Erste Sector Telecom Hope for slow recovery - 7 September 2011

Transcription

1 Erste Sector Telecom Hope for slow recovery - 7 September 2011 Valuation: Underlying operating performance remains weak, but valuation already well ahead Recovery: Improvements from 2H11, due to seasonality and mobile data growth Stabilization: Recovery in consumer and public sector spending to drive stabilization in 2012 Low single digit growth at best: Falling voice sales, partially compensated for by mobile data

2 Table of contents Executive summary... 3 Valuation... 4 Market overview... 7 Sector growth drivers... 9 Privatization and acquisition projects... Błąd! Nie zdefiniowano zakładki. Erste Group Research Sector Report September 7, 2011 Page 2 All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors.

3 Executive summary The valuation of our covered CEE telecom stocks has come down considerably compared to the pre-recession period prior to 2008, but then recovered from 2009 onwards. As the underlying operating performance of the CEE telecom sector has remained weak until now, we think that the valuation of the sector has bounced up ahead of its fundamentals. The 2Q11 results showed that a recovery in the sector has not taken place. Most of our covered CEE incumbents, such as Telefónica O2 CR, Telekom Austria, TPSA, Magyar Telekom and T-Hrvatski Telekom, reported an acceleration of their revenue decline in 2Q11 compared to the previous quarters. The Turkish players show a different picture, as they continue to grow their revenues throughout the downturn period. We expect the 2H11 results to be stronger than those for 1H11, driven by the seasonality factor, as well as the growth in the mobile data and ICT segments. We expect the revenue and EBITDA of the telecom sector in the CEE region to start stabilizing in 2012, driven largely by improvements in consumer and public sector spending. Lower mobile and fixed-line voice revenues continue to be a major problem in the sector. This was driven by fixedto-mobile substitution, migration to VoIP, lower bundled tariffs, reduction in mobile termination and roaming tariffs, as well as competition. To compensate for the falling voice revenues, incumbents are pushing mobile broadband Internet, smartphones, pay TV (IPTV, satellite and cable), fixed broadband Internet and other services, such as IT and energy trading. Our top pick remains Turk Telekom. The company offers the strongest operating performance compared to other telecoms in our coverage universe, thanks to the low infrastructure-based fixed-line competition in Turkey. Turk Telekom should benefit from the low broadband and pay TV penetration. Through its mobile unit, Avea, Turk Telekom should participate in the mobile broadband and penetration growth. We lower our target price from TRY 10.2 to TRY 10, after taking the effect of the TRY devaluation against the USD/EUR into account. We confirm our Accumulate recommendation on Telekom Slovenije. If management can continue its OPEX reduction strategy beyond the past quarters, Telekom Slovenije could be seen as a turnaround story. We upgrade Turkcell from Reduce to Hold, while lowering the target price from TRY 8.5 to TRY 8.3. The lower target price was mainly driven by the negative impact of the around 60% Belarusian ruble devaluation against the USD/EUR. As the share price of Turkcell has in the past months fallen below our target price, we see limited downside from the current level. We downgrade Magyar Telekom from Accumulate to Hold, as the OPEX reduction is running out of steam. In addition, the high CHF-denominated household and local