Business customer operations at Magyar Telekom in Hungary, which had previously been organizationally assigned to the Systems Solutions operating segment, have been managed and reported under the Europe operating segment since January 1, 2016. Comparative figures have been adjusted retrospectively. For more information, please refer to Note 31 “Segment reporting” in the notes to the consolidated financial statements.
|Dec. 31, 2016||Dec. 31, 2015||Change||Change %||Dec. 31, 2014|
|Europe, total a, b||Mobile customers||51,699||52,737||(1,038)||(2.0) %||56,506|
|Fixed-network lines||8,695||8,763||(68)||(0.8) %||9,098|
|Of which: IP-based||5,180||4,132||1,048||25.4 %||3,503|
|Retail broadband lines||5,557||5,189||368||7.1 %||5,007|
|Television (IPTV, satellite, cable)||4,049||3,905||144||3.7 %||3,714|
|Unbundled local loop lines (ULLs)/wholesale PSTN||2,259||2,239||20||0.9 %||2,325|
|Wholesale bundled lines||123||121||2||1.7 %||140|
|Wholesale unbundled lines||247||199||48||24.1 %||144|
|Greece||Mobile customers||7,725||7,399||326||4.4 %||7,280|
|Fixed-network lines||2,564||2,586||(22)||(0.9) %||2,624|
|Broadband lines||1,682||1,531||151||9.9 %||1,388|
|Romania||Mobile customers||5,722||5,992||(270)||(4.5) %||6,047|
|Fixed-network lines||1,969||2,091||(122)||(5.8) %||2,239|
|Broadband lines||1,194||1,186||8||0.7 %||1,199|
|Hungary||Mobile customers||5,332||5,504||(172)||(3.1) %||5,478|
|Fixed-network lines||1,629||1,674||(45)||(2.7) %||1,710|
|Broadband lines||1,040||1,023||17||1.7 %||982|
|Poland a||Mobile customers||10,634||12,056||(1,422)||(11.8) %||15,702|
|Fixed-network lines||20||18||2||11.1 %||n. a.|
|Broadband lines||16||15||1||6.7 %||n. a.|
|Czech Republic||Mobile customers||6,049||6,019||30||0.5 %||6,000|
|Fixed-network lines||140||154||(14)||(9.1) %||131|
|Croatia||Mobile customers||2,234||2,233||1||0.0 %||2,252|
|Fixed-network lines||1,001||1,004||(3)||(0.3) %||1,076|
|Broadband lines||783||741||42||5.7 %||725|
|Netherlands b||Mobile customers||3,746||3,677||69||1.9 %||3,900|
|Fixed-network lines||164||n. a.||164||n. a.||n. a.|
|Broadband lines||164||n. a.||164||n. a.||n. a.|
|Slovakia||Mobile customers||2,225||2,235||(10)||(0.4) %||2,220|
|Fixed-network lines||850||855||(5)||(0.6) %||894|
|Broadband lines||638||599||39||6.5 %||559|
|Austria||Mobile customers||4,594||4,323||271||6.3 %||4,020|
|Other c||Mobile customers||3,438||3,299||139||4.2 %||3,607|
|Fixed-network lines||358||381||(23)||(6.0) %||423|
|Broadband lines||279||285||(6)||(2.1) %||307|
|a In the fourth quarter of 2015, the number of mobile customers in Poland decreased by 3,838 thousand in connection with the deactivation of inactive prepaid SIM cards.
b In the fourth quarter of 2016, the number of fixed-network and broadband lines in the Netherlands grew as a result of the acquisition of Vodafone’s fixed-network consumer business.
c Other: national companies of Albania, the F.Y.R.O. Macedonia, and Montenegro, as well as the lines of the GTS Central Europe group in Romania.
