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Telekom Austria Profit Falls on Tariffs, Sluggish Economy

Telekom Austria AG, one of the two European network operators part-owned by Carlos Slim’s America Movil SAB, said third-quarter earnings fell as sluggish eastern European economies added to intense domestic competition.

Earnings before interest, taxes, depreciation and amortization declined to 357.9 million euros ($482 million) from 410.4 million euros a year earlier, the Vienna-based company said in a statement today. The average analyst estimate was 357.7 million euros, according to data compiled by Bloomberg. Sales fell 5.3 percent to 1.04 billion euros.

“Lower operating expenses could only partially dampen the revenue pressure,” the company said in its quarterly report. Business in Austria, Bulgaria and Croatia was the biggest drag on earnings, it said.

Telekom Austria faces a bill of 1.03 billion euros for spectrum it acquired last month in the Alpine republic’s biggest airwave sale. The company and local units of Deutsche Telekom AG and Hutchison Whampoa Ltd. have to pay a total of 2 billion euros, which is putting more pressure on them to reverse revenue declines resulting from intensifying competition in the Austrian market.

‘Not Happy’

America Movil, which owns about 23 percent of Telekom Austria, is “not happy” with the auction, the Mexican comapny’s Chief Executive Officer Daniel Hajj said in an interview Austria’s News magazine reported today. Telekom Austria’s tough financial situation is making a capital increase “very likely,” Hajj said in the interview, adding that America Movil would present itself as a “stable partner” in a possible share sale, according to the magazine.

Standard & Poor’s and Moody’s Investors Service both cut Telekom Austria’s credit rating by one level in October, saying that spectrum costs were higher than expected.

Telekom Austria’s shares fell as much as 2.9 percent in Vienna and traded at 6 euros, down 2.1 percent, at 2:48 p.m. local time. The stock has risen 4.4 percent this year, fueled in part by speculation that America Movil might increase its stake in the former monopoly.

America Movil did not take a stake in Telekom Austria in order to take over the company, Hajj said, according to News. The future strongly depends on the Austrian government’s plans, he said.

Austrian customers continued their migration to cheaper packages with highly subsidized handsets in the third quarter, Telekom Austria said. Average revenue per user in the company’s domestic mobile business fell 14 percent to 16.30 euros.

Croatia Roaming

Growth in the company’s eastern European units has also slowed in recent years as sluggish economies curbed demand for mobile-phone services and regulation weighed on profit.

Lower termination rates, fees operators charge to carry each other’s calls, hurt business in Bulgaria, where Ebitda fell 19 percent compared to a year earlier, Telekom Austria said. In Croatia, Ebitda fell 34 percent after roaming revenue declined on the country’s accession to the European Union.

Telekom Austria reiterated a forecast for revenue to fall 5 percent to about 4.1 billion euros this year, the fifth straight annual decline, as well as for a dividend payment for 5 cents a share. Capital expenditure will be 650 million euros to 700 million euros, the company said.

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