government debt should weaken the consumer and public sector spending recovery. We confirm our Hold recommendation on Telefónica O2 CR, while reducing the target price, due to our lower earnings estimate. The company should update its shareholder remuneration policy only next year alongside the FY11 earnings release, with the aim of maintaining its shareholder distribution at CZK 40/share. We stick to our Hold recommendation on T-Hrvatski Telekom, as the current share price level should already reflect the potential lower roaming revenues following EU accession. We upgrade TPSA from Sell to Reduce, while keeping the target price unchanged. The share price has fallen strongly in the past months, but we think it still does not reflect the DPTG award risk. We confirm our Sell recommendation on Telekom Austria, considering its very weak equity ratio and extremely high net gearing. Overview of target prices and recommendations Companies Currency Current Price Target price Potential upside New Recommendation Previous target price Previous recommendation Turk Telekom TRY % Buy 10.2 Buy Telekom Slovenije EUR % Accumulate 85.0 Accumulate Turkcell TRY % Hold 8.5 Reduce Magyar Telekom HUF % Hold Accumulate Telefónica CR CZK % Hold Hold T-Hrvatski Telekom HRK % Hold Hold TP SA PLN % Reduce 16.0 Sell Telekom Austria EUR % Sell 5.5 Sell Source: Erste Group Research Erste Group Research Sector Report September 7, 2011 Page 3

4 Valuation The valuation of our covered CEE telecom stocks has come down considerably compared to the pre-recession period prior to 2008, but then recovered from 2009 onwards. As the underlying operating performance of the CEE telecom sector has remained weak until now, we think that the valuation of the sector has bounced up ahead of its fundamentals. The recent results for 2Q11 confirmed that the sector continued to struggle with the slow consumer and public sector spending, with corporate clients renegotiating their contracts or trying to reduce their communication costs. In addition, the impact of the Belarusian ruble devaluation as of mid-may 2011 hit Turkcell and Telekom Austria s results. The TRY devaluation against the USD and EUR caused significant foreign exchange losses in Turk Telekom s net financial results, which depressed earnings and the potential dividend. Development of CEE and Turkey telecoms valuation P/E adjusted for one-offs Incumbents e 2012e 2013e Magyar Telekom T-Hrvatski Telekom Telefónica CR Telekom Austria Telekom Slovenije nm TPSA Turkcell Turk Telekom Median CEE Median all Incumbents EV/EBITDA e 2012e 2013e Magyar Telekom T-Hrvatski Telekom Telefónica CR Telekom Austria Telekom Slovenije TPSA Turkcell Turk Telekom Median CEE Median all Source: Erste Group Research *) e is marked as a downturn period A brief look at the past transactions in the CEE telecom sector also shows a lower valuation after the recession. The landmark valuation of Mobi 63 in Serbia at EV/EBITDA is no longer repeated. Recently, T-Mobile USA was valued at 7.1x EV/EBITDA, with Polkomtel in Poland at 6.4x EV/EBITDA. Nevertheless, we saw a high valuation paid by Telekom Slovenije for Cosmofon at 10x EV/EBITDA, by Telekom Austria for cable operators in Bulgaria and Croatia at above 11x EV/EBITDA and by Montagu Private Equity for Emitel at 10x EV/EBITDA. Valuation of previous M&A transactions Acquisition target Country Time Additional information Buyer Mobi 63 Serbia Jul-06 Sold for EUR 1513mn or 12.25x EV/EBITDA 2005 Telenor Cosmofon Macedonia Mar-09 Sold for EUR 190mn or 10x EV/EBITDA 2008 Telekom Slovenije Medi Telecom Morocco Sep-10 Sold for EUR 640mn or EV/EBITDA 