Europe

Customer development

Total

In the Europe operating segment, almost all key performance indicators for customer development improved compared with the end of 2021, exceeding our expectations in some cases. Our convergent product portfolio, in particular, generated growth compared with year-end 2021 of 11.8 % in FMC customers thanks to ongoing demand. We are working flat out to build our fixed-network infrastructure with state-of-the-art optical fiber. The number of broadband customers has increased by 4.8 %. The mobile business also recorded an increase of 3.3 % in customer numbers. Our build-out of the 5G network is making good progress. Almost all of our national companies have already launched the commercial sale of 5G products and services.

Mobile communications

At the end of 2022, we had a total of 47.3 million mobile customers in the Europe operating segment; an increase of 3.3 % compared with the end of 2021. The number of contract customers decreased slightly by 0.4 %, largely as a result of the fact that we no longer include the SIM cards of a service provider in Austria in our customer base since January 1, 2022 but instead count them as wholesale customers. Without this effect, the number of contract customers increased by 3.2 %. By contrast, the contract customer base grew in almost all of our other national companies, but especially in Poland, Hungary, Romania, Greece, and the Czech Republic. Overall, contract customers accounted for 55.9 % of the total customer base. Our customers benefited from greater coverage with fast mobile broadband – a result of our integrated network strategy. The footprint countries of our operating segment are also making excellent headway with 5G. As of December 31, 2022, our national companies covered 47.4 % of the population (in particular in Greece, Montenegro, North Macedonia, Austria, and Croatia) with 5G.

The prepaid customer base recorded growth of 8.4 % compared with the end of 2021. Poland recorded a particularly strong increase, largely as a result of the prepaid SIM cards issued to many refugees from the war in Ukraine as part of a package of support. As part of our ordinary business activities, 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 increased by 4.8 % compared with the end of 2021 to a total of 6.7 million customers. This growth is mainly driven by the national companies in Hungary, Poland, Greece, and the Czech Republic. By continuing to invest in optical fiber, we are systematically building out our fixed-network infrastructure. At the end of the reporting year, a total of around 8.1 million households (coverage of 32.0 %) were provided with the option by our national companies to subscribe to a direct connection to our fiber-optic network with speeds reaching up to 1 Gbit/s. The utilization rate remained stable at around 32 %. The number of fixed-network lines increased again slightly by 1.3 %, reaching 7.9 million as of December 31, 2022.

The TV and entertainment business had a total of 4.1 million customers in the 2022 reporting year, up by 2.8 % compared with the end of the prior year. This was attributable among other things to the acquisition of exclusive rights to broadcast sports events. 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 and digitalization

Our portfolio of convergent products, MagentaOne, was highly popular with consumers across all of our national companies. As of December 31, 2022, we had 7.0 million FMC customers; this corresponds to growth of 11.8 % compared with the end of the prior year. Our national companies in Hungary, Poland, Greece, Austria, and the Czech Republic in particular contributed to this growth. As of the end of the reporting year, FMC customers accounted for 60.6 % of the broadband customer base. We have also seen accelerated growth in the marketing of our MagentaOne Business product to business customers.

We continue to expand our digital interaction with customers, which means we can meet customer needs in a more personalized and efficient way, and position products and innovative services on the market more quickly. Around 67 % of our customers already use our service app.

Development of operations

Net revenue, service revenue

Our Europe operating segment generated revenue of EUR 11.2 billion in the 2022 financial year, a slight year-on-year decrease of 1.2 %. In organic terms – i.e., adjusted for the sale of the Romanian fixed-network business on September 30, 2021, and assuming constant exchange rate effects – revenue increased by 3.9 % year-on-year. Service revenue declined year-on-year, but grew by 3.0 % in organic terms.

