Telefónica O2 Czech Republic Group
Overview of the Group and the main changes in 2010
The group of Telefónica O2 Czech Republic (hereinafter Telefónica O2 Group) comprises Telefónica O2 Czech Republic, a.s. (hereinafter Telefónica O2 or Company) and several other subsidiaries. In 2010, the Group’s services were provided mostly on the territory of the Czech Republic and in Slovakia. Through a wholly-owned subsidiary Telefónica O2 Slovakia, the Group has been operating in Slovakia since 2007. In 2007, Telefónica O2 acquired 100% of DELTAX Systems a.s. (hereinafter DELTAX Systems). During 2009, DELTAX Systems liquidated as a legal entity and merged in the successor company Telefónica O2 Business Solutions, spol. s r.o. (formerly Telefónica O2 Services, spol. s r.o.). In line with its strategy to add new services to the traditional voice and data, Telefónica O2 partnered with other companies and started MOPET CZ a.s., a venture to launch mobile payment services. Telefónica O2 holds a 14% share of the new company.
Telefónica O2 is the largest integrated telecommunications operator and offers a comprehensive range of both fixed and mobile voice, data and internet services in the Czech Republic. In September 2006 it also started offering a digital television service (O2 TV), and in 2007 it significantly expanded its IT and ICT operations (comprehensive business communications solutions). It also offers its network infrastructure for lease by other operators of public and private networks and services.
The retail business in the Czech Republic focused on two main customer segments – business and consumers. The business segment included medium business and corporate customers, and public and government institutions. Telefónica O2 also provides services on wholesale basis to other public telecommunications network providers and to providers of public telecommunications services both in the Czech Republic and abroad.
As at 31 December 2010, Telefónica O2 Group comprised the following subsidiary companies and affiliates:
| Companies incorporated in the Czech Republic | |||||
|---|---|---|---|---|---|
| Company | Registered address |
Area of business |
Company identification number |
Registered capital |
Company’s share in the registered capital of the subsidiary expressed in % |
| Telefónica O2 Business Solutions, spol. s r.o. |
Praha 4–Michle, Za Brumlovkou 266/2, postal code 140 00 |
Data services and consultancy in the field of telecommunications, IT/ICT services | 45797111 | CZK 10,000,000 | 100 % |
| CZECH TELECOM Austria GmbH | c/o Vienna CityTax Steuerberater GmbH, Wagramer St, Sien, postal code 1220 Austria | Public service of lease of lines in the fixed telecommunication network | FN 229578s | EUR 35,000 | 100 % |
| CZECH TELECOM Germany GmbH | Kennedyallee 97a, Frankfurt am Main, postal code 60596 Germany | Lease of telecommunication lines | HRB 51503 | EUR 25,000 | 100 % |
| Telefónica O2 Slovakia, s.r.o. |
Einsteinova 24 Bratislava postal code 851 01 Slovakia |
Operation of a public telecommunication network; public service of lease of lines | 35848863 | EUR 240,000,000 | 100 % |
| Affiliate companies | |||||
| AUGUSTUS spol. s r.o. | Praha 10–Vinohrady, Na Zájezdu 1935/5, postal code 101 00 | Consultancy and agency in the field of non- telecommunications | 49356160 | CZK 166,000 | 39.76% |
| První certifikační autorita, a.s. |
Praha 9–Libeň, Podvinný mlýn 2178/6, postal code 190 00 |
Certification services in the area of digital signature | 26439395 | CZK 20,000,000 | 23.25% |
| MOPET CZ a.s. | Praha 4–Nusle, Hvězdova 1716/2b, postal code 140 78 | Real-time mobile payment services | 24759023 | CZK 91,000,000 | 14.29% |
In June 2009, the Board of Directors of Telefónica O2 approved an increase of the registered capital of Telefónica O2 Slovakia by way of a pecuniary contribution of EUR 150,209,121.69. The company’s registered capital of EUR 49,790,878.31 thus increased to EUR 200,000,000.00. The increase became effective on 19 August 2009.