2009 of 11.5x France Telecom Megalan and Bulgaria Sep-10 Sold for an EV of EUR 83mn or 11.9x EV/EBITDA 09, 8.6x Telekom Austria Spectrum Net EV/EBITDA 10e and 6.8x EV/EBITDA 11e. Invitel Int. Hungary May-10 Sold for EV of EUR 221mn or EV/EBITDA 2009 of 5.3x. Turk Telekom T-Mobile USA USA Mar-11 Sold to AT&T at 7.1x EV/EBITDA 2010 or USD 1147/customer. AT&T Polkomtel Poland Jul-11 Sold for an EV of PLN 18.1bn or EV/EBITDA 2010 of 6.4x Solorz-Zak B.net Croatia Jun-11 Sold for an EV of EUR 93mn or EV/EBITDA 2010 of 11.34x, Telekom Austria EV/EBITDA 2012 of 6.7x. Emitel Poland Jul-11 Sold for an EV of PLN 1.725bn or 10x EV/EBITDA Montagu Private Equity Source: Erste Group Research We expect the sector to start stabilizing in 2012, in the context of the rate of revenue and EBITDA declines no longer accelerating. This would be driven largely by improvements in consumer and public sector spending. Erste Group Research Sector Report September 7, 2011 Page 4

5 Regulatory pressure remains an issue. The mobile termination rate should reach eurocents by the end of Hungary, Croatia and the Czech Republic are faced with a steep MTR reduction this/next year. The competitive pressure remains as intense as before. Only the focus of the promotions has shifted towards mobile data. Revenue growth of CEE and Turkey telecoms Incumbents Revenue growth e 2012e 2013e Magyar Telekom 8.1% 0.8% -0.5% -4.3% -5.3% -4.4% -2.6% -0.9% T-Hrvatski Telekom 0.3% 2.3% -0.2% -3.4% -1.7% -5.1% -2.8% 0.1% Telefónica CR 0.5% 2.8% 2.6% -7.4% -7.0% -5.7% -1.9% 0.5% Telekom Austria 9.0% 3.3% 5.1% -7.1% -3.1% -3.9% -1.1% 0.1% Telekom Slovenije 8.3% 4.7% 8.0% 0.6% -1.0% -3.4% -2.6% -1.7% TPSA 1.5% -2.0% -0.4% -8.8% -5.1% -4.4% -1.7% -1.0% Turkcell 12.1% 21.7% 8.0% 1.0% 0.8% 0.4% 3.0% 3.7% Turk Telekom 0.7% 25.1% 8.2% 3.7% 2.7% 8.3% 4.6% 3.9% Median CEE 4.8% 2.6% 1.2% -5.7% -4.1% -4.4% -2.2% -0.4% Median all 4.8% 3.1% 3.8% -3.9% -2.4% -4.2% -1.8% 0.1% Source: Erste Group Research *) e is marked as a downturn period The Turkish players show a different picture, as they continue to grow their revenues throughout the downturn period. In 2008, mobile number portability was introduced and, in 2009, the national regulator reduced MTR by 52%. These have led to aggressive price-based competition so far, putting pressure on Turkcell s revenue growth. Dividend growth of CEE and Turkey telecoms Incumbents Dividend growth e 2012e 2013e Magyar Telekom 4.3% -48.3% 0.0% 0.0% -32.4% 0.0% 0.0% 0.0% T-Hrvatski Telekom 221.9% -7.5% 1.5% 13.5% -33.2% -4.0% -3.9% -1.1% Telefónica CR 11.1% 0.0% 0.0% -20.0% 0.0% -12.5% 0.0% 0.0% Telekom Austria 36.4% 0.0% 0.0% 0.0% 0.0% 1.3% 0.0% 0.0% Telekom Slovenije 16.4% 108.8% -53.1% -50.0% 13.3% 0.0% 0.0% 0.0% TPSA 90.0% -21.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Turkcell -6.1% 14.4% 69.3% -21.8% 54.6% -36.6% 61.8% 7.9% Turk Telekom -8.1% 6.0% -45.7% 6.7% 41.2% -5.2% 25.9% 7.3% Median CEE 26.4% -3.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Median all 13.7% 0.0% 0.0% 0.0% 0.0% -2.0% 0.0% 0.0% Source: Erste Group Research *) e is marked as a downturn period Dividends have remained relatively stable compared to earnings fluctuations. This is supported mainly by CAPEX reduction. Magyar Telekom only reduced its dividend from 2010, mainly as a result of the crisis tax. Telefónica O2 CR lowered its 2009 dividend, as the company could not legally pay more than the parent company s retained earnings. Turkcell and Turk Telekom follow a dividend policy based on at least 50% and 100% payout ratios, respectively. TPSA and Telekom Austria follow a rigid minimum level of dividend, despite