Europe

For information on changes in the organizational structure, please refer to the section “Group organization, strategy, and management.”

Customer Development

Total

The markets in our segment remained intensely competitive in the first nine months of 2018. We rose to the challenge in several ways, for instance by achieving substantial growth of 31.5 percent in the number of FMC customers (fixed-mobile convergence) thanks in part to our convergent product portfolio, MagentaOne. The acquisition of UPC Austria as of July 31, 2018 in particular contributes to our aim of becoming an integrated provider of mobile and fixed-network products across our entire segment. We also concluded an agreement with Orange in July of this year that will enable us to offer comprehensive convergent services in Poland in the future, thanks to the shared use of Orange’s fiber-optic network. In addition to the agreement with Orange, T-Mobile Polska signed another wholesale FTTH agreement with network operator Nexera, covering more than 450 thousand further households to be connected by the end of 2020. Our TV and broadband operations are becoming consistent revenue drivers, not least thanks to the large-scale build-out of our network with state-of-the-art fiber-optic-based lines (FTTH, FTTB, and FTTC). The number of IP lines increased as a result, primarily thanks to the migration from traditional PSTN lines to IP technology. Our mobile operations recorded growth overall, with increases in both the number of high-value contract customers and the number of prepay customers compared with the end of the prior year.

Mobile communications

The number of mobile customers totaled 50.4 million at the end of the first nine months of 2018, up by 3.2 percent or 1.6 million customers compared with the end of 2017. The number of contract customers continued to grow unabated throughout the third quarter. As of September 30, 2018, we won another 919 thousand customers, an increase of 3.6 percent. These additions include the customer base of UPC Austria starting from the third quarter of 2018. Overall, our national companies reported positive trends in their customer base, especially in Poland, Romania, Hungary, and the Czech Republic. Contract customers accounted for 52.4 percent of the total customer base. Our customers benefited not only from our innovative services/rate plans, but also from greater coverage with fast mobile broadband – a result of our integrated network strategy. As of September 30, 2018, we already covered 96 percent of the population in the countries of our operating segment with LTE, reaching around 108 million people in total. Customer demand for high data volumes has risen sharply due to the explosion in data traffic driven by video streaming services, for example. Prepaid business also looks set to continue growing, with 668 thousand net additions (a 2.9 percent increase) in the first nine months of 2018. Our national companies in Austria and Greece made particularly marked contributions to this positive trend.

Fixed network

Our TV and entertainment services saw substantial growth of 12.7 percent in the first nine months of 2018, driven primarily by the acquisition of UPC Austria. But even without this effect, customer growth would have stood at 2.0 percent, with our national companies in Hungary, the Czech Republic, and Slovakia accounting for the majority of these net customer additions. With both telecommunication providers and OTT players offering TV services in the countries of our segment, the TV market there is highly contested.

The number of broadband customers increased by 13.8 percent as of September 30, 2018 to 6.3 million overall, with the acquisition of UPC Austria also accounting for the majority of these net customer additions. Without this effect, there would have been growth of 3.7 percent. In particular, the customer bases of our national companies in Greece, Hungary, the Czech Republic, and Slovakia saw growth, partly on the back of increased investment in innovative fiber-optic-based technologies. We continued to extend our fiber-optic coverage and, as of September 30, 2018, had reached 7.0 million households.

Consistent growth in IP-based lines as a percentage of all fixed-network lines confirms that we are making good progress: At the end of September 2018, this share amounted to 78.7 percent. The acquisition of UPC Austria increased the number of fixed-network lines in our Europe operating segment to 9.0 million overall, an increase of 7.1 percent. Without this effect, development would have remained stable.

FMC – fixed-mobile convergence

Our portfolio of convergent products, MagentaOne, remained highly popular with consumers across all of our integrated national companies. As of September 30, 2018, we had around 2.9 million FMC customers; this corresponds to significant growth of 31.5 percent or 695 thousand net additions compared with year-end 2017. Our national companies in Hungary and Greece were the main drivers of this trend. We have also been increasingly successful in marketing our MagentaOne Business product to business customers.

Development of operations

Total revenue

Our Europe operating segment generated total revenue of EUR 8.8 billion in the first nine months of 2018, a year-on-year increase of 1.9 percent. In organic terms, i.e., assuming constant exchange rates and without the inclusion of UPC Austria as of July 31, 2018, revenue increased slightly by 1.3 percent. The mandatory first-time application of the IFRS 15 accounting standard as of January 1, 2018 did not have a material effect on the development of revenues at segment level.

Our Business Customer operations continued on their successful growth course in the third quarter, driven mainly by the positive trend in ICT business in Hungary. Mobile communications revenue was also up by 1.9 percent year-on-year. Most of the countries in our operating segment contributed to this growth. Fixed-network revenue at segment level also increased slightly year-on-year in the core business, mainly due to the positive revenue effect from TV and broadband business, especially in Hungary and Greece. These increases were partially offset by a decline in wholesale business. Intense competition on the telecommunications markets had a negative impact on our revenue in some countries of our operating segment.

Revenue from Consumers increased by 2.7 percent compared with the first nine months of the prior year, driven mainly by mobile business. Revenue from fixed-network business rose, too, on the back of the trend in TV and broadband operations driven by our innovative TV and program management activities as well as the continuous rollout of fiber-optic technology in most of our national companies. In addition to higher terminal equipment revenues, strong growth in the number of FMC customers had a positive impact on revenue. This offset the negative effects caused by declining revenue mainly from voice telephony.

