To say that Europe's telecoms market is in a state of flux is something of an understatement. Mergers and acquisitions abound, and the European Commission is on a mission to create a single market that aims to knock down artificial borders between countries.
In the area of M&A, news that Mexican billionaire Carlos Slim has resumed efforts to expand his European footprint has put the spotlight firmly on America Movil's minority stakes in KPN and Telekom Austria.
While Slim's intentions with regard to KPN are now known after America Movil made an offer earlier this month to buy the 70 percent of KPN it does not already own for €7.2bn, it is far from clear what he has planned for Telekom Austria, if indeed anything at all beyond holding onto his current minority shareholding in the company.
Nonetheless some industry observers speculate that Austria will be Slim's next European target, for obvious reasons.
Like the Netherlands, the Austrian market is also extremely competitive with operators that are all struggling to keep their ARPUs (average revenue per user) above water, including Telekom Austria. Indeed, the former incumbent is dealing with a perfect storm of tough European Union and domestic regulation affecting mobile roaming and fixed-call termination revenue, fixed-mobile substitution (FMS) challenges, strong price competition on the mobile market and general economic turmoil.
Should Slim decide to take the plunge, he would face considerable challenges at both Telekom Austria and in the market.
Austria has long been one of Europe's most cutthroat telecoms markets, where "strong local national regulatory oversight and competition enforcement is driving price competition, penetration, cost competitiveness and growth", noted consultants Rewheel in a recent report into mobile data costs in the European Union. The country now has three telecoms operators following the €1.3bn acquisition of Orange Austria by Hutchison Whampoa as well as a number of secondary brands and MVNOs on the mobile market, including Telekom Austria's Bob and Yesss low-cost brands.
"The environment in Austria is a tough one," according to a Telekom Austria spokesman. For example, he said, wholesale termination rates for Austrian operators are double the rate that German operators have to pay, which is a consequence of the tough regulation of the fixed telecoms market. The Austrian fixed market also faces the ongoing challenge of FMS, which Telekom Austria is addressing by offering converged Kombi plans of broadband and TV services, as well as mobile.
Meanwhile on the mobile services market, Austria is mired in a price war that appears to have been little alleviated by the recent merger of Three Austria and Orange Austria to create Das neue Drei (the new Three), as the combined company is currently billing itself.
"We are still fighting despite the consolidation on the market," Telekom Austria's spokesman said, noting that Hutchison Whampoa's acquisition of its rival has so far had little real effect on the market in terms of extra price competition. Indeed, Telekom Austria's recent Q2 results, when EBITDA fell by 9.5 percent year-on-year to €330.3m and sales were down by 1.9 percent at €1bn, reflecting the difficult environment in which it operates.
The Three challenge
In fact, this competitiveness is in no small part being driven by Three Austria, which is maintaining the very low €7.50 price previously offered by Orange Austria for a SIM-only tariff including 1GB of data, 1,000 minutes and 1,000 texts.
According to Natasha Rybak, principal analyst at Current Analysis, the fundamental brand values and competitive strategy that Three Austria has previously pursued remain unchanged despite the company's 'relaunch' with Orange.
"Price aggressiveness, taking on a disruptive 'attacker' role and placing emphasis on offering consumers an alternative service proposition from that of its larger rivals, are all focal points that have been retained and reiterated by the 'new' Three Austria," Rybak said.
Rybak added that while Three Austria's underlying strategic and operational imperatives remain unchanged, "the bottom line for Austrian competitors is that the acquisition of Orange Austria has resulted in a larger rival with aspirations to grow its market share".
What's more, the Hutchison acquisition is set to open the market to even greater competition: as part of its concessions to gain European Union approval of the Orange deal, Three Austria agreed to support up to 16 new MVNOs (mobile virtual network operators) on its network. In addition, a new mobile network operator could also enter the market following the country's 800MHz spectrum auction in September, and Tele2 is rumoured to be interested in bidding for a slice of the spectrum.
For Telekom Austria, such developments also mean it will face increasing challenges in an area where it has currently been dominant because of its focus on convergence: multi-service plans, also known as triple play and quadruple play, where fixed telecoms, TV and mobile services are combined and sold as one plan. The operator sells 'Kombi' plans that include fixed broadband and voice, up to four mobile SIM cards and TV services. According to Telekom Austria, the plans tend to encourage greater loyalty among its customers and are therefore a leading customer acquisition and retention tool for the operator.
The company has seen some success with this approach, said Current Analysis in a recent research report: "The majority of its fixed broadband subscribers take bundled packages (over one million 'Kombi' packs including two or more products had been sold by Q4 2012), fixed-line net losses have been ameliorated and the company claims a 17.7 percent share of the Austrian mobile broadband market," Rybak and senior analyst Peter Briggs wrote in the report.
The operator has also been following this strategy in its other markets, acquiring fixed-line assets in Croatia and Bulgaria. Latest rumours suggest the company is also interested in bidding for cable operator Serbia Broadband, although Telekom Austria declined to comment on the media speculation.
In Austria, however, this convergence strategy will face greater competition in future: Three Austria and T-Mobile Austria have both partnered with the country's new digital terrestrial TV platform, simpliTV, to offer a bundled package incorporating TV with mobile broadband.
The move is "a further step in [3 Austria's] progression as a fierce proponent of FMS," said Rybak, who noted that T-Mobile Austria has also evolved into another FMS aggressor on the European mobile scene. "This is a logical progression of [Three Austria's] FMS stance and a factor that could somewhat alter the dynamic of the Austrian multiplay market,” she said.
What's more, Liberty Global's UPC is expected to launch an MVNO on Three Austria's network before the end of 2013, and would then be able to add mobile services to its cable broadband and TV offerings.
Whether Carlos Slim feels equal to meeting the very particular challenges of the Austrian telecoms market is an interesting question. Watch this space...