falling earnings. The dividend yield of our covered telecoms amounts to 8.5% on average for 2011e and 2012e. EPS adjusted growth of CEE and Turkey telecoms Incumbents EPS adjusted growth e 2012e 2013e Magyar Telekom -4.1% -20.3% 51.3% -17.1% 1.8% -35.6% 33.4% -6.2% T-Hrvatski Telekom 5.4% 11.6% -6.5% -11.8% -10.6% -1.7% -3.9% -1.1% Telefónica CR 28.4% 29.5% 4.9% -5.5% -12.4% -13.1% 0.1% 4.1% Telekom Austria 42.1% -8.3% -8.2% -24.9% -9.3% -32.5% 0.0% 21.5% Telekom Slovenije 7.8% -14.6% -2.9% -71.3% -96.4% n.m. 15.2% 12.4% TPSA -13.2% 9.6% -5.9% -37.9% -6.2% -24.9% 5.1% 6.5% Turkcell 0.0% 38.4% 31.5% -9.9% -14.9% -36.6% 61.8% 7.9% Turk Telekom 27.1% 17.1% -31.2% 4.5% 33.8% -5.7% 25.9% 7.3% Median CEE 6.6% 0.6% -4.4% -21.0% -9.9% -24.9% 2.6% 5.3% Median all 6.6% 10.6% -4.4% -14.5% -9.9% -24.9% 10.1% 6.9% Source: Erste Group Research *) e is marked as a downturn period Erste Group Research Sector Report September 7, 2011 Page 5

6 CAPEX/sales of CEE and Turkey telecoms Incumbents CAPEX/sales e 2012e 2013e Magyar Telekom 19.7% 15.6% 16.2% 16.6% 15.3% 15.0% 15.3% 15.5% T-Hrvatski Telekom 16.5% 14.1% 18.4% 18.2% 15.9% 10.5% 11.0% 10.9% Telefónica CR 7.8% 6.4% 7.3% 8.9% 9.9% 10.9% 11.7% 12.0% Telekom Austria 20.9% 34.3% 15.9% 15.1% 16.3% 17.3% 17.0% 17.0% Telekom Slovenije 18.5% 26.1% 24.2% 44.3% 15.1% 12.9% 13.3% 13.5% TPSA 16.1% 20.2% 14.2% 13.2% 17.3% 17.5% 18.2% 12.2% Turkcell 11.2% 8.0% 10.3% 17.6% 15.7% 16.6% 16.1% 14.5% Turk Telekom 8.8% 10.5% 16.1% 22.0% 16.6% 17.0% 13.8% 11.7% Median CEE 17.5% 17.9% 16.0% 15.9% 15.6% 14.0% 14.3% 12.9% Median all 16.3% 14.9% 16.0% 17.1% 15.8% 15.8% 14.6% 12.9% Source: Erste Group Research *) e is marked as a downturn period Our top pick is Turk Telekom. The company offers the strongest operating performance compared to other telecoms in our coverage universe. Thanks to the low infrastructure-based fixed-line competition in Turkey, Turk Telekom can sustain its 49-50% fixed-line EBITDA margin. The low broadband and pay TV penetration offer growth potential for ADSL and IPTV. Through its mobile subsidiary, Avea, Turk Telekom can benefit from the mobile broadband and mobile penetration growth. It is traded at a 22% discount in terms of P/E Its premium EBITDA could be explained by its best-in-class margin, as well as the numerous taxes charged by the Turkish authorities. These taxes include contributions to the Telecommunications Authority s expenses at a rate of 0.35% of gross revenue, contributions to the Universal Service Fund at a rate of 1% of revenue per year, and mobile activation fees of 15% of monthly service revenue (applicable to post-paid subscribers, including ported subscribers) to the Turkish Treasury. The key risk factor is the heavy weight of USD/EUR-denominated debt at 73% of the total debt. The YTD devaluation of the TRY against the USD and EUR has led to foreign exchange losses in the net financial results, correspondingly lower earnings and dividend capacity for 2011, as well as rising net debt. As we expect the TRY to stabilize in 4Q11 or the beginning of 2012, the negative impact of the devaluation should ease. Peer group comparison CEE, Turkey P/E EV/EBITDA FCF yield Dividend Yield 2011e 2012e 2013e 2011e 2012e 2013e 2011e 2012e 2013e 2011e 2012e 2013e Magyar Telekom % 11.9% 12.8% 9.7% 9.7% 9.7% T-Hrvatski Telekom % 14.8% 14.4% 8.6% 8.3% 8.2% Telefónica CR % 11.8% 11.9% 8.5% 8.5% 8.5% Telekom Austria nm % 10.3% 10.5% 10.0% 10.0% 10.0% Telekom Slovenije % 19.2% 22.1% 4.8% 4.8% 4.8% TPSA % 9.9% 13.4% 8.7% 8.7% 8.7% Turkcell % 10.4% 12.2% 5.0% 8.0% 8.7% Turk Telekom % 11.1% 12.4% 7.5% 9.4% 10.1% Median % 11.5% 12.6% 8.6% 8.6% 