In Business Customer operations, especially ICT, we recorded year-on-year growth of 3.3 percent in the first nine months of 2018. Our Systems Solutions (ICT) business performed well in Hungary and other markets once again. We also recorded strong, double-digit growth year-on-year from convergent solutions for small and medium-sized enterprises (FMCC) as well as from our Smart City projects. Our core business (fixed-network and mobile communications) remained stable.

Wholesale revenue declined year-on-year following the most recent EU roaming regulation level, which resulted in lower revenues both in the national companies and in our International Wholesale unit.

Looking at the development by country, our national companies in Hungary, Greece, Slovakia, and the Czech Republic made the largest contributions to the organic development of revenue in the first nine months of 2018. This more than offset the decline in revenue in Romania in particular, where lower fixed-network revenues, especially from voice telephony, were only compensated to a limited extent by higher revenues from mobile communications and B2B/ICT business customer operations.

EBITDA, adjusted EBITDA

Our Europe operating segment generated adjusted EBITDA of EUR 2.9 billion in the first nine months of 2018, an increase of 2.9 percent. In organic terms, i.e., assuming constant exchange rates and excluding UPC Austria, adjusted EBITDA increased slightly by 2.1 percent. The mandatory first-time application of the IFRS 15 accounting standard as of January 1, 2018 did not have a material effect on the development of adjusted EBITDA.

The positive trend in adjusted organic EBITDA was driven both by the growth in revenue and by savings made in indirect costs, especially in the Czech Republic, Croatia, and Greece – in the latter primarily as a result of lower personnel costs. By contrast, in terms of direct costs, market investments and costs relating to the B2B/ICT operations increased. In addition, regulatory effects, including the reduction in EU roaming charges, reduced adjusted EBITDA.

EBITDA continued its positive trend for the third quarter in a row this year, growing by 3.8 percent compared with the prior-year period to EUR 2.9 billion, due primarily to the increase in adjusted EBITDA. At EUR -73 million, special factors were EUR 21 million lower than in the prior-year period. In organic terms, EBITDA grew by 2.9 percent.

Looking at the development by country, the increase in adjusted EBITDA was largely attributable to the positive trends at our national companies in Greece, the Czech Republic, Croatia, and Hungary. Offsetting developments were reported mainly at the national companies in Poland and Romania. At the latter, adjusted EBITDA decreased by 5.9 percent year-on-year to EUR 112 million as a result of declining fixed-network business.

Development of operations in selected countries

Greece. In Greece, revenue was up year-on-year by 1.3 percent in the first nine months of 2018 at EUR 2.2 billion. This was driven mainly by higher mobile revenues and sustained high fixed-network revenues: Broadband, B2B/ICT operations, and wholesale business continued to grow, while revenues from TV business declined. The FMC offering also developed positively, with rising customer numbers and corresponding revenues.

In the first nine months of 2018, adjusted EBITDA in Greece increased year-on-year by a substantial 4.5 percent to EUR 880 million driven largely by improved cost efficiency, especially with regard to personnel costs.

Hungary. In Hungary, revenue grew substantially in the first nine months of 2018 by 4.4 percent compared with the prior-year period to EUR 1.4 billion. In organic terms, it increased by 7.5 percent. This growth was driven by rising mobile service revenues and by fixed-network business with sustained clear revenue growth in B2B/ICT business customer operations. Broadband, TV, and terminal equipment operations also made a positive contribution to revenue. Our MagentaOne portfolio of FMC products is enjoying success among consumers and business customers alike, a trend that is underpinned by growing customer numbers and a corresponding rise in revenue. Both service revenues and terminal equipment business performed well, which was attributable to our high-speed, high-reach mobile network.

Adjusted EBITDA decreased by 1.4 percent year-on-year to EUR 412 million. Organic adjusted EBITDA increased by 1.7 percent.

Austria. In Austria, we generated revenue of EUR 721 million in the first nine months of 2018, up 8.4 percent compared with the same nine months of the prior year. This increase is attributable to the effects of the acquisition of UPC Austria, which now allows us to offer fixed-network technology in addition to the mobile broadband internet services already being successfully marketed to our customers. In organic terms, i.e., excluding UPC Austria, revenue remained on a par with the prior-year level.

The increase in revenue also impacted adjusted EBITDA, which increased by 11.7 percent year-on-year to EUR 258 million. Excluding the acquisition of UPC Austria, adjusted EBITDA would have remained stable.

Poland. Revenue at our national company in Poland increased by 1.6 percent year-on-year to EUR 1.1 billion; in organic terms, revenue increased by 1.2 percent year-on-year. This was mainly due to higher revenues in B2B/ICT operations and in mobile business; fixed-network business recorded a decline, primarily in wholesale revenues.

Adjusted EBITDA stood at EUR 294 million, down 6.1 percent year-on-year. In organic terms, adjusted EBITDA also declined by 6.1 percent, mainly due to higher interconnection costs and regulation-induced higher roaming costs.

EBIT

EBIT in our Europe operating segment increased substantially by 4.3 percent in the first nine months of 2018 to EUR 1.1 billion, due to the positive development of EBITDA. Depreciation, amortization and impairment losses were up 3.5 percent on the prior-year level.

Cash capex

In the reporting period, our Europe operating segment reported cash capex of EUR 1.3 billion. The slight decline is largely attributable to restrained investment activities in some of our national companies. By contrast, in some countries we invested more heavily in building out broadband and fiber-optic technology as part of our integrated network strategy. As in the prior-year period, we acquired a small number of spectrum licenses in the first nine months of 2018.

For further details, please refer to our (PDF:) IR Backup (PDF).