Austria Telecommunications Report Q1 2013

BMI View: Austria's all-important mobile market reported slower than expected growth in 9M12 as theweaker domestic economy weighed on consumer spending and made operators' low-cost 'no frills' servicesmore appealing than ever. The postpaid user base contracted slightly as a result and was buoyed only bythe higher value service from 3 Austria. Market saturation also has a role to play in the slowdown ofgrowth and operators must work harder to extract more value from the customers they already have. Thisleaves some interesting opportunities in the MVNO space, and Tele2 and UPC appear to be ready to movein on the converged services opportunity.

Key Data

Revised data from the regulator showed that the broadband market grew less dynamically in 2011 thanhad previously been reported, though mobile broadband remained the principal driver of growth.Subscriber additions were lower than expected in 9M12 and our five-year forecasts have beenreined in and extended through to 2017.

Blended mobile ARPU generally declined in 9M12, although 3 Austria reported a slight improvement.3's ARPU is likely to be hit by the absorption of Orange, while Telekom Austria's acquisition of Yesss!will increase its exposure to the lower end of the market, also weighing on ARPUs. We have reviseddownwards our overall ARPU forecast and extended it through to 2017.

Key Trends & Developments

Telekom Austria and T-Mobile continue to increase capacity on their core radio and optical cabletransmission networks in order to keep pace with growing volumes of mobile data traffic. Close to 50% ofmobile service revenue on the A1 network comes from non-voice services, while T-Mobile reports that 40%revenue was related to mobile data.

Local and European Commission-level scrutiny of 3 Austria's proposed acquisition of Orange Austria wasongoing at the time of writing, with reviews focusing on 3's capabilities of serving MVNO partners and theeffect on the wider mobile market of Telekom Austria's absorption of Yesss!

Austria fell two places to ninth position on BMI's Risk/Reward Ratings table for Western Europe'stelecommunications market as we altered our methodology for rating the industry rewards score. Austriacontinues to be marked down due to saturation of the mobile market, slower subscriber growth rates and thecontinued erosion of blended ARPUs.