The national companies in our Europe operating segment once again had to face the challenge of a highly competitive market environment in the reporting year. We successfully launched our MagentaOne convergence product portfolio in our markets, and had already won around 1.4 million FMC customers by December 31, 2016 – an increase of 55.5 percent. Our TV business continued to be the revenue growth driver, firstly due to the wide variety of TV services we offer our customers and, secondly, because we are able to deliver high bandwidths using the right combination of technologies.
We are systematically driving forward the roll-out of fast, fiber-optic lines (FTTH, FTTB, and FTTC) in the fixed network. In mobile communications, we can already offer our customers in individual countries transmission rates of up to 450 Mbit/s via LTE Advanced/4G+. Our high speeds combined with a broad portfolio of rate plans including the newest and most powerful smartphones drove up the number of contract customers by 3.2 percent compared with the end of 2015. As part of our pan-European network strategy, we also increased the number of IP lines – primarily thanks to the migration from traditional PSTN lines to IP technology.
We also aim to be the best integrated provider on the market for our customers with regard to the Internet of Things (IoT). In machine-to-machine (M2M) communications, we offer customer-oriented solutions along the entire value chain. Here, we benefit from the solutions and integration expertise of T-Systems, our strong partner network, and the implementation of our Smart Cities initiatives. 9
As of the end of 2016, we had a total mobile customer base of 51.7 million – down by 2.0 percent compared with 2015. This decline is in line with our expectations and is attributable to customer losses in the prepay business, which was under pressure due to intense competition. Competition in this segment continues to intensify further following the introduction of a prepay registration requirement by the Polish government at the end of July 2016. We successfully implemented our strategy of focusing on high-value contract customers, recording an increase of 3.2 percent in this customer segment, which corresponds to growth of around 841 thousand customers. The growth in the number of contract customers seen over the past few quarters continued through the fourth quarter of 2016. Virtually all of our national companies, predominantly in Austria, the Netherlands, and Romania, contributed to the positive development in contract customer business. At the end of the reporting year, contract customers accounted for 52.8 percent of the total customer base.
This success is attributable to our high-performance networks. We are positioning ourselves in the relevant markets as a quality provider with the best service – and in many countries also as the provider with the best mobile network. This is borne out by regular independent mobile communications tests, including Best in Test from P3 Communications: In addition to the Netherlands, the F.Y.R.O. Macedonia, and Montenegro, we have now also received this certificate for our companies in Greece, Slovakia, Albania, and Poland. Part of our network strategy is to systematically build out our mobile networks with 4G/LTE technology to increase transmission rates in all our national companies. Thanks to investments in our 4G/LTE network, our customers enjoy better network coverage with fast mobile broadband. By the end of 2016, we already covered 84 percent of the population in the countries of our operating segment with LTE, thus reaching more than 109 million people in total. This puts us right on schedule to reach our goal of between 75 and 95 percent network coverage by 2018. Not only the high level of data volumes used, but also the sales figures for mobile devices prove that our customers actually use these high bandwidths, with smartphones accounting for an even higher proportion in 2016 – 79 percent – of all devices sold compared with the prior year. 9
Our TV and entertainment services have developed into a mainstay of our consumer business. That is why we continue to invest in making our entertainment services even better. This entails, on the one hand, a portfolio with an impressive selection of film, sports, and TV content. However, we are also working hard on providing services that our customers can use in high quality – anywhere and on all devices. In Greece, for example, our customers have been benefiting from a new hybrid TV service since April 2016 that combines the advantages of satellite TV and IPTV. And our customers value our innovations: The number of TV customers grew by 3.7 percent to 4.0 million compared with the end of 2015, with the majority of the net customer additions – 144 thousand – at our national companies in Greece, Slovakia, Romania, and Croatia.