8.7% Source: Erste Group Research Margin comparison CEE. Turkey EBITDA margin EBIT margin Net margin 2011e 2012e 2013e 2011e 2012e 2013e 2011e 2012e 2013e Magyar Telekom 34.0% 34.7% 36.6% 17.0% 17.4% 19.3% 6.7% 9.9% 11.2% T-Hrvatski Telekom 44.1% 43.2% 41.9% 27.4% 26.5% 25.5% 22.5% 22.3% 22.0% Telefónica CR 40.9% 41.2% 41.2% 18.8% 19.0% 19.5% 14.9% 15.2% 15.8% Telekom Austria 27.8% 32.5% 32.6% 5.0% 10.5% 11.7% 0.4% 4.6% 5.6% Telekom Slovenije 32.2% 33.0% 33.6% 8.0% 9.0% 9.9% 4.6% 5.4% 6.2% TPSA 40.9% 35.7% 35.4% 15.6% 11.0% 11.5% 10.9% 6.3% 6.7% Turkcell 31.1% 33.4% 33.5% 16.7% 20.6% 21.1% 11.8% 18.9% 19.8% Turk Telekom 43.7% 44.1% 43.6% 30.2% 31.2% 31.3% 18.3% 22.6% 23.5% Median CEE, Turkey 37.5% 35.2% 36.0% 16.8% 18.2% 19.4% 11.3% 12.6% 13.5% Source: Erste Group Research Erste Group Research Sector Report September 7, 2011 Page 6

7 No recovery yet The telecom sector has not yet recovered from the impact of the financial crisis in 2008 and the consequent recession in All of our covered incumbents in CEE expect a single-digit decline in revenues and EBITDA, citing the following reasons: Customers migrate to cheaper products Customer churn due to the high unemployment rate, such as in Croatia at 16.9% in 2Q11 Corporates and SMEs negotiate for cheaper rates from incumbents Governments reduce budgets for public sector projects, causing delays or cancellation of ICT projects Fixed to mobile substitution leads to fixed-line losses and lower fixed-line traffic Fixed to mobile broadband substitution, especially in Austria Mobile termination rate in Hungary, Austria, Croatia, the Czech Republic and Poland Roaming rate reduction in the EU from 39 eurocents to 35 eurocents/minute for roaming calls made, and from 15 eurocents to 11 eurocents/minute for roaming calls received as of July 1, The data roaming wholesale price was reduced from 80 eurocents to 50 eurocents/mb as of July 1, Intensifying competition, especially in the mobile Internet and fixed broadband segments Higher subscriber acquisition costs, due to growing smartphone penetration OPEX reductions could not compensate for falling revenues Outlook 2011 for CEE and Turkish telecoms Companies Revenues EBITDA Turk Telekom Exceed +5% to 7% 40%-45% margin Magyar Telekom -3% to -5% -4% to -6% Telefónica O2 CR Close to -5% Telekom Austria Approx. EUR 4.5bn, -3.2% Up to EUR 1.55bn, -5.8% T-Hrvatski Telekom moderate decline moderate decline Turkcell TRY 9.3bn, +3% TRY 2.9bn, stable TP SA -2% to -4.5% 36-37% margin Source: Companies data The 2Q11 results showed that a recovery in the sector has not taken place. Most of our covered CEE incumbents, such as Telefónica O2 CR, Telekom Austria, TPSA, Magyar Telekom and T-Hrvatski Telekom, reported an acceleration of their revenue decline in 2Q11 compared to the previous quarters. Additionally, some incumbents, such as Telekom Austria, Telefónica O2 CR and Magyar Telekom saw an acceleration of their underlying EBITDA decline in 2Q11. Guidance for 2011 was downgraded by T-Hrvatski Telekom and Telekom Austria. Meanwhile, Telefónica O2 CR and Turkcell stated that the FY11 results would come in at the lower end of the original guidance. Turk Telekom, as an exception, stated that it would exceed its initial revenue guidance. Summary of 2Q11 vs 2Q10 (excluding one-offs) T-Hrvatski Magyar Telefónica Telekom TP SA Telekom Turk Turkcell % y/y Telekom Telekom Czech Rep. Austria Slovenije Telekom Sales -5.2% -4.6% -7.2% -5.1% -4.9% -3.2% 11.3% 1.7% EBITDA -0.1% -2.1% -11.2% -8.6% -3.9% -1.5% 5.3% -0.5% EBIT 0.0% 2.0% -20.9% -36.7% -17.0% 27.2% 7.1% -2.1% Net profit 8.9% -0.5% -20.1% -71.1% -18.2% 