UPDATE 1-T-Mobile Austria says worst of price war may be over

Fri Nov 8, 2013 9:58am EST

* Cautious optimism prices may have reached turning point

* CEO sees T-Mobile Austria sales rising again in 2014

* Plans legal challenge to expensive frequency auction (Ads quotes, details on possible cooperation with rivals, background)

By Georgina Prodhan and Angelika Gruber

VIENNA, Nov 8 (Reuters) - A race to the bottom in Austrian mobile tariffs may be over following consolidation in the market and a costly spectrum sale, the chief executive of T-Mobile Austria said.

The lowest tariffs in the market will be removed on Sunday with the ending of a 7.50 euros ($10.04) per month offer by rival H3G, while operators will charge more for premium phones and their contracts this Christmas season.

"I see something happening, and to that extent I am cautiously optimistic today that we may have passed a low point in Austria," T-Mobile Austria CEO Andreas Bierwirth told Reuters in an interview on Friday.

Austria's mobile operators face an imminent bill of 2 billion euros in total for an auction of next-generation (4G) telecoms frequencies that ended last month and was Europe's most expensive to date per head of population.

The telecoms regulator will hold a hearing on Monday on the operators' complaints about the auction process, and Bierwirth said T-Mobile, which paid 654 million euros for the frequencies it bought, planned a legal challenge.

"We will start by demanding that the auction be declared null and void on the grounds of a failure of due process," he said. "It is already decided internally that we will go through with legal steps."

The operators say that the auction method chosen, which was designed to maximise intransparency to prevent collusion, had the effect of pushing up prices beyond what they could afford.

Bierwirth also said the fact that each operator could bid for up to 50 percent of the spectrum had made it possible for one to emerge empty-handed, pushing them to bid more for fear of being left out in the cold.

"We were forced to bid not for the value of the spectrum but up to the whole value of the company," he said, as no operator without 4G spectrum and the other, current-generation frequencies whose leases are expiring could offer a service.

Market leader Telekom Austria emerged from the auction with 50 percent of the frequencies on offer - also a point of contention with rivals who say the process failed to promote competition.

H3G, still the smallest player in the market after its 1.3 billion-euro acquisition of bigger Orange Austria at the beginning of the year, won just 18 percent and none of the most valuable 800 megahertz spectrum, weakening its position.

Bierwirth said T-Mobile would in any case go ahead with building out its 4G services - which will cost it in total more than 100 million euros on top of the roughly 100 million it spends each year on modernising its network.

He said T-Mobile aimed to reach about 25 percent of the Austrian population with 4G by the end of the year, mostly in inner cities, rising to 90 percent by the end of 2015.

CUT TO THE LIMIT

Austria, where three operators fight over a population of 8.4 million, has long had Europe's cheapest mobile tariffs, and telecoms investors had been hoping for change since the merger.

With the ending of the H3G offer, the lowest all-inclusive tariff in the market will be 10 euros per month.

T-Mobile Austria will likely still suffer a further revenue decline this year but a turnaround may come next year as customers with cheaper contracts drop out of the mix after a focus this year on high-value customers, Bierwirth said.

Partly as a result of the high auction cost, T-Mobile Austria will cut costs "to the limits of what our business model can sustainably and sensibly bear", he said.

The company saved around 40 million euros last year, and now plans to move out of half its Vienna headquarters and is talking to staff representatives about a possible restructuring of its call centre and working hours, Bierwirth said.

T-Mobile Austria also plans to parcel out some of its technical operations into a subsidiary that will be founded in March in preparation for the possible sharing of network elements with competitors to save more costs, he said.

These will include masts, batteries and connection lines that would enable so-called passive network-sharing - which already takes place in some other countries - but not the more intelligent components that give operators a competitive edge.

"We will explore synergies with competitors as far as is allowed by the regulator," he said. "There should be relative openness to this from competitors after the expensive auction." ($1 = 0.7472 euros) (Editing by Michael Shields)

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