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Telekom Austria fights price wars with fewer rivals

A trash collector walks by a Telekom Austria phone box in Vienna February 8, 2013. REUTERS/Heinz-Peter Bader
A trash collector walks by a Telekom Austria phone box in Vienna February 8, 2013. REUTERS/Heinz-Peter Bader

By Georgina Prodhan

VIENNA (Reuters) - Telekom Austria said it expected price competition to intensify in its major markets, rather than diminish as had been hoped by Austrian carriers after a consolidation of the market.

Until last year, Austria had four mobile carriers fighting over a population of just 8.4 million. That was cut to three with Hutchison Whampoa's takeover of Orange Austria in January, but price pressure has not relented.

Posting a 7 percent drop in first-quarter core earnings, Austria's biggest telecoms operator stuck to its forecast for full-year sales to fall to about 4.1 billion euros ($5.4 billion) from 4.3 billion last year.

"On the group's major operating markets like Austria, Bulgaria and Croatia, price pressure in the mobile business will be further exacerbated by intensive competition," it said in a statement on Tuesday.

Quarterly earnings before interest, tax, depreciation and amortization (EBITDA) fell to 337 million euros, beating the average estimate of 323 million in a Reuters poll, as the company cut costs to combat stagnant revenues.

Carriers all over Europe have been struggling with increasingly budget-conscious customers, and although Austria is relatively prosperous, it has been at the forefront of consumer-friendly regulation that has cut into operators' profits.

The group said average revenue per user fell in Austria, Croatia and Bulgaria, though sales overall remained stable mainly thanks to a substantial improvement in Belarus and the acquisition of budget operator Yesss in Austria.

SALES DROP

Jan Trionow, chief executive of Hutchison's Austrian mobile business, told Reuters earlier: "There can be no talk yet of the market calming down."

Economic weakness in Europe is hurting telecoms operators across the continent.

Spain's Telefonica is expected to report a 10 percent quarterly sales drop in its domestic market due to continuing high unemployment, and Deutsche Telekom's sales and profits are also seen falling.

Telekom Austria, in which Mexican tycoon Carlos Slim's America Movil became a major shareholder last year, said its operating expenses rose by 18 million euros as it spent more on subsidizing expensive handsets in an effort to retain high-spending customers.

The company's average revenue per mobile user fell 16 percent in Austria, only partly due to dilution through Telekom Austria's acquisition of budget mobile operator Yesss, and also fell in its two other main markets, Croatia and Bulgaria.

Quarterly sales were roughly flat at 1.05 billion euros, beating the Reuters poll average of 1.03 billion, while net profit of 56 million euros also beat the poll average of 28 million.

Telekom Austria stock trades at around 20 times 12-month forward earnings per share, a premium to Deutsche Telekom on around 13 times and France Telecom on 8 times, according to Thomson Reuters StarMine, which weights estimates by analysts' previous forecasting accuracy. ($1 = 0.7642 euros)

(Editing by Michael Shields and David Holmes)

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