On the mobile telephony segment, where Cosmote, the market’s number three has been working hard to catch up with Orange and Vodafone since the end of 2005, the company made progress after launching a simplified subscription portfolio, chief executive officer Nikolai Beckers told ZF.
“I think the first quarter, the very good results of first quarter show that what we changed in September last year, the new tariffs, they’re transparent, simple, value for money, people like it, we really have very good uptake there.”
Cosmote’s service revenue rose by 5.9% in the first quarter driven by the higher revenue from mobile Internet and text messages, while the average revenue per user went up by 8.6%. Total revenue of Cosmote Romania stood at EUR118.2 million in the first quarter, an increase of 9.2% while the earnings before taxes, interests, depreciation and amortization (EBITDA) were 9.9% higher, reaching EUR27 million.
Cosmote ended the first quarter of 2014 with 1.6 million post-paid customers, the highest since its relaunch in December 2005 and about 90,000 more than a year ago. The new subscriptions Cosmote launched in September 2013, the first major commercial move since Beckers took the reins in April of last year include only three plans, compared the previous ten, based around free calls and text messages between the about 8 million fixed and mobile telephony customers (numbers) in the group.
Cosmote later introduced a call plan offering unlimited calls and text messages to any national network for EUR15 per month, which lured tens of thousands of customers, according to market estimates. The EUR15 Free L plan did very well, Beckers said, without elaborating further. He did say the new portfolio helped attract post-paid customers from other operators.
“I think it’s the first time in five years that Cosmote has actually gained post-paid customers on the competition.”
As for Romtelecom, the executive said the fixed telephony customer portfolio remains a segment under pressure, while TV and Internet services are growing.
“I think we’re pretty stable and good on TV and Internet. We are in line with them (the market i.e.) and on TV slightly ahead. That is good,” Beckers feels.
At the end of March, Romtelecom had 1.2 million customers for its fixed line Internet services, 5.1% more than in the previous year and 2.341 million fixed phone lines, down 2.8%. The number of TV service customers reached almost 1.4 million, an increase of 7.3% on the same time last year. Revenue rose almost 8% to EUR157 million in the first quarter, because of the revenue generated by the big IT&C projects managed by the operator.
The increase in revenue from IT&C projects comes after getting some “really big” contracts and the reshuffling of the division by Romanian Ovidiu Ghiman, promoted from chief residential officer Romtelecom to chief commercial officer – business segment Romania (fixed and mobile operations, Romtelecom and Cosmote Romania) last year, as part of the first joint full management team of the operators, put together by Nikolai Beckers.
“Ovidiu has done a very good job as to redo the B2B (…) We got a couple of really big IT&C contracts, really big ones with a bank and other companies. That is going quite nice. Of course, profitability is not as high as on the classic telephony, the revenue is good and it’s a growing market.”
Romtelecom, the fixed telephony market leader and the number two on the fixed Internet and TV services started expanding in full gear to the IT service or IT&C solution segments to offset decline of fixed telephony revenue. Such projects that have major companies as customers generated more than 200% higher revenue in the first quarter.
Ovidiu Ghiman, the manager who supervised Romtelecom’s efforts to stop hemorrhaging fixed telephony customers in 2009-2014 and catch up with RCS&RDS on the residential TV and Internet segment, has been working in the local communications industry since 1998.
Ghiman took his position in September 2013 when Romtelecom’s board of directors decided to install the first joint top management team of this Romtelecom and Cosmote. The integration of the two operators started a few years ago but sped up once German executive Nikolai Beckers arrived in Bucharest.
Speed is key in such situations, considering how fast things change in the telecom business.
“It’s much better in a situation like that to make fast and decisive moves than to go trickle by trickle. Our industry is changing so fast, if you make, let’s say, a gradual approach, I don’t think it will sort the problems, it will only make them worse.”
How much progress has the integration of Cosmote and Romtelecom made so far?
“For me it’s one company. Even mentally I don’t make a distinction any more. I know that, legally, of course, we are separate, this is also very clear but operationally we are very much integrated.”
The integration process continued beyond the first layer of management to the second and third and even farther below, the executive said. Quite a number of divisions have been fully integrated, as well, he added.
“The communication division is fully done, legal is fully done, HR is done. Technical is a bit bigger, technical will take probably the longest. Commercially we are also very much, very much integrated,” Beckers said.
“Of course, I’ve always believed in a merger like that you really have to start with the management, and the rest then comes naturally. The processes are different and the process of a mobile-only customer is completely different than a fixed-only customer. So in the back office you still have separate systems, but that you would have even with a fully integrated company, one legal entity like in Germany and Hungary.”
A priority for the management team is to find suitable headquarters, another step that will contribute to the integration of the two operators that generate more than EUR1 billion revenue a year, which Beckers confirmed.
“Clearly yes. Probably, like our competitors, I mean it’s a no-brainer to concentrate, to be in one location, if this is gonna be here, or it’s gonna be somewhere else. We have made a very comprehensive tender, we will present first findings to the board, we have invited propositions from more than 30 projects in Bucharest, we are narrowing this now down.”
The process is being supervised by Deutsche Telekom’s real estate subsidiary. “We are expecting cost savings and we are expecting to have more or less everybody in one nice location.”
Will the two companies move to new headquarters this year? Beckers did not say, merely specifying that the decision for a project would be made this year.
Asked whether he had had talks with Orange and Vodafone over their network-sharing project, implemented via a separate entity called Netgrid Telecom, Beckers said yes, but did not go into details.
“We are talking to both of them. We are talking, but I can’t make any statement on the problems there.”
Network sharing projects aside, the company will continue its efforts to expand infrastructure on its own, considering rivals like RCS&RDS and UPC are doing the same thing.
In 2013, when Romtelecom invested, according to Greece’s OTE group reports, more than EUR75 million, it expanded its fiber optics network and will continue to do so.
“We did another 180,000 households, actually FTTA, FTTX in 2013. Before we had a little bit more mix, I said clearly, the focus has to be on FTTH/GPON, and that’s what we are pushing.”
When asked about the impact of the decline in interconnection tariffs (mobile termination rates), by almost 70% as of April 1, Nikolai Beckers merely said it was as expected, without providing any details as the company is due to announce second quarter results in a few months.
“We are seeing quite a drop in revenue and profitability in that. Our initial assessment was exactly right. And with less revenue and less profitability there is of course less VAT and less profit tax for the government.”
The largest operators on the market estimated last year that once the MTR go down to less than one cent per minute, the government would lose EUR13 million a year in taxes and the operators EUR206 million in revenue.
(English version by Loredana Fratila-Cristescu)