116.4% -17.5% 11.1% Source: Companies data Turkish telecoms fortunately do not share the same trend as the CEE peers. Their revenue growth profile remains intact, while their EBITDA is driven largely by the competitive situation in the domestic market. Turk Telekom posted lower net profit y/y, mainly due to foreign exchange losses as a result of its EUR- and USD-denominated debt positions. The recent EITO report indicates that the stabilization of the telecom sector in the EU 25 should already take place in This has not been the case, as our covered CEE incumbents posted hardly any fixed Internet growth, due to the strong competition from alternative, cable and especially mobile operators. Average prices have declined, as a result of competition, yet the offered speed has increased. Furthermore, customers are migrating to cheaper bundled products. For example, TPSA posted a 4.4% y/y decline in broadband and TV revenues in 1H11. Telefónica O2 CR showed only 0.9% y/y growth in fixed broadband revenues in 1H11, of which the retail segment showed a 0.3% y/y decline. Magyar Telekom reported a 4.2% y/y decline in fixed-line Internet in 1H11. Erste Group Research Sector Report September 7, 2011 Page 7

8 Telecommunication services market value of EU 25 Services (EURbn) e 2012e Fixed line voice Fixed line internet Mobile voice Mobile data Business data Pay TV Total telecom services Growth rate y/y e 2012e Fixed line voice -8.2% -6.9% -5.2% -4.1% Fixed line internet 4.3% 4.7% 4.5% 4.4% Mobile voice -4.9% -3.9% -3.7% -2.3% Mobile data 9.3% 12.3% 12.0% 9.5% Business data 0.1% -1.9% 0.6% 1.7% Pay TV 5.4% 6.3% 2.7% 4.5% Total telecom services -2.0% -0.6% 0.0% 0.9% The opposite is true for Turkey. Turk Telekom still enjoys high ADSL revenue growth at 19.4% y/y in 1H11, thanks to the low fixed broadband penetration at 9.8% of the population or 38.9% of households in 1Q11 (EU: 25.6% of population or 61.4% of households). Turk Telekom enjoys limited competition from cable and alternative operators, whose combined market share amounted to 12.1% in 1Q11. Nevertheless, the biggest competitor is the mobile operator, with a 20.5% market share in 1Q11, up from 8.8% a year earlier. but it should be better from 2H onwards We expect the 2H results to be stronger than those for 1H11, due to the following reasons: Seasonality factor. 3Q is a summer holiday period, which usually brings higher roaming revenues for Telekom Austria, T-Hrvatski Telekom and Turkcell. Furthermore, 4Q is the Christmas promotion period, which usually brings higher revenues to CEE incumbents. ICT projects normally occur mainly in 4Q. Magyar Telekom and Telefónica O2 CR are active in this segment. Mobile Internet growth, driven by higher smartphone and tablet penetration. Further upselling to higher speed or data capacity for existing fixed and mobile broadband customers. We expect the revenue and EBITDA of the telecom sector in the CEE region to start stabilizing in 2012, driven largely by improvements in consumer and public sector spending. The economic recovery in CEE was essentially based on foreign trade. The next step on the road to a full recovery would be stronger growth of private consumption. The labor markets in the area have hardly rebounded at all and the consolidation of public sector budgets also eats into the propensity to consume. We expect this area to improve significantly next year. Private consumption growth % y/y e 2012e Croatia Czech Republic Hungary Poland Romania Serbia Slovakia Ukraine Turkey Euroland Austria United States Source: Erste Group Research Erste Group Research Sector Report September 7, 2011 Page 8