In May 2010, the Board of Directors of Telefónica O2 approved an increase of the registered capital of Telefónica O2 Slovakia by way of a pecuniary contribution of EUR 40,000,000.00. The company’s registered capital of EUR 200,000,000.00 thus increased to EUR 240,000,000.00 EUR. The increase became effective 6 May 2010.
Restructuring programme
In line with its long-term strategy focused on improving its operating efficiency, in 2010 Telefónica O2 implemented an ambitious restructuring programme; its aim was to implement a more effective organisational structure with fewer levels of organisation. The Company also focused on improving the efficiency of the processes through the continuing integration of fixed and mobile platforms and systems, with a particular attention on network operation; the outsourcing option was considered for some activities. The programme led to optimisation of the network operation, where some activities associated with certain technologies and locations were outsourced to a strategic partner, together with maintenance and repair of supporting technology. More than 1,000 employees were let go in connection with the restructuring, of which approximately 50% as a direct result of outsourcing in the area of network operation.
Number of employees of the Telefónica O2 Group by region:
| As at 31 December 2009 | As at 31 December 2010 | |
|---|---|---|
| Telefónica O2 Czech Republic, a.s. | 8,011 | 6,936 |
| Telefónica O2 Business Solutions, spol. s r.o. | 272 | 178 |
| Employees in the Czech Republic | 8,283 | 7,114 |
| Telefónica O2 Slovakia, s.r.o. | 404 | 408 |
| Employees in Slovakia | 404 | 408 |
| Group employees – total | 8,687 | 7,522 |
Projects to improve operating efficiency and customer experience
In addition to the above-mentioned restructuring programme, the Company continued to implement other projects, which sought to improve operating efficiency at the same time as raising the quality of service and, by extension, enhancing customer experience. Telefónica O2, as technology innovator, embarked on a project to develop tools and processes that would allow bringing all key instruments and customer relationships online. As part of the project of internal efficiency improvement and in connection with the headcount reduction, the area of leased properties was reduced. Reconfiguration of power supply schemes in offices, call centres and at selected base stations has led to significant savings on electricity consumption. The Company’s fleet was downsized by 25%, which has led to fuel savings. Likewise, the process of customer documentation flow was improved through the implementation of a central point of entry.
Projects aimed at the building of customer trust and satisfaction started to deliver their first tangible results already in 2010. Quality improvements in service delivery, sales in brand stores and the Company’s drive for active, credible and transparent communication with customers have led to a reduction in the number of complaints and claims by 25–30%, depending on the segment. Improvements could be seen also in call centres – the rate of their utilisation increased, with the number of calls answered within twenty seconds hovering steadily around 85% at the end of the year. The average number of calls per customer was down approximately 15% and the average duration of call shortened by approximately 8%. An ongoing independent customer satisfaction survey of call centres revealed that, during 2010, the level of customer satisfaction improved across all segments; approximately 64% of all requests registered by call centres were resolved during the first call.
Telefónica O2, pursuing the strategy to retain its leadership in the mobile internet market, significantly expanded the coverage of its high-speed mobile networks (EDGE and 3G), without compromising on the quality of service, and boosted the transmission speeds. The Company covered 72 towns and their greater areas with signal, and improved the coverage of ten other towns. At the end of 2010, 84 towns, which represent 42.5% of the population, were covered with the service. The average downlink speed reached 1.8 MB/s; in locations where new network had been built, the average speed could be as high as 4 MB/s. The technology coverage was up 81 percentage points and reached 98% of the population, which brought it to the level of the other two operators. The expansion of the mobile broadband network went hand in hand with a new portfolio of mobile internet tariffs for both pre-paid and contract customers. This in turn reflected in higher level of customer satisfaction across all customer segments.
All the above has led to a 1.3 percentage point increase on the scale of the Customer Satisfaction Index, which helped the Company with closing the gap to its competitors.
