Austria - Telekom Austria consolidating in Eastern Europe

Telekom Investment Research Note

Synopsis

Austria’s telecom market is dominated by the incumbent Telekom Austria (TA) and the cableco UPC, though there has been greater competitive pressure in the fixed-line and mobile sectors in recent years. The regulator has also encouraged local loop unbundling to improve competition in the broadband market, and has introduced ‘virtual’ unbundling in the fibre sector, though the European Commission has pressed for the regulator to amend this solution and so improve competitor access to TA’s fibre network. As a pan-European operator, UPC’s presence in Austria is complemented by its activities in Hungary, Romania, Slovenia, the Czech Republic among other markets. TA similarly has a presence in Eastern and South Eastern Europe. Given the competition in its domestic market, as well as the effects of regulatory measures relating to termination rates and roaming tariffs, TA’s revenue has been squeezed relentlessly in recent quarters. The company has responded by expanding into these relatively underdeveloped markets, particularly in the broadband and mobile sectors. Although in this region TA faces must contend with lower per capita incomes, as well as regulatory regimes which can be comparatively slow and cumbersome, in coming years its experience as a provider of first-rate converged services will help close the gap between this region and the leading Western European nations. The company’s commitment to its Eastern European markets, as evidenced by its ongoing infrastructure investments, will be crucial if the region is to adhere to the EC’s 2020 Agenda for a digital economy.