Telefónica Czech Republic Group
Overview of the Group and the main changes in 2011
The group of Telefónica Czech Republic (Telefónica Group) comprises Telefónica Czech Republic, a.s. (Telefónica or Company) and several other subsidiaries. In 2011, the Group’s services were provided mostly on the territory of the Czech Republic and in Slovakia. Through a wholly-owned subsidiary Telefónica Slovakia, the Group has been operating in Slovakia since 2007.
In the first half of 2011, some companies in the Telefónica CR Group changed their company name. With effect from 10 May 2011, the company name of Telefónica O2 Slovakia, s.r.o., was changed to Telefónica Slovakia, s.r.o. Following that, with effect from 16 May 2011, the company name of Telefónica O2 Czech Republic, a.s., was changed to Telefónica Czech Republic, a.s. Other companies in the Group did not change. The changes were required to harmonise the company names in all European markets of the group Telefónica, S.A. In addition to the Czech Republic and Slovakia, Telefónica will be the single corporate brand in the United Kingdom, Germany and Ireland. O2 remains the commercial brand of Telefónica CR.
In June 2011, the Board of Directors of Telefónica CR approved a project to transform its subsidiary Telefónica O2 Business Solutions, spol. s r.o., through demerger by spin-off. The project sought to spin off a part of the assets of the demerged company into a newly incorporated subsidiary Internethome, s.r.o., whose business it is to provide electronic communications services. The change and the spin-off became legally effective as of 1 October 2011, when Internethome, s.r.o., was registered in the Commercial Register. The demerged company Telefónica O2 Business Solutions, spol. s r.o., whose core business continues to be the provision of information and communication technologies, was not dissolved in the process of the transformation.
On 1 January 2012, Telefónica CR incorporated a new subsidiary by the name of Informační linky, a.s.; the incorporation was registered in the Commercial Register as of the same date. The subsidiary was founded by contributing a part of the assets of the organisation unit Information and Assistance Services, which operates directory and assistance services on the numbers 1180, 1181 and 1188. The spin-off process transferred all units of the division (including employees) to the subsidiary.
Telefónica CR 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 CR 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 2011, Telefónica Group comprised the following subsidiary companies and affiliates:
| Subsidiary companies | |||||
|---|---|---|---|---|---|
| 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 – MichleZa Brumlovkou 266/2postal code 140 00 Czech Republic |
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 Mainpostal code 60596 Germany |
Lease of telecommunication lines | HRB 51503 | EUR 25,000 | 100% |
| Telefónica 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% |
| Internethome, s.r.o. |
Praha 4 – MichleZa Brumlovkou 266/2 postal code 140 00 Czech Republic |
WiFi internet access services | 24161357 | CZK 200,000 | 100% |
| Affiliate companies | |||||
| AUGUSTUS spol. s r.o. |
Praha 10 – Vinohrady Na Zájezdu 1935/5postal code 101 00 Czech Republic |
Consultancy and agency in the field of telecommunications | 49356160 | CZK 166,000 | 39.76% |
| První certifikační autorita, a.s. |
Praha 9 – Libeň Podvinný mlýn 2178/6 postal code 190 00 Czech Republic |
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 Czech Republic |
Real-time mobile payment services | 24759023 | CZK 104,000,000 | 14.29% |
Restructuring programme
As in the previous year, also in 2011 the Company strived to improve its operating efficiency. To this end, it embarked on the next phase of its restructuring programme. Restructuring projects focused, among other things, on the consolidation and optimisation of the call centre operations, resulting in a Group headcount reduction by 631 down to 6,890 in 2011. In connection with the Company posted restructuring costs of CZK 174 million in 2011.
Number of employees of the Telefónica Group by region:
| Telefónica Europe | As at 31 December 2011 | As at 31 December 2010 |
|---|---|---|
| Telefónica Czech Republic, a.s. | 6,340 | 6,936 |
| Telefónica O2 Business Solutions, spol. s r.o. | 154 | 178 |
| Employees in the Czech Republic | 6,494 | 7,114 |
| Telefónica Slovakia, s.r.o. | 396 | 408 |
| Employees in Slovakia | 396 | 408 |
| Employees of the Group in total | 6,890 | 7,522 |
Telefónica Slovakia
As at 31 December 2011, Telefónica Slovakia had a total of 1,164 thousand customers, of which approximately 498 thousand were contract customers. This represents a year-on-year growth of 32.2%. Since the free number portability was enabled in November 2007, customers of Telefónica Slovakia ported more than 387 thousand numbers to the network of Telefónica Slovakia.
Also in 2011 Telefónica Slovakia continued to market its successful tariffs O2 Fér and O2 Moja Firma designed for small and medium businesses. In early April the company launched O2 Filip, a new tariff for individual customers, which comes in three price point variants.
During the course of 2011, Telefónica Slovakia worked intensively on rolling out its own 3G network to new areas. The company put the commercial proposition of new data bundles on the market at the start of the second half of the year, when the network reached approximately 30% of the Slovak population. At the end of 2011, the coverage extended to one third of the population, and in December the company announced its plan to expand the network to cover 50% of the population in autumn 2012.
As part of its endeavour to improve customer care, in autumn 2011 Telefónica Slovakia introduced O2 Super, a new loyalty programme which included diverse benefits – culinary, travel, entertainment, home furnishings or body care. The company also brought to Slovakia a successful concept tried and tested in other Telefónica companies: O2 Guru. A specially trained O2 Guru team assists customers in particular with new technology. The project was started in Slovakia in mid-July 2011.
At the end of December 2011, Telefónica Slovakia reached already 94.9% of the Slovak population. The coverage already supported 90% of all calls carried within the company’s own network. The remaining 10% of traffic was carried using national roaming.
An independent survey carried out by Ipsos Tambor jointly with Telefónica Slovakia showed that the company was again ahead of the field of Slovak mobile operators in terms of customer experience, and that it also leads the customer experience index among the Telefónica Group companies.
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 2011, 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.
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.
Operating risks
Risks of possible losses caused by incidents relating to processes, human resources, network elements and information systems, or by external factors, namely litigation against the Company.
The above risks are regularly monitored and managed in a way that corresponds to the nature of the risk.