Europe

Customer development

Total

At the start of the second quarter of 2020, customer development in the markets of our Europe segment was affected by the travel restrictions and temporary shop closures imposed in response to the coronavirus pandemic. In the summer months, however, this tense situation appeared generally to ease, although not to the extent that pre-coronavirus normality was restored. By making greater use of digitalized services, such as our service app and service center services, in customer acquisition and retention, we managed to shore up sales and service and thereby largely offset the negative effects of the coronavirus pandemic through our convergent products and our network infrastructure. Our MagentaOne convergent product portfolio in particular enjoyed high popularity, generating double-digit growth in FMC customers of 14.3 percent. We are continuously building out our fixed-network infrastructure with state-of-the-art fiber-optic-based lines (FTTH, FTTB, and FTTC), with the national companies in Greece, Hungary, and Slovakia seeing the greatest rollout progress in the first nine months of 2020. Since the start of the year, the number of broadband customers has increased by 2.9 percent.

In mobile business, we recorded growth in high-value contract customers, almost offsetting the decline in the prepaid customer base. In 5G, we reached the first milestone a year ago with the market launch in Austria. At the start of April 2020, Hungary also launched, following the successful 5G auction. Poland was the third national company to launch 5G commercially, also in the second quarter of 2020. The plan is to add more 5G networks following the spectrum auctions still anticipated in various countries in 2020.

Mobile communications

In the Europe operating segment, we had 45.7 million mobile customers in the first nine months of 2020, a marginal decline of 0.9 percent compared with the end of 2019. The number of high-value contract customers rose by 1.7 percent (and compared with the third quarter of the prior year by as much as 2.6 percent). The contract customer bases increased in most of our national companies, with particularly strong growth recorded in Romania, Austria, Poland, Hungary, and Greece. Overall, contract customers account for 58.4 percent of the total customer base. In addition to our innovative services and rate plans, we launched a new product portfolio – in line with the “more for more” principle. After we had initially offered this new portfolio in some countries last year, other countries were added during the reporting year. Our customers 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 September 30, 2020, we covered 97.3 percent of the population in the countries of our operating segment with LTE, reaching around 107 million people in total.

By contrast, the prepaid customer base declined in line with expectations, also in part on account of the negative effects of the coronavirus pandemic. This is partly due to the fact that our market approach is focused on contract rate plans and on offering our prepaid customers attractive high-value rate plans. A proportion of these prepaid customers have already taken up this offer. 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 2.9 percent compared with the end of the prior year to a total of 6.9 million (compared with the prior-year quarter, it grew by as much as 4.0 percent). The customer bases of our national companies in Greece, Hungary, the Czech Republic, and Slovakia in particular saw substantial growth. 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 3.8 million households as of September 30, 2020. The number of IP-based lines increased to account for 92.5 percent of all fixed-network lines by the end of September 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 5.0 million customers as of September 30, 2020, up slightly compared with the end of the prior year (and by as much as 1.4 percent compared with the same quarter of 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 the first nine months of 2020, we had 5.5 million FMC customers; this corresponds to growth of 10.4 percent compared with the end of the prior year (21.9 percent compared with the same quarter of the prior year). Our national companies in Greece, Hungary, and Austria in particular contributed to this double-digit growth. We have also seen 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 8.3 billion as of September 30, 2020, a year-on-year decrease of 1.9 percent. 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.

The fixed-network business proved to be solid once again in the third quarter: for example, we recorded an increase in organic revenue from broadband business 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). Thanks to the wide range of services we offer, the TV business also recorded slight growth rates. Both the systems solutions business and the wholesale business increased compared with the prior year, driven in part by higher revenue in Romania. We recorded a slight organic decline in mobile revenues compared with the prior year. This was primarily driven by declines in roaming revenues as a result of the travel restrictions, some of which are still in place, as well as in the low-margin terminal equipment business. These negative effects have been partially offset by increases in higher-margin service revenues (excluding roaming).

Looking at the development by country, our national companies in Poland, Austria, Romania, and the Czech Republic recorded the organic best development of revenue in the first nine months of 2020. This offset the decline in revenue in Croatia, Greece, and Slovakia in particular.

Revenue from Consumers declined by 1.6 percent 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.

Revenue from Business Customers remained more or less unchanged in the first nine months of 2020 compared with the prior-year period, mainly due to successful ICT deals, for example with our corporate customers in Greece and Croatia, but also thanks to EU funding initiatives such as public sector digitalization. Lower roaming revenues, primarily as a result of coronavirus-induced travel restrictions, were almost fully offset by sustained demand for faster internet connections and the associated collaboration solutions.

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 3.0 billion in the first nine months of 2020, which was on a par with the prior-year level. In organic terms, i.e., assuming constant exchange rates and adjusted for the sale of Telekom Albania, adjusted EBITDA AL increased by 2.1 percent, thus continuing to make a positive contribution to earnings. In addition to the positive revenue contribution, savings in indirect costs (primarily due to lower personnel, marketing, and travel costs) contributed 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 Romania, Austria, and Poland. Contrasting developments were reported primarily at the national company in Croatia, where decreases in mobile revenues, especially from roaming and sales of terminal equipment, as well as decreases in voice telephony in fixed-network business, were only partially offset by positive revenue effects from the systems solutions as well as the broadband and TV business.

