Telekom Austria raises cost savings target

VIENNA Wed May 8, 2013 10:41am EDT

The logo of Telekom Austria is pictured at its headquarters in Vienna May 8, 2013. REUTERS/Heinz-Peter Bader

The logo of Telekom Austria is pictured at its headquarters in Vienna May 8, 2013.

Credit: Reuters/Heinz-Peter Bader

VIENNA (Reuters) - Telekom Austria (TELA.VI) plans to save over 110 million euros ($144 million) in costs this year, more than its previous target of 100 million, as price wars rage despite market consolidation in Austria, its chief executive said on Wednesday.

The company reported a drop in earnings late on Tuesday that was less steep than the market had feared but said it expected price competition to intensify.

Austria is Europe's most competitive telecoms market, with all-inclusive offers starting at 7.50 euros per month, thanks to aggressive regulation and the fact that four operators were fighting over a population of just 8.4 million until this year.

This has exacerbated the problems that all European operators are facing of squeezed consumer budgets amid high unemployment in weak economies.

The industry and investors had hoped the Austrian situation would ease with the acquisition of Orange Austria FTE.PA by Hutchison Whampoa's (0013.HK) Austrian unit at the start of the year, but CEO Hannes Ametsreiter said little had changed so far.

"It is of course not possible to say that things have improved, rather they have stayed similar to how they were before," he told Reuters in an interview.

Telekom Austria had raised hopes that the market was showing signs of repair when it reported in March that customer numbers for its budget brand Bob were still growing despite a doubling of prices, but Ametsreiter said they had now started to fall.

He said, however, that the smaller number of operators would make it easier for those remaining to secure the radio frequencies they need to build new, faster fourth-generation LTE networks in an auction coming up this year.

He declined to comment further on the auction expected in September, as the regulator has banned operators from doing so, but Telekom Austria has said it will need additional financing if it is to participate.

Asked what financing options the company favored in general, Ametsreiter said it would consider issuing another hybrid bond, following its six-times-subscribed 600 million euro hybrid issue in January, but was keeping all options open.

Ametsreiter said he did not expect any strategy shifts in light of the entry of Mexican billionaire Carlos Slim and his America Movil (AMXL.MX) telecoms empire as major shareholders last year.

He said discussions were ongoing about possible synergies with Dutch KPN (KPN.AS), in which Slim also bought a stake, or the America Movil group more broadly, but added: "I want to keep expectations low here."

Ametsreiter attributed the company's overall first-quarter increase in customer numbers in Austria, the most important of its eight markets in central and eastern Europe, to its strategy of bundling mobile and fixed-line services.

He said such packages had accounted for 50 to 60 percent of the company's new customer numbers in the quarter. "This convergence strategy is taking hold, it works, and we want to build it up further," he said.

Telekom Austria, the former state monopoly, is the country's only telecoms operator with a fixed-line network to complement its mobile net. It has also bought fixed-line assets in some of its foreign markets to replicate the strategy there.

Ametsreiter said the company would continue its policy of generous subsidies for handsets to attract and keep high-spending customers, which accounted for most of its 18 million euro increase in operating expenses last quarter.

"This focus on value is probably never wrong," he said.

Ametsreiter said Telekom Austria should raise its mobile customer numbers in its domestic market again this quarter, while fixed-line customer numbers would likely remain stable.

Deutsche Telekom (DTEGn.DE), whose T-Mobile Austria is now the smallest of the country's carriers, reported earlier that its customer numbers, sales and earnings all fell in Austria in the first quarter.

Shares in Telekom Austria were up 1.5 percent to 5.22 euros by 1009 BST.

(Editing by Michael Shields)