Telefonica Czech ‘Disappointed’ With Auction Terms: CEO

Telefonica Czech Republic AS is “really disappointed” with rule changes for a radio-spectrum auction as proposed by the regulator, Chief Executive Officer Luis Malvido said.

“We’re still under consultancy, so we will give our feedback to the regulator, but this is so far away from what we expected,” Malvido told reporters after a news conference Telefonica held in Prague today. “We’ve been very surprised and this is damaging our business case with our intention to continue investing.”

The Czech Telecommunication Office this week proposed new terms for the spectrum auction, including allocation of two blocks in the 800 MHz band to a new entrant. On March 8, the regulator unexpectedly canceled a previous auction after four months over concerns that “excessive” bids of over 20 billion koruna ($1 billion) would result in higher prices for customers and slower investment.

Telefonica is considering “further” steps after the consultancy period on the terms ends on May 8, Malvido said. PPF Group NV, a company controlled by Czech billionaire Petr Kellner, is pressuring the regulator and the government by saying that it will abandon the auction if some proposed terms are changed, which is “unacceptable,” Malvido said.

PPF, which bid in the previous auction against Czech units of Telefonica, T-Mobile and Vodafone, said on April 9 that it’s ready to take part in the spectrum sale. It also said technical parameters and the sale’s speed are key to its participation.

Auction Concern

PPF is concerned that existing operators will block the auction by prolonging discussion of terms or by lobbying the government to postpone naming the new head of the telecom office, or CTU, which is decisive for starting the sale, CTK newswire reported yesterday, citing the company’s head of investment. The term of CTU’s current head, Pavel Dvorak, ends at the end of the month.

Telefonica announced today that it’s offering new tariffs for customers, including a package of unlimited calls and text messages to all networks, with 1 gigabyte of data for 749 koruna a month with a two-year contract. Telefonica Czech shares were up 1 percent at 1:48 p.m. in Prague.

“The price war begins before a possible fourth mobile player comes,” Vera Sutedja, a Vienna-based analyst at Erste Group Bank AG, wrote in a report to clients today. “We expect to see falling average revenue per user and higher off-net traffic would result in Ebitda margin pressure in the future,” said Sutedja, who has a “reduce” recommendation on Telefonica Czech’s shares.

The average monthly price for a 2 gigabyte bundle and 200 minutes of calling outside the network is 60.9 euros in the Czech Republic, the second-highest in the European Union after Greece, according to a study by Rewheel, a Helsinki-based market research group.

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