Europe

Customer development

Total

In the Europe operating segment, almost all key performance indicators for customer development improved compared with the end of 2022. Our convergent product portfolio, in particular, generated growth compared with year-end 2022 of 2.4 % in FMC customers thanks to ongoing demand. As a consequence, we are working flat out to build out our fixed-network infrastructure with state-of-the-art optical fiber. The number of broadband customers has increased by 1.2 %. The mobile business remained on a par with the year-end level. Our build-out of the 5G network is making good progress.

Mobile communications

In our Europe operating segment, the overall number of mobile customers as of March 31, 2023 remained stable against year-end 2022 at 47.4 million. The number of contract customers increased slightly by 0.4 %. The contract customer base grew in almost all of our national companies, but in particular in Greece, the Czech Republic, Slovakia, Austria, and Poland. Overall, contract customers accounted for 56.1 % 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 March 31, 2023, our national companies covered 51.1 % of the population (in particular in Greece, Montenegro, North Macedonia, the Czech Republic, and Austria) with 5G.

The prepaid customer base declined slightly by 0.4 % compared with the end of 2022, especially in Romania and Greece. 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 1.2 % compared with the end of 2022 to a total of 6.8 million customers. This growth is mainly driven by the national companies in Poland, Hungary, 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 first quarter of 2023, a total of around 8.2 million households (coverage of 32.1 %) 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 was up slightly at around 33 %. The number of fixed-network lines increased further by 5.5 %, reaching 8.3 million as of March 31, 2023.

The TV and entertainment business had a total of 4.2 million customers as of the end of the first quarter of 2023, up slightly by 0.7 % compared with the end of the prior year. This was attributable among other things to the acquisition of exclusive rights to broadcast sports events in 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 and digitalization

Our portfolio of convergent products, MagentaOne, was highly popular with consumers across all of our national companies. As of March 31, 2023, we had 7.2 million FMC customers; this corresponds to growth of 2.4 % compared with the end of the prior year. Our national companies in particular in the Czech Republic, Greece, Hungary, and Poland contributed to this growth. At the end of the reporting quarter, FMC customers accounted for 61.2 % of the broadband customer base. We have also seen slight 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 66 % of our customers use our service app.

Development of operations

Revenue, service revenue

Our Europe operating segment generated revenue of EUR 2.8 billion in the first three months of 2023, a year-on-year increase of 3.8 %. In organic terms, i.e., assuming constant exchange rates, revenue increased by 4.9 % year-on-year. Service revenues also grew against the prior year, 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: alongside the larger contract customer base, higher prices in several countries and slight increases in roaming and visitor revenues further contributed to this trend. Contract customer additions also had positive effects on terminal equipment revenues. Fixed-network service revenues stabilized at the prior-year level. Our intense focus on the continued build-out of high-speed network infrastructure drove increases in broadband and TV revenues, which almost entirely offset the expected declines in voice telephony revenues and wholesale revenues. 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 and Greece contributed to the growth in revenue in organic terms, with our national companies in Hungary, Poland, the Czech Republic, Slovakia, Croatia, and Austria recording the best absolute development by country.

Revenue from Consumers increased in organic terms by 5.8 % 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 continuous fiber-optic build-out and our TV and entertainment offerings. 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 with Business Customers grew by 8.6 % against the prior-year quarter, with Poland and Hungary making significant contributions in core business. Growth was reported across all product areas. The number of mobile contract customers increased by 2.7 %, with almost all national companies contributing to growth, in particular Poland followed by Austria, Romania, and Greece. In the fixed-network business, the number of broadband customers rose by 4.8 %. Growth was recorded in particular in the segment of smaller business customers. ICT revenues grew strongly quarter-on-quarter due to an increase in systems solutions business and data communication, especially in Hungary and Greece. Digital Infrastructure developed positively as a result of the expansion of capacities and strong growth in the security solutions business.

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 983 million in the first three months of 2023, up slightly by 0.7 % against the prior-year level. In organic terms, adjusted EBITDA AL grew by 1.2 %, again making a positive contribution to earnings, with a positive net margin more than sufficient to offset the rise in indirect costs. The latter is in part a result of the supplementary telecommunication tax imposed by the Hungarian regulatory authorities in June 2022, which had a negative effect of EUR 19 million in the first three months of 2023. Earnings were further affected by inflation-induced cost increases (especially energy and personnel costs).