As an integrated telecommunications provider, we intend to drive forward the convergence of fixed-network and mobile technology. Our convergence product portfolio, MagentaOne, is available to our customers in all of our integrated countries. As a result, we have already gained more than 1.4 million FMC customers in total, primarily in Greece, Romania, Croatia, and Slovakia. In addition to focusing on the consumer segment, we are now also extending our MagentaOne offering to business customers: In 2016, we began offering MagentaOne Business in Montenegro, Slovakia, Hungary, Romania, the F.Y.R.O. Macedonia, Croatia, and Greece. The technical basis for FMC products is a simplified and standardized network; this requires the national companies with a fixed-network architecture to migrate to IP technology. We continue to implement the IP migration successfully and, by the end of the reporting year, had virtually completed the migration in Hungary. Once finished, Hungary will be the fifth national company to convert its entire fixed-network architecture to IP technology. 13 As of December 31, 2016, we recorded 5.2 million IP-based lines – up 25.4 percent compared with 2015. At segment level, IP-based lines accounted for around 60 percent of all lines, significantly more than PSTN-based lines. In our Europe operating segment, 8.7 million customers used a fixed-network line as of the end of the reporting year, putting the number of fixed-network lines almost on a par with the prior-year level. In the fourth quarter of 2016, we acquired Vodafone’s fixed-network consumer business in the Netherlands.
The number of retail broadband lines continued to grow apace, increasing by 7.1 percent to 5.6 million as of December 31, 2016. The number of DSL lines has grown constantly over the past few quarters. Our decision to ramp up investment in fiber-optic-based lines in the integrated countries in our operating segment is paying off: The percentage of fiber-optic lines recorded double-digit growth compared with the end of 2015, and in 2016 the number of net customer additions was higher than in DSL business for the first time ever. This growth was driven primarily by our national companies in Romania, Hungary, and Slovakia. We continued to increase our overall fiber-optic coverage, with our national companies reaching 25.6 percent of households as of December 31, 2016. Our goal for our integrated companies is to roll out FTTx with up to 100 Mbit/s to 50 percent of households.
DEVELOPMENT OF OPERATIONS
|millions of €|
|Total revenue||12,747||13,024||(277)||(2.1) %||13,221|
|Czech Republic||959||958||1||0.1 %||862|
|Other a||1,126||1,136||(10)||(0.9) %||1,442|
|Profit from operations (EBIT)||717||1,476||(759)||(51.4) %||1,729|
|Depreciation, amortization and impairment losses||(3,246)||(2,632)||(614)||(23.3) %||(2,611)|
|Special factors affecting EBITDA||(131)||(221)||90||40.7 %||(131)|
|EBITDA (adjusted for special factors)||4,094||4,329||(235)||(5.4) %||4,471|
|Czech Republic||399||390||9||2.3 %||362|
|Other a||85||88||(3)||(3.4) %||125|
|EBITDA margin (adjusted for special factors)||%||32.1||33.2||33.8|
|Cash Capex||(2,764)||(1,667)||(1,097)||(65.8) %||(2,116)|
|The contributions of the national companies correspond to their respective unconsolidated financial statements and do not take consolidation effects at operating segment level into account.
a Other: national companies of Albania, the F.Y.R.O. Macedonia, and Montenegro, as well as ICSS (International Carrier Sales & Solutions), the ICSS/GNF business of the local business units, GNF (Global Network Factory), GTS Central Europe group in Romania, Europe Headquarters, Group Technology, and Pan-Net.
Our Europe operating segment generated total revenue of EUR 12.7 billion in 2016, a year-on-year decrease of 2.1 percent. In organic terms, i. e., excluding the spin-off of the energy resale business in Hungary as of January 1, 2016 and assuming constant exchange rates, revenue declined by 0.5 percent putting it more or less on a par with the prior-year level. Excluding the development of business in the Netherlands, organic revenue in the Europe operating segment would be at exactly the prior-year level.
Decisions of the regulatory authorities – such as the imposition of lower roaming charges in many of the countries in our segment and, especially in Hungary, reduced mobile termination rates – also had an impact on our organic revenues in the reporting period. Intense competition on the telecommunications markets of our national companies also had a negative impact.
