Europe

Customer development

Total

In the Europe operating segment, almost all key performance indicators for customer development improved compared with the end of 2021. Our convergent product portfolio, in particular, generated growth compared with year-end 2021 of 8.9 % 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 has increased by 3.4 %. The mobile business also recorded an increase of 3.2 % 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

We had a total of 47.3 million mobile customers at the end of the first nine months of 2022; an increase of 3.2 % compared with the end of 2021. The number of contract customers decreased slightly by 1.0 %, 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 2.5 %. By contrast, the contract customer base grew at our other national companies, especially in Poland, Hungary, the Czech Republic, and Greece – with the exception of Slovakia. Overall, contract customers accounted for 55.6 % of the total customer base. In parallel with pure customer development, we have successfully continued the “more-for-more” offering 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. The footprint countries of our operating segment are also making excellent headway with 5G. As of the end of the first nine months of 2022, our national companies covered 40.7 % of the population (in particular in Greece, Montenegro, North Macedonia, Austria, and Croatia) with 5G.

The prepaid customer base recorded growth of 9.2 % 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 3.4 % compared with the end of 2021 to total 6.6 million customers. This growth is mainly driven by the national companies in Hungary, Poland, Greece, and the Czech Republic. By continuing to invest in fiber-optic technologies, we are systematically building out our fixed-network infrastructure. At the end of the first nine months of 2022, a total of around 7.7 million households (coverage of 30.2 %) 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 further, reaching 7.9 million at the end of the first nine months of the year.

The TV and entertainment business had a total of 4.1 million customers as of September 30, 2022, up by 2.0 % 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. At the end of the first nine months of 2022, we had 6.8 million FMC customers; this corresponds to growth of 8.9 % compared with the end of the prior year. Our national companies in Greece, Hungary, Austria, Poland, and the Czech Republic in particular contributed to this growth. As of September 30, 2022, FMC customers accounted for 60.1 % 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. 65 % of our customers already use our service app.

Development of operations

Total revenue, service revenue

Our Europe operating segment generated total revenue of EUR 8.3 billion in the first nine months of 2022, a slight year-on-year decrease of 1.7 %. 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 4.5 % year-on-year. Service revenue declined year-on-year, but grew by 3.4 % in organic terms. Regulatory interventions such as the reduction in termination rates had a negative impact on our organic development of revenue in the first nine months of 2022.

Organic revenue growth was mainly driven by the strong performance of the mobile business, especially the increase in mobile service revenues with higher margins and increases in roaming and visitor revenues. Contract customer additions had positive effects on terminal equipment revenues. Fixed-network service revenues developed better compared with the prior-year period. The strong performance of the broadband and TV business and higher wholesale revenues in particular helped to offset the declines in voice telephony revenues, which were in line with expectations. The systems solutions business made a positive contribution to revenue overall.

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

Revenue from Consumers increased in organic terms by 3.7 % 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 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.

Compared with the prior-year period, revenue from Business Customers was up by 4.4 %, with a significant contribution from Greece, the Czech Republic, as well as from Hungary and Austria, with growth recorded across all product areas. Mobile contract business grew by 3.1 %, with almost all national companies contributing to growth. The number of mobile customers increased above all in Poland, followed by Hungary, Greece, Austria and Romania. Hungary, Greece, and the Czech Republic also recorded higher net mobile contract customer additions compared with the previous year. In the fixed-network business, broadband customer additions were 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 edged into double-digit growth on the back of growth in both revenue from systems solutions as well as in data communications. Digital Infrastructure 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 3.0 billion in the first nine months of 2022, down slightly by 1.3 % against the prior-year level. In organic terms, i.e., adjusted for the sale of the Romanian fixed-network business, and assuming constant exchange rates, adjusted EBITDA AL increased by 3.9 %, again making a significant 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 an effect of EUR 47 million in the first nine months 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, Romania, Austria, Hungary, and the Czech Republic.

EBITDA AL decreased by 2.7 % year-on-year to EUR 3.0 billion. Special factors were lower than in the prior year. In organic terms, EBITDA AL recorded modest growth of 1.3 %.

Development of operations in selected countries

Greece. As of September 30, 2022, revenue in Greece increased by 4.0 % year-on-year to EUR 2.3 billion. The continued encouraging development in mobile business is mainly attributable to the addition of new contract customers. Visitor and roaming revenues increased substantially thanks to travel returning to more normal levels. Our convergence products also performed well, with further customer additions and corresponding revenue. The intensive 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 978 million, up 3.6 % year-on-year. In addition to a higher net margin, this positive trend was also supported by lower indirect costs.

Hungary. Revenue in Hungary totaled EUR 1.3 billion in the first nine months of 2022, an increase of 0.8 % despite substantial negative exchange rate effects. In organic terms, revenue was up 9.3 % against the prior-year period. 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 increased 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 contributed to revenue growth.

Adjusted EBITDA AL stood at EUR 370 million, down 5.6 % year-on-year. In organic terms, adjusted EBITDA AL grew by 3.0 %. 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 at EUR 1.0 billion as of September 30, 2022. In organic terms, revenue increased slightly by 2.4 %. 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 customers using our convergence products increased again substantially in the first nine months of 2022. This had a corresponding positive impact on revenues. Revenue also grew in the systems solutions business.

At EUR 294 million, adjusted EBITDA AL remained at the level of the prior-year period. In organic terms, adjusted EBITDA AL increased by 2.6 %, mainly on the back of a revenue-related increase in the net margin.

Czech Republic. Revenue in the Czech Republic stood at EUR 898 million, an increase of 9.9 % against the first nine months of 2021. Excluding positive exchange rate effects, organic growth was 5.1 %. 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 compared with the prior-year period, 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 7.8 % year-on-year to EUR 375 million in the first nine months of 2021. In organic terms, earnings grew by 2.9 % year-on-year, due to a revenue-related increase in the net margin.

Austria. Revenue generated in Austria totaled EUR 1.0 billion in the first nine months of 2022. This increase of 3.2 % 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 also 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 4.0 % year-on-year to EUR 393 million. The higher revenues more than offset the rise in costs.

Profit/loss from operations (EBIT)

Our Europe operating segment recorded a decline in EBIT of EUR 13 million as of September 30, 2022. The EUR 79 million decrease in depreciation, amortization and impairment losses, especially in Croatia and Hungary, could not fully offset the decline in EBITDA, due mainly to the sale of the Romanian fixed-network business in 2021.

Cash capex

In the first nine months of 2022, the Europe operating segment reported cash capex of EUR 1.2 billion, down 10.1 % year-on-year. This decrease is mainly due to lower cash outflows for the acquisition of spectrum licenses, primarily in the Czech Republic. The sale of the Romanian fixed-network business in 2021 also resulted in lower cash capex. We continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.