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

At EUR 978 million, EBITDA AL remained on a par with the prior-year level. The expense arising from special factors was marginally higher than in the prior year.

Development of operations in selected countries

Greece. Revenues in Greece amounted to EUR 736 million in the first quarter of 2023, a slight year-on-year decrease of 0.9 %. This trend is due to declines in the fixed-network business, where traditional voice telephony revenues are tapering off. Wholesale revenues also decreased as a result of lower volumes of international traffic. The positive trend in mobile revenues cushioned the impact of these declines. Alongside higher service revenues, the addition of new contract customers drove an increase in terminal equipment revenues. However, mobile revenues were affected by termination rate cuts imposed by the regulatory authority. Our convergence products also performed well, with further customer additions and corresponding revenue. Systems solutions business recorded a substantial rise in revenue.

Adjusted EBITDA AL stood at EUR 319 million, up 1.6 % year-on-year, driven by lower indirect costs.

Hungary. Revenue in Hungary totaled EUR 457 million in the first three months of 2023, which corresponds to growth of 5.5 % despite highly unfavorable exchange rate effects. In organic terms, revenue was up significantly against the prior-year period by 12.6 %. The biggest driver of this increase was mobile business, mainly on account of significantly higher service revenues. Fixed-network revenue also increased markedly against the prior-year quarter. 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 also recorded a significant increase in revenue.

Adjusted EBITDA AL stood at EUR 110 million, down 13.4 % year-on-year. In organic terms, the decline was 7.5 %. The higher net margin was not sufficient to offset the increase in indirect costs. Alongside higher energy and personnel costs, the decline in earnings was mainly attributable to the supplementary telecommunication tax imposed in June 2022.

Poland. Revenue in Poland grew markedly in the reporting quarter by 8.3 % to EUR 365 million. In organic terms, revenue increased by 10.3 %. Mobile business was the main driver of this uptrend in revenue, with growth in the contract customer base also having a positive effect on terminal equipment business. However, mobile revenues were affected by termination rate cuts imposed by the regulatory authority. 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. The number of FMC customers increased again substantially in the first quarter of 2023. This had a corresponding positive impact on revenues. Revenue in systems solutions business also grew slightly.

Adjusted EBITDA AL stood at EUR 93 million, 5.1 % below the prior-year period level. In organic terms, the decline was reduced to 2.8 %. The revenue-driven increase in the net margin was entirely offset by the increase in indirect costs, in particular as a result of higher energy and personnel costs.

Czech Republic. Revenue in the Czech Republic stood at EUR 321 million in the reporting quarter, an increase of 10.7 % against the prior-year quarter. Excluding positive exchange rate effects, organic growth was 6.7 %. This is largely attributable to our mobile business, which recorded higher service revenues and increased revenues from terminal equipment sales, the latter driven in part by renewed growth in the number of contract customers. However, mobile revenues were affected by termination rate cuts imposed by the regulatory authority. 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. Moreover, our systems solutions business continued to pay off: we recorded an increase in revenue in this business area.

Adjusted EBITDA AL increased by 3.2 % year-on-year to EUR 129 million. In organic terms, earnings remained stable. The revenue-driven increase in the net margin was offset by higher indirect costs, in particular as a result of higher energy and personnel costs.

Austria. In the first quarter of 2023, we recorded revenue of EUR 352 million in Austria. This increase of 3.2 % was mainly attributable to growth in mobile revenues, despite the adverse effects from the termination rate cuts. Alongside higher service revenues, terminal equipment revenues also increased, driven in part by growth in the contract customer base. Fixed-network revenues remained stable. Systems solutions business posted a slight increase in revenue.

Adjusted EBITDA AL increased by 7.3 % year-on-year to EUR 133 million due to lower indirect costs.

Profit/loss from operations (EBIT)

In our Europe operating segment, EBIT increased by EUR 32 million in the reporting quarter to EUR 478 million, mainly due to the EUR 23 million increase in EBITDA. Depreciation, amortization and impairment losses were down marginally against the prior-year period by EUR 9 million.

Cash capex (before spectrum investment), cash capex

In the first three months of 2023, our Europe operating segment reported cash capex (before spectrum investment) of EUR 436 billion, up 21.8 % year-on-year, largely due to the timing of the allocation of capital expenditure. We continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.