Organic revenue growth was largely driven by the strong performance of the mobile business, especially the increase in mobile service revenues with higher margins, due in part to increases in roaming and visitor revenues. Contract customer additions had positive effects on terminal equipment revenues. Service revenues also grew in the fixed-network business. Broadband and TV revenues increased on the back of the systematic build-out of our high-speed network infrastructure. Together with higher wholesale revenues, this increase offset the declines in voice telephony revenues, which were in line with expectations. The systems solutions business made a positive contribution to revenue overall. Regulatory interventions such as the reduction in termination rates had a negative impact on our organic development of revenue in the reporting period.

All countries apart from Romania contributed to the growth in revenue in organic terms, with our national companies in Hungary, the Czech Republic, Greece, and Austria recording the best relative development by country.

Revenue from Consumers increased in organic terms by 3.6 % year-on-year, due to the mobile business, where both service revenues and sales of mobile terminal equipment increased. In the fixed network, revenue from broadband and TV business increased thanks to our TV and entertainment offerings as well as the continuous fiber-optic build-out. 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.

Revenues with Business Customers increased by 3.4 % compared with the prior year, with Greece, Austria, and Hungary contributing significantly to revenues in the core business of telecommunications, and Greece and the Czech Republic making a significant contribution to ICT revenues. Growth was recorded across all product areas. The number of mobile customers increased by 3.6 %, with almost all national companies contributing to growth, in particular Poland followed by Greece, Hungary, and Austria. Greece, Hungary, and the Czech Republic also recorded higher net mobile contract customer additions compared with the prior year. In the fixed-network business, the number of broadband customers rose by 4.4 %. Growth was recorded in particular in the segment of smaller business customers. Net customer additions were also up again year-on-year in the segment of medium-sized and larger corporate customers. ICT revenue rose sharply year-on-year, due to increases in both systems solutions and data communications. The digital infrastructure area developed positively as a result of the expansion of capacities and strong growth in the security business.

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 4.0 billion in the reporting year, a slight year-on-year decline of 1.1 %. In organic terms, adjusted EBITDA AL grew by 3.1 %, again making a significant positive contribution to earnings, with a positive net margin more than sufficient to offset the rise in indirect costs. This cost increase is in part a result of the supplementary telecommunication tax imposed by the Hungarian regulatory authorities in June 2022, which had an effect of EUR 61 million as of the end of 2022. Higher energy costs also had a negative impact on earnings.

Looking at the development by country, the increase in adjusted organic EBITDA AL was attributable to the positive trends at all of our national companies, but in particular in Greece, Slovakia, and Austria.

EBITDA AL decreased by 2.1 % year-on-year to EUR 3.9 billion. The expense arising from special factors was higher than in the prior year. In organic terms, EBITDA AL recorded modest growth of 1.4 %.

Development of operations in selected countries

Greece. In the reporting year, revenue in Greece increased by 3.6 % year-on-year to EUR 3.2 billion. The continued encouraging development in mobile business is mainly attributable to the addition of new contract customers. Visitor and roaming revenues also increased substantially thanks to travel returning to more normal levels. Our convergence products also performed well, with further customer additions and corresponding revenue. The ongoing fiber-optic and vectoring build-out, together with the resulting higher numbers of customers, continued to have a positive impact on the fixed-network business. Fixed-network revenues increased, mainly driven by strong growth in the broadband and TV business. Wholesale revenues also increased as a result of an increase in the volume of international calls on our networks. Systems solutions business recorded a substantial rise in revenue.

Adjusted EBITDA AL stood at EUR 1.3 billion, up 3.6 % year-on-year. In addition to a higher net margin, this positive trend was also supported by lower indirect costs, despite the increase in energy costs.

Hungary. Revenue in Hungary totaled EUR 1.7 billion in the 2022 financial year, declining by 2.0 % compared with the prior year due to substantial negative exchange rate effects. In organic terms, i.e., assuming constant exchange rates, revenue increased by 7.6 % year-on-year. The biggest driver of this increase was mobile business, mainly on account of significantly higher service revenues. In addition, contract customer additions had positive effects on terminal equipment business. Fixed-network revenue also increased year-on-year. We recorded higher service revenues in the broadband and TV business, both driven again by larger customer bases. Thanks to our increased investments in the build-out of fiber-optic lines, our offers have won over large numbers of customers. Our convergence products also continued to perform well, with further customer additions and corresponding revenue. Systems solutions business posted a slight decline in revenue.

