Telekom Austria Misses Earnings Estimates on Competition

Telekom Austria AG, one of the two European network operators part-owned by Carlos Slim’s America Movil SAB, reported second-quarter earnings that missed analysts’ estimates as fierce competition, economic headwinds and regulatory measures curbed profit.

Earnings before interest, taxes, depreciation and amortization fell to 330.3 million euros ($440 million) from 364.8 million euros a year earlier as revenue declined 1.9 percent to 1.04 billion euros, the Vienna-based company said in a statement today. The average analyst estimate for Ebitda was 332.7 million euros, according to data compiled by Bloomberg.

“As expected, 2013 is turning out to be a mixed year,” Chief Executive Officer Hannes Ametsreiter said in the statement. “Cost-cutting measures are partly compensating for the declines in revenues.”

Intense domestic competition in mobile and fixed-line networks by units of Deutsche Telekom AG, Hutchison Whampoa Ltd. and Liberty Global Plc have weighed on Telekom Austria’s earnings for years. Growth in its eastern European units slowed as economies in Croatia and Bulgaria contracted, reducing demand for mobile phone services. That prompted the company to cut costs and reduce shareholder payouts.

Its domestic business was hurt by a continuing shift to cheaper tariffs, Telekom Austria said. In Bulgaria, earnings declined mainly due to the reduction of mobile termination rates, the fees operators charge to carry each other’s calls, and due to lower demand caused by the sluggish economy.

The company’s shares fell 3 percent to 5.6 euros at 12:08 p.m. in Vienna.

Sales Outlook

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

Austria’s biggest-ever spectrum auction in September could bring back a fourth mobile competitor after the number of operators was reduced by Hutchison’s purchase of Orange Austria last year. Deutsche Telekom’s T-Mobile is the third mobile phone company in Austria.

Telekom Austria introduced new prices in March, charging customers based on the transmission speed and volume of data. With competitors eager to gain market share, offering similar packages at lower prices, the company has kept the promotional discount in place so far.

Higher Subsidies

While customers “responded well” to the new tariffs, the cost of attracting and keeping clients doubled to about 80 million euros in the first half of 2013, Chief Financial Officer Hans Tschuden told journalists today. The company paid higher subsidies to make phones cheaper and plans to profit from increased monthly fees in the longer-term, he said.

“The Austrian mobile market has remained tough,” with an aggressive strategy from Hutchison’s 3, Usman Ghazi, a London-based Berenberg Bank analyst, who recommends selling the stock, said in a note to clients dated July 31.

A takeover bid by America Movil for Dutch carrier Royal KPN NV caused Telekom Austria shares to rally 8.7 percent on Aug. 9, almost erasing this year’s decline. Mexican billionaire Slim’s company owns 23.7 percent of Telekom Austria, making it the second-biggest shareholder after the Austrian government.

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