9 Magyar Telekom expects revenues to stabilize in The drivers would be the new revenue streams, such as mobile data, TV (IPTV and satellite), IT services and energy, which should compensate for lower traditional fixed and mobile voice revenues. Drags on sector The fixed and mobile voice segments represent around 53.9% of the EU 25 telecom services in Their revenues should fall by 4.31% y/y to EUR 152.2bn in 2011, according to EITO. Voice has become a commodity and its average price per minute continues to decline. Telecom sector in 2011e: Growth rate 12.0% Telecom services 2011e: revenue share 4.5% 2.7% Business data, 7.2% Pay TV, 11.0% Fixed line voice, 21.5% 0.6% 0.0% Mobile data, 14.2% -6.3% -3.7% Fixed line voice Fixed line internet Mobile voice Mobile data Business data Pay TV Total telecom services Fixed line internet, 13.6% Mobile voice, 32.4% The fixed voice revenue decline is driven largely by fixed to mobile substitution. Magyar Telekom additionally cited competition from voice-over cable and voice-over IP providers. Incumbents tried to slow down or even reverse the rate of access loss by offering bundled minutes or bundled products at low prices and months of minimum loyalty period. Magyar Telekom introduced the Hoppá fixed-line tariff in January 2011, which includes unlimited fixed-line and mobile minutes to T-Mobile for HUF 2990 or EUR 10.9 per month with a 24-month minimum loyalty period. Hoppá subscribers generate 30% lower ARPU than the average PSTN subscribers, but slow down the decline in fixed traffic considerably. Telekom Austria offered triple play (fixed, mobile, broadband Internet) at EUR 19.9/month and quadruple play (fixed, mobile, broadband Internet, TV) for EUR Fixed access decline in 2010 and 1H11 Fixed traffic decline in 2010 and 1H11 1H11, -10.0% 2010, -9.6% Magyar Telekom 1H11, -21.0% 2010, -15.3% TPSA 1H11, -7.8% 2010, -7.2% TPSA 1H11, -14.4% 2010, -14.7% Telefonica O2 1H11, -5.3% 2010, -6.5% Telefonica O2 1H11, -12.1% 2010, -12.1% Telekom Austria 1H11, -2.8% 2010, -3.6% T-Hrvatski Telekom 1H11, -11.4% 2010, -8.3% T-Hrvatski Telekom 1H11, -4.5% 2010, -3.4% Turk Telekom 1H11, -9.3% 2010, -4.1% Turk Telekom 1H11, 0.8% Telekom Austria 2010, 0.1% 2010, -12.5% 1H11, -2.7% Magyar Telekom Source: Company data Source: Company data, UKE, Turkish Telecom Regulator Meanwhile, the mobile voice revenue decline is driven by the mobile termination rate reduction and intensifying competition, as the mobile market saturates. The average mobile penetration in the EU already stands at 126% (Comreg, 2Q10 report). Mobile penetration in Turkey is considerably lower at 86% in 1H11. However, if we were to exclude young people aged 0-9, mobile penetration in Turkey already stood at 100.5% in 1Q11 (source: Turkish Telecom Regulator). Multiple SIM cards and mobile data cards lead to mobile penetration exceeding 100%. Erste Group Research Sector Report September 7, 2011 Page 9

10 Mobile penetration H11 Slovenia 102.7% 102.9% 102.7% 102.7% Austria 126.6% 135.7% 146.7% 150.9% Czech Rep % 132.0% 134.0% 133.1% Hungary 121.8% 117.7% 120.2% 117.4% Poland 114.1% 117.8% 121.7% 124.2% Croatia 132.4% 137.7% 143.9% 146.0% Turkey 92.0% 87.0% 84.0% 86.0% Source: Erste Group Research The EU Commission recommends that the mobile termination rate (MTR) decline to eurocents/minute by the end of The level of MTR is also much higher than the fixed termination rate ( eurocents per minute). According to the EU Commission, high MTR is an indirect subsidy that benefits mobile operators with a large market share to the detriment of smaller and fixed-line operators. MTR should be