Adjusted EBITDA AL stood at EUR 493 million, down 8.0 % year-on-year. In organic terms, adjusted EBITDA AL grew by 1.5 %. This growth was due in particular to significantly higher revenues, which more than offset the strong rise in costs driven mainly by the supplementary telecommunication tax imposed in June 2022.

Poland. Our revenue in Poland remained more or less stable in the reporting year at EUR 1.4 billion. In organic terms, revenue increased slightly by 2.0 %. Mobile revenue was up slightly, with contract customer additions also having a positive effect on terminal equipment business. In addition, higher roaming and visitor revenues offset the regulatory-induced reduction in termination rates. 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 service revenues, and is also thanks to our successful partnership agreements on network infrastructure. Wholesale revenues were also negatively impacted by the regulatory-induced reduction in fixed-network termination rates. The number of FMC customers increased again substantially in 2022. This had a corresponding positive impact on revenues. Revenues in the systems solutions business declined.

Adjusted EBITDA AL remained more or less on a par with the prior-year level at EUR 378 million. In organic terms, adjusted EBITDA AL grew slightly by 0.6 %. The revenue-driven increase in the net margin was almost entirely offset by increases in indirect costs, in particular as a result of higher costs for energy and personnel costs.

Czech Republic. Revenue in the Czech Republic stood at EUR 1.2 billion in the reporting year, an increase of 9.4 % against the prior year. Excluding positive exchange rate effects, organic growth was 4.7 %. The realignment of our systems solutions business paid off: we recorded a substantial increase in revenue in this business area. The mobile business also grew, driven by higher service revenues and terminal equipment sales. However, mobile revenues were subject to a regulatory-induced reduction in termination rates. The fixed-network business also contributed to revenue growth. Thanks to our investments in the build-out of fiber-optic lines, our offers have won over large numbers of customers. Our convergence products recorded further customer additions and corresponding revenue growth.

Adjusted EBITDA AL increased by 6.8 % year-on-year to EUR 503 million. In organic terms, earnings grew by 2.3 % year-on-year, due to a revenue-related increase in the net margin. This was offset by higher indirect costs, primarily driven by increases in energy costs.

Austria. Revenue in Austria totaled EUR 1.4 billion in the 2022 financial year. This increase of 3.3 % was mainly attributable to growth in mobile revenues, with roaming and visitor revenues having a clearly positive impact. The regulatory-induced reduction in termination rates had a dampening effect on our mobile revenues. Service revenues in the fixed-network business developed encouragingly. The broadband business generated marked growth rates, due among other factors to a larger customer base and higher-value rate plans. Acceptance of our convergence products increased substantially again, also impacting positively on revenues.

Adjusted EBITDA AL increased by 3.9 % year-on-year to EUR 506 million. The higher revenues more than offset the rise in costs.

Profit/loss from operations (EBIT)

Our Europe operating segment recorded a decrease in EBIT of EUR 90 million in the reporting year. This was due to lower EBITDA, mainly owing to the sale of the Romanian fixed-network business in 2021. Depreciation, amortization and impairment losses were at the same level as a year earlier. An impairment loss of EUR 117 million recognized on non-current assets in the Romanian fixed-network business was offset by lower depreciation and amortization in our other national companies. Telekom Romania continues to operate in the structurally challenging and highly competitive Romanian market at prices that are low compared with other countries. In addition, high energy prices and sharp rises in interest rates had a negative impact on the enterprise value.

Cash capex (before spectrum investment), cash capex

In the 2022 financial year, the Europe operating segment reported cash capex of EUR 1.9 billion, down 1.7 % year-on-year. This decline is mainly due to the sale of the Romanian fixed-network business in 2021. We continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.