Our national companies have aligned themselves with the strategic growth areas and recorded a 2.5 percent increase in revenues in this field, partially offsetting the slight decline in revenues at segment level. Thus the growth areas accounted for 31.0 percent of segment revenue. Revenue from mobile data business increased by 5.6 percent year-on-year to EUR 1.8 billion. Most countries of our operating segment made a contribution to this growth, especially Austria, the Czech Republic, Hungary, and Greece. Absolute revenue growth from mobile data business was largely attributable to consumers. Data service usage rates continue to see strong growth, mainly among contract customers, due to the availability of high bandwidths and attractive rate plans in conjunction with a large portfolio of terminal equipment. Thanks to our innovative TV and program management, the TV business continued its upward trend of the past few quarters: In 2016, TV revenue increased by 9.4 percent to EUR 466 million. TV revenue accounted for some 41 percent of the revenue increase in our growth areas and is our second strongest driver of growth, preceded only by mobile data business. Despite the ongoing realignment of our core business with key growth areas, our B2B/ICT business with business customers posted lower revenue.
In addition to the growth areas, we recorded higher visitor revenues (i. e., revenues from third parties for roaming in our home network) and higher terminal equipment revenues. Wholesale business also contributed to the increase in revenue, due primarily to the volume-driven rise in call terminations.
From a country perspective, the decline in business in the Netherlands had the strongest impact on the organic development of revenue in 2016. Reduced charges on account of the roaming regulation and competition-driven price reductions – both in voice telephony and in data business – had a negative impact on revenue development. A substantial rise in net customer additions in the third and fourth quarter of 2016 are starting to have a positive effect. Higher visitor revenues also made a positive contribution. Our national company in Slovakia also recorded a decline in revenue, primarily in fixed-network business. Revenues from voice telephony and in B2B/ICT business decreased. This was only partially offset by the increase in revenue from TV and mobile business, in particular as a result of a rise in data revenues. The national companies in Austria, Croatia, Greece, and Poland made particularly positive contributions to organic segment revenue, thereby almost completely offsetting the declines.
EBITDA, adjusted EBITDA
Our Europe operating segment generated adjusted EBITDA of EUR 4.1 billion in 2016, a year-on-year decrease of 5.4 percent. In organic terms, i. e., excluding the spin-off of the energy resale business in Hungary as of January 1, 2016 and assuming constant exchange rates, adjusted EBITDA decreased by 4.9 percent. Excluding the development of business in the Netherlands, organic adjusted EBITDA in our Europe operating segment declined by 1.9 percent. As a result, we did not quite meet our expected adjusted EBITDA target of EUR 4.3 billion: Firstly, due to the fact that the lower level of organic revenues at segment level in general had a negative effect on adjusted EBITDA, and, secondly, due to the impact of higher direct costs resulting from higher interconnection costs, higher market investments, and other factors. Legislative changes such as those affecting taxes and duties, government austerity programs, in Greece for example, and decisions by regulatory authorities also played a part in this context.
From a country perspective, the decline in adjusted EBITDA is attributable mainly to the developments in our national companies in the Netherlands, Poland, and Romania, as well as to mobile business in Greece. By contrast, the adjusted EBITDA generated in particular in the national companies in Hungary, the Czech Republic, Slovakia, and Croatia, as well as in the fixed-network business in Greece, increased.
EBITDA decreased 3.5 percent year-on-year to EUR 4.0 billion due to two main effects: In the prior year, EBITDA had been affected by higher negative special factors, while the decline in adjusted EBITDA in 2016 had the opposite effect.
