantially year-on-year. We also generated additional revenue in the area of systems solutions.

Adjusted EBITDA AL increased by 9.5 % year-on-year to EUR 471 million. In organic terms, earnings grew by 6.2 % year-on-year, driven mainly by revenue.

Austria. Revenue in Austria totaled EUR 1.4 billion in the 2021 financial year. This increase of 3.8 % was mainly attributable to growth in mobile revenues, driven above all by an increase in higher-margin service revenues. The sale of mobile terminal equipment also made a positive contribution to revenue. Visitor revenues also had a modest positive effect. Service revenues in the fixed-network business also developed encouragingly. The broadband business generated substantial growth rates, due among other factors to a larger customer base and higher-value rate plans.

Adjusted EBITDA AL decreased as of December 31, 2021 by 1.8 % year-on-year to EUR 487 million. In organic terms, i.e., excluding the transfer of the Austrian cell tower business to the Group Development operating segment, adjusted EBITDA AL increased substantially by 9.7 % due to the positive revenue effect. A key contribution comes from the realization of synergies and from the expansion of convergent product offerings.

EBIT

Our Europe operating segment recorded an increase in EBIT of EUR 536 million in the reporting year. In addition to an increase in EBITDA of EUR 237 million, depreciation, amortization and impairment losses decreased by EUR 299 million, with depreciation and amortization down year-on-year. This was mainly a result of the suspension of depreciation and amortization in connection with Telekom Romania Communications due to the fact that it was held for sale until September 30, 2021. In addition, depreciation and amortization was lower on account of the transfer of the Austrian cell tower business to the Group Development operating segment. In the third quarter of the prior year, ad hoc impairment losses totaling EUR 160 million had been recognized on non-current assets of the Romanian mobile business, which is to remain in the Group. This impairment was triggered by the discontinuance of the previously existing MVNO agreements in connection with the sale of the Romanian fixed-network business, which was still being planned at that time.

Cash capex

In the 2021 financial year, the Europe operating segment reported cash capex of EUR 1.9 billion, down 14.0 % year-on-year. This decrease is due to a decline in cash outflows for the acquisition of spectrum licenses, primarily in Hungary and Greece. We continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.