Telefónica O2 Slovakia
As at 31 December 2010, Telefónica O2 Slovakia registered 880 thousand customers, of which 334 thousand were contract customers. The number of customers increased 59% year on year. The revenues reached EUR 112 million, which is 51% more than in 2009. In the third and fourth quarter of 2010, Telefónica O2 Slovakia showed a positive operating income before depreciation and amortisation (OIBDA).
The company continued marketing its O2 Fér product with the same slogan – ‘simplicity, transparency and flexibility’. In September 2010, a new product, O2 Moje Firma, was introduced in the SME segment. In 2010, Telefónica O2 Slovakia focused mainly on customer acquisition and on improving the quality of its customer base through Mobile Number Portability. To make the porting option more attractive, the company offered bonuses for every number ported to the O2 network. As a result of this campaign, in 2010 almost 142 thousand customers ported their already existing number to the O2 network.
At the end of September, the company announced its plan to roll out a proprietary 3G network in Slovakia. The launch of commercial service in the expanded 3G network is scheduled for June 2011. By July 2011, the O2 3G network should cover already 33% of the Slovak population in 24 towns.
At the end of December 2010, the network of Telefónica O2 Slovakia was available already to 94.9% of the population in Slovakia. The span of the network allowed carrying of almost 89% of calls ‘on net’. The remaining 11% of calls were connected using national roaming. The share of on-net calls went up by almost 4 percentage points compared to the end of 2009.
A survey carried out by the independent market research agency Ipsos Tambor jointly with Telefónica O2 Slovakia revealed that O2 ranked at the top of all mobile operators in Slovakia in terms of customer satisfaction. The Customer Satisfaction Index (CSI) of O2 reached a record level, as did the company’s gap on its competitors.
Telefónica O2 Slovakia also fared the best in the fifth year of the only independent awards of mobile operators in Slovakia. More than two thirds of votes secured the title ‘Mobile Operator of the Year’ for O2 – already in the second consecutive year.
Risk management
Risk management is one of the primary management tools for effective governance of companies in the Group. Its purpose is to render support in accomplishing the Company’s vision and strategy. All companies in the Telefónica Group apply the same risk management model which fully conforms to the best international practice in the field of corporate governance and the COSO II framework (Committee of Sponsoring Organizations of the Treadway Commission). Close cooperation with other members of the Telefónica Group contributes to further development of the risk management system, which is an integral part of the Group’s internal control system.
Risks are identified based on an assessment of the relevant management levels and suggestions made by the division Risk Management and Internal Audit and other units of the Group, and are evaluated in terms of their potential financial impact and likelihood of materialisation. Where the value of a risk exceeds a set limit, the risk is included in the risk catalogue of the Company.
Also in 2010, the Risk Management unit was responsible for the methodology and risk management system on the Group level. The governing bodies – the Board of Directors and the Supervisory Board, or, where appropriate, the Audit Committee – were informed on a monthly basis of all major risks to which the Group was exposed, and of the ways the risks were mitigated.
The Risk Management unit also handles the risks of Telefónica O2 Slovakia; the risks are managed according to the common methodology of the Telefónica Group.
The Company may encounter the following risks associated with the conduct of its business:
Commercial (market) risks
Possible losses caused by market uncertainty, developments in the market, austerity measures adopted by the government and the public sector, competitive pressures, changes due to regulatory actions (including those taken by the European Commission) and changes in the legislation, in particular in connection with the adoption of the new regulatory framework.
Financial risks
Possible losses stemming from the fluctuations in the value of financial instruments, in particular the exchange rates of currencies or interest rates.
Credit risks
Risks of exposure to defaulting business partners or customers, e.g. receivables from customers or distributors. The number of defaulting partners may increase in conjunction with the continuing economic recession.
Operating risks
Risks of possible losses caused by incidents relating to processes, human resources, network elements and information systems, or by external factors.