Development of operations in selected countries
In view of our aim of becoming the leading European telecommunications provider, the majority of our national companies are pursuing the strategy of developing into integrated all-IP players that provide the best customer experience – regardless of their respective market position. To this end, we are establishing a production model with a pan-European, fully IP-based network infrastructure, the best network access, and optimized processes and customer interfaces. Most of our national companies already operate in both fixed-network and mobile communications in their respective markets. We present the following three national companies by way of example:
Greece. In Greece, revenue totaled EUR 2.9 billion in the reporting year, putting it on a par with the prior-year level. The positive revenue trend in the fixed-network business offset the decline in mobile business. The TV business in particular proved to be a steady growth driver once again: Our innovative TV services offering a huge variety of channels resulted in double-digit customer growth. As a result, TV revenue also increased by 31 percent compared with the prior year – despite a tax levied by the government on pay TV. Our FMC product CosmoteOne also contributed to revenue growth. Broadband business also benefited from the increased number of DSL lines. Our B2B/ICT business customer operations remained stable at the prior-year level. Overall, we more than offset the negative effects from the decline in voice telephony.
The continuing strained economic situation, intense competition, and new tax legislation had a negative effect on mobile revenues in the reporting year. The price- and volume-driven decline in revenue from voice telephony in particular impacted negatively on service revenues. This was only partially compensated for by stronger growth in the customer base. Rising revenues from mobile data services, as a result of higher data volumes and higher visitor revenues, among other factors, had a positive effect on service revenues. By contrast, revenue from the sale of mobile terminal equipment declined.
In Greece, adjusted EBITDA remained stable in the reporting year at EUR 1.1 billion. The slight increase in direct costs was more than offset by savings in indirect costs, primarily as a result of lower personnel costs.
Hungary. In Hungary, revenue decreased by 9.5 percent year-on-year to EUR 1.7 billion. In organic terms, i. e., excluding the spin-off of the energy resale business in Hungary as of January 1, 2016 and assuming constant exchange rates, segment revenue remained virtually stable.
In mobile communications, significantly higher revenues from sales of mobile terminal equipment completely offset the slight decline in service revenues, which was due to offsetting effects: Lower mobile termination rates and roaming regulation charges contributed to a reduction in voice revenues. This was contrasted by higher revenues from mobile data services, which increased by 7.6 percent compared with 2015. Our high-speed, high-reach mobile data network also had a positive effect on this development. By contrast, the fixed-network business continued to decline due to decreased revenue from our B2B/ICT business with business customers and from voice services. TV and broadband business developed well and contributed positively to total revenues. The number of broadband lines increased gradually, due in particular to the roll-out of fiber-optic lines. Our TV business also profited from this, attracting customers with its innovative services across all screens and by the variety of channels. The MagentaOne FMC offering in the consumer and business customer segments also contributed to this trend.
Adjusted EBITDA increased by 2.7 percent year-on-year in 2016 to EUR 540 million. Organically, adjusted EBITDA was up 3.6 percent as a result of stable revenues, lower direct costs, and savings in indirect costs.
Austria. In Austria, we generated revenue of EUR 855 million in 2016, a year-on-year increase of 3.1 percent. This increase is largely attributable to higher revenue from mobile data business: The rise in contract customer additions increased the usage of data services. Data services accounted for 28 percent of total revenue. Visitor revenues also had a positive effect on revenue development. Overall, these positive revenue effects more than offset the decrease in revenue from text messaging services and the sale of mobile terminal equipment. Voice telephony revenue was on a par with the prior-year level.
At EUR 258 million, adjusted EBITDA in 2016 remained at the prior-year level. Higher revenue offset an increase in direct costs attributable to market investments. Indirect costs were up compared with 2015.
EBIT in our Europe operating segment decreased by 51.4 percent in 2016 to EUR 0.7 billion. This was attributable largely to the EUR 0.6 billion increase in depreciation, amortization and impairment losses – in particular from the impairment of goodwill and property, plant and equipment amounting to EUR 0.6 billion resulting from the year-end impairment tests, primarily in the Netherlands and Romania.
In 2016, our Europe operating segment reported cash capex of EUR 2.8 billion, an increase of EUR 1.1 billion, mainly due to the acquisition in the reporting year of mobile spectrum in Poland, the Czech Republic, and Montenegro as well as the frequency extension in the Netherlands.