EBITDA AL increased by 1.8 percent year-on-year to EUR 2.9 billion. The expense arising from special factors was slightly below the prior-year level, partly on account of the fixed-network business in Romania, the sale of which has been planned since October 2020. This resulted in an ad hoc reversal of impairment losses that had previously been recognized on property, plant and equipment in the amount of EUR 50 million. In organic terms, EBITDA AL grew by 3.7 percent.

Development of operations in selected countries

Greece. In Greece, revenue declined in the first nine months of 2020, coming in at EUR 2.2 billion, 1.2 percent lower than in the prior-year period. In mobile business in particular, service revenues declined due mainly to the developments in roaming. Sales of mobile terminal equipment increased again slightly year-on-year. Business with the convergent product portfolio also contributed to growth thanks to higher customer numbers. In the fixed-network business, revenues continued to increase: the broadband business posted particularly strong growth as a result of the ongoing rollout of fiber-optic lines and vectoring. The systems solutions business also recorded clear growth, while the wholesale business remained at the prior-year level.

In the first nine months of 2020, adjusted EBITDA AL in Greece stood at EUR 899 million, a slight decrease of 1.2 percent against the prior-year period, with a decrease in revenue being partially offset by lower overall costs.

Hungary. In the first nine months of 2020, revenue in Hungary stood at EUR 1.3 billion, down by 7.9 percent year-on-year, largely driven by negative exchange rate effects. In organic terms, revenue decreased only slightly by 0.7 percent, primarily due to a decline in revenue from systems solutions business, which was unable to replicate the order volume recorded in the prior year, especially in the public sector. This was contrasted by further increases in revenues from both broadband and TV business, driven by a larger and higher-value customer base. The mobile business also posted an increase against the prior-year period, mainly driven by higher revenue from the sale of mobile terminal equipment. Service revenues (excluding roaming) also increased, due in part to much higher data usage. This offset the lower roaming revenues resulting from the temporary travel restrictions that had been imposed. Our MagentaOne convergence products also continued to perform well, with substantial customer additions and corresponding revenue.

Adjusted EBITDA AL stood at EUR 377 million, down 7.6 percent year-on-year. In organic terms, adjusted EBITDA AL was more or less stable compared with the prior-year period. Savings, particularly in indirect costs, due in part to lower personnel costs, partially offset the decline in revenue.

Poland. In Poland, revenue stood at EUR 1.1 billion as of September 30, 2020, unchanged against the prior-year level. In organic terms, revenue increased by 2.6 percent. This growth is based on both higher mobile and fixed-network revenue. Higher service revenues in the mobile business were sufficient to offset the declines, particularly in terminal equipment sales and roaming 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. In the fixed network, systems solutions in particular performed well. There was also slight growth in the fixed-network core business, which overall offset the negative effects from the decline in wholesale business.

Adjusted EBITDA AL came in at EUR 290 million, on a par with the prior-year level. In organic terms, adjusted EBITDA AL increased by 2.7 percent, mainly on the back of a higher net margin.

Czech Republic. In the first nine months of 2020, revenue in the Czech Republic stood at EUR 789 million, down 0.9 percent on the prior-year level. In organic terms, revenue increased by 1.6 percent. 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 business remained on a par with the prior-year level. The declines in roaming revenues and in low-margin terminal equipment sales were almost fully offset by the increase in higher-margin service revenues. Our MagentaOne and MagentaOne Business convergence products also continued to perform very well, with rising customer numbers and corresponding revenue.

Adjusted EBITDA AL decreased by 1.2 percent year-on-year to EUR 324 million. In organic terms, earnings increased by 1.3 percent against the previous year: the positive organic revenue contribution was partially offset by slight overall increases in direct and indirect costs.

Austria. Revenue in Austria totaled EUR 960 million as of September 30, 2020. This increase of 2.2 percent was mainly attributable to higher mobile terminal equipment sales. Business with higher-margin service revenues also contributed positively to revenue. The Magenta product portfolio, which was launched in May last year, has been very well received by our customers. This allowed us to fully offset the sharp decline in roaming revenues. Since the launch of the Magenta brand, we now also offer convergent products in addition to mobile broadband internet services. The positive response of our customers to our convergence products can also be seen in the development of fixed-network operations: the broadband business in particular generated positive growth rates, among other things as a result of a larger customer base.

Adjusted EBITDA AL increased substantially by 4.1 percent year-on-year to EUR 383 million. In addition to the positive revenue effects, lower indirect costs also contributed to this growth.

EBIT

EBIT in our Europe operating segment remained more or less stable in the first three quarters of 2020 at EUR 1.1 billion. In connection with the sale of the Romanian fixed-network business planned since October 2020, an ad hoc impairment loss of EUR 160 million was recognized 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. Depreciation and amortization were down slightly on the prior-year period.

Cash capex

As of September 30, 2020, our Europe operating segment reported cash capex of EUR 1.4 billion, up 10.5 percent year-on-year. This increase is partly due to a rise in cash outflows for the acquisition of spectrum licenses in Hungary. Moreover, we continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.