Interview with Luis Antonio Malvido,
the Chairman of the Board of Directors
What was the year 2011 like for the company?
The year 2011 was full of challenges, but for us – also successes. We managed to reach several important milestones. One of the most important, in my view, is that during the year we captured over 50% market share in mobile contract customers’ net additions and close to 50% market share in fixed broadband customers’ net additions. We also significantly exceeded our own target in the coverage of the country with the 3rd generation mobile network signal. Whereas at the end of 2010, our 3G network reached 43% of the population, last year on the New Year’s Eve, it was already 73%. Of course, we are planning to continue in the fast network rollout also in 2012. I also consider the prestigious award from Via Bona Foundation as a great achievement – we earned it for 17 years of uninterrupted partnership with the Safety Line and the start of Think Big, a social programme for young people, in the Czech Republic.
Investments in mobile networks and fast data services are considered as key, especially as the penetration of smartphones and mobile data services in the Czech Republic is lagging behind the western countries. How successful was the year 2011 in this particular area?
Together with the expansion of our 3G network coverage, we focused on promoting the benefits of smartphones to the people. In June we joined forces with leading industry partners and together launched the campaign ‘Now I Know Why’, in which we demonstrated to our customers the various advantages of using smart devices and mobile internet. The campaign helped to increase the penetration of smartphones in our customer base to almost 20% and led to a significant upturn in the sales of internet access in the mobile.
The year 2011 was not as kind to the Czech economy as the business sector would have wished. How did you cope with the challenging environment?
The year that has passed was a difficult one for all sectors; the sector of telecommunications was, however, among those that were hit the hardest. The financial results of the Telefónica Czech Republic Group were marked by the increasingly fiercer competition in the corporate and SME segments in particular, and by the cuts in mobile termination rates. Despite this, we delivered on our goals and achieved a robust level of financial performance. We continue to be highly profitable.
Would you say you are satisfied then?
Things can always be better, but we are doing well in a highly competitive market place and we have a number of accomplishments to show for it. It is a very good result, in my view, especially if you consider the 140% SIM card penetration.
How many new customers did you have?
We added more than 100 thousand new mobile customers, whereas in 2010 it was only about five thousand. At the end of the year we had 4.9 million customers, which is about two percent more than the year before. The xDSL internet over a fixed line did also well – despite the fierce competition from cable television providers and local WiFi providers, we added 66 thousand new clients, which is a year-on-year growth of more than eight percent. The launch and subsequent improvements of the VDSL technology, which gives customers twice as fast home internet as before, played a major part in that. That more than a hundred thousand customers, the majority of whom were existing customers, took the opportunity to subscribe the service by the end of 2011 – this helped us relieve some of the ARPU pressure and reduced customer churn. This is something I regard as essential, especially at the current level of competition in the marketplace.
Speaking of fixed access, is it possible to slow down the ongoing rate of decline due to people cancelling fixed lines and keeping only mobile phones? How well did you do in 2011 in this respect?
The fixed access results were satisfactory. Compared to the previous year we succeeded with slowing down the rate of decline – whilst in 2010, more than one hundred thousand accesses were lost; in 2011 it was under ninety thousand. At the end of the year, just fewer than 1.6 million Czech customers kept a fixed line. The slowdown was aided the O2TV proposition becoming even more attractive, in addition to improvements to our xDSL service. Bundling of O2TV with a fixed O2 internet service proved to be very effective due to the economical pricing. People who took up on the offer saved hundreds of crowns off their monthly bill.
During the year we saw a massive campaign to promote telecommunications services to businesses. Is it then a new focus of your company?
Our business clients have always been on the forefront of interest for Telefónica Czech Republic as no other operator can offer such a range of services as we can. Still, the business segment saw several major changes in the last year. In the middle of the year we launched O2 Exclusive, a commercial brand under which we offer converged fixed and mobile voice and data service to business customers. As part of our ongoing effort to improve the quality of customer service in the segment, we phased out the automated voice IVR systems, so that business customers, who are often pressed for time, are put directly through to a live operator. Thirdly, we substantially expanded our portfolio of ICT services.
The success of Telefónica Czech Republic Group is partly down to the subsidiary Telefónica Slovakia. How would you rate its performance in 2011?
The company’s results in 2011 positively helped the overall group financial performance. In the fourth quarter of the year, the total number of customers in Slovakia grew 85.1 thousand, which was the largest quarterly gain in 2011; most of the growth was in the contract segment. At the end of 2011, the total number of customers reached 1.164 million, which is a growth of almost one third. In 2011 the share of contract customers continued to rally, reaching 43 % in December. Our share of the Slovak mobile market reached almost 20%.
The year 2012 is expected to be a ‘turning point’ in the telecommunications sector – which major developments are you expecting personally?
The auction of frequencies for the fourth generation mobile networks (LTE) will be, without doubt, the biggest milestone of the year. The technology allows for a much more efficient infrastructure rollout, with several times faster mobile internet than the present 3G networks, with a much better coverage in the rural areas. We see LTE as a huge opportunity to leapfrog the whole sector of mobile communication forward, and, help Czech business, for example, become much more competitive. We see LTE as a key technology for the future – one that has a lot of potential to affect the whole economy of a country. But whether we succeed depends largely on the conditions which the market regulator, the Czech Telecommunications Office, attaches to the auction. If done right, the frequency auction can help with spreading fast mobile internet to all corners of the Czech Republic – otherwise, if the conditions are not calibrated right, the whole telecommunications market could slow down as a result.
Are you prepared to start building the LTE network already in 2012?
If the auction is fair and conditions permit, then yes. We are interested in the licences and prepared to invest in the new and viable technology. In 2011 Telefónica Czech Republic Group invested a total of CZK 5.6 billion and in 2012 we are prepared to commit for even higher level of investment.
Which factors will influence the results of 2012?
We expect that revenues from fixed and mobile broadband internet, in conjunction with the growing revenues from Slovakia, will be the main drivers of revenue growth in 2012 compared to 2011. At the same time, our performance will be negatively impacted by the expected cuts in mobile interconnection rates and the highly competitive marketplace. We will continue to focus on efficient operating expenditure (simplifying and making more efficient our organisation structure and processes, consolidation and optimisation of our call centre operations), with the view to maintain the best levels of the operating margin. We will also continue to channel our investments to improvements to our broadband data network and increasing the network capacity, in the interest of future growth.
