Telekom Austria sees home profits stabilizing after price war

BARCELONA, Spain (Reuters) - Telekom Austria hopes to have stabilized core profits in its fiercely competitive domestic market next year through cost cuts and less generous handset discounts, its finance chief said on Wednesday.

A jogger runs by a Telekom Austria phone booth in Vienna November 14, 2013. REUTERS/Heinz-Peter Bader

Hans Tschuden told the annual Morgan Stanley Technology, Media and Telecoms conference in Barcelona that an end to price wars between Austria’s three mobile operators was now in sight following an unexpectedly expensive frequency auction that hurt all three, and that Telekom Austria might stop subsidizing phones so heavily.

“With measures of cost-cutting, reviews of subsidy policy, we should be able - maybe, if everything turns out fine - to see a stabilization of EBITDA (earnings before interest, tax, depreciation and amortization) in Austria,” Tschuden said.

“There is now a more rational approach to the market than there was before,” he said.

Austria, where the price of the cheapest all-inclusive monthly packages available recently rose to 10 euros ($13.46) from 7.50 euros, accounted for 59 percent of group EBITDA in the first nine months of 2013, down 14 percent from a year earlier.

Tschuden’s comments echoed those made by Deutsche Telekom unit T-Mobile Austria’s chief executive to Reuters in an interview earlier this month, as the Austrian operators reconsider their strategies after the 2 billion-euro auction.

The country’s smallest operator, Hutchison Whampoa’s Hutchison 3G Austria, came off worst last month, securing none of the most valuable 800 megahertz spectrum.

However, early this year H3G completed its 1.3 billion-euro deal to acquire the country’s third-largest operator, Orange Austria from its French owner.

“Maybe the worst is over in the Austrian market,” Tschuden said, adding that tariff increases Telekom Austria had imposed just before the Christmas season should send “a strong signal to the market”.

Telekom Austria is expected to issue a bond soon to help cover the cost of the auction, but will have no headroom left should it want to make a major acquisition.

It was forced to pull out of the bidding process for cable operator SBB Serbia in October because of the then-unknown auction costs.

“Clearly, M&A would require a capital increase,” Tschuden said. “Currently, we have no projects ongoing.”

A future capital increase is seen as a potential opportunity for Carlos Slim’s America Movil to increase its 23 percent stake in Telekom Austria without angering the government, which holds 28 percent.

America Movil, reeling from a rejection of its takeover offer for Dutch group KPN, where it is already the single biggest shareholder, said last week it did not plan to make a hostile bid for Telekom Austria.

Tschuden said: “America Movil will do any more only aligned with the government and not against the government.”

He added: “The government wants to have influence on the company but doesn’t need to be the biggest shareholder, necessarily.”

($1=0.7428 euros)

Reporting by Leila Abboud; Writing by Georgina Prodhan; Editing by Greg Mahlich