based on the costs of an efficient operator and should apply to all operators at the same level. Exceptions are allowed in certain conditions, for a limited period of time, such as for new entrants. Mobile Termination Rate glide path Per minute 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 Implied CAGR cent 2012 Austria (EUR cents) % Slovenia (EUR cents) % Bulgaria (EUR cents) % Croatia (HRK cents) % Hungary (HUF) % Poland (groszy) % Serbia (RSD) % Macedonia (MKD) % Czech Republic (CZK) % Turkey Turkcell (TRY) % Source: National telecom regulators Competition, market saturation and the MTR cut have led to falling mobile calling prices. According to the EU Commission report by Teligen, mobile prices in 2010 were 30-40% lower than those in As a comparison, fixed-line call charges did not decline much during this period, at -4% for national calls and even +18% for local calls. Declining mobile calling prices in EU High usage Medium usage Low usage Source: EU Commission report by Teligen The EU Commission also ordered mobile operators to cut roaming rates significantly starting from The roaming tariffs used to be above EUR 1/minute for calls and EUR 0.29 for SMS, before the regulation was enacted. Among our CEE coverage, Austria was heavily affected, due to its heavy tourism reliance. The country received 21.4mn tourists in 2009 (source: UNWTO), which was 2.6 times the population. Telekom Austria generated EUR 257.9mn from visitor roaming and we estimated EUR 200mn from its customers travelling and making phone calls abroad (i.e. customer roaming) in The combined amount represents approx. 9.6% of group revenues. In Erste Group Research Sector Report September 7, 2011 Page 10

11 2010, roaming revenues were no longer reported separately, but included in wholesale revenues. We estimate that Telekom Austria generated roughly EUR 110mn from visitor roaming and roughly EUR 80mn from customer roaming in The combined amount represented 4.1% of group revenues, down 58.5% from the 2006 figure. Eurotariff maximum roaming charges Eurocents/minute excluding VAT Making Receiving Making Receiving Summer Summer Summer free Summer free Summer free Source: EU Commission Call SMS Croatia also relies heavily on tourism, with 9.1mn foreign tourists in 2010 or 2.1 times the population. Meanwhile, the country is expected to join the EU in July Currently, T-Hrvatski Telekom (HT), through its unit T-Mobile, still charges EUR 1/minute on average for making roaming calls and EUR 0.55 on average for receiving roaming calls. We expect these charges to come down significantly to the level of the Eurotariff. HT never discloses its roaming revenues. If we use Telekom Austria prior to Eurotariff implementation as a guideline, then we would estimate roaming revenues of HT at around 10% of its revenues or roughly HRK 805mn. Depending on the speed of the roaming rate adjustment, we would expect this amount to decline eventually by 50-60%. Roaming charges of T-Mobile Croatia Eurocents/min, excl. VAT A B C Average Reduction needed Calls to numbers in visited country and Croatia % Other outgoing calls % Incoming calls per 15sec % SMS send % Zone A: Austria, Italy, Hungary, San Marino, Slovenia, Vatican, and San Marino and Vatican Zone B: Andorra, Cyprus, Czech Republic, France, Gibraltar, Greece, Monaco, Germany, Poland, Portugal, Slovakia, Spain Zone C: Belgium, Bulgaria, Denmark, Estonia, Finland, Guernsey, Ireland, Iceland, Liechtenstein, Luxembourg, Macedonia, Netherlands, Norway, Sweden, Switzerland, Turkey, United Kingdom Source: T-Mobile Sector drivers In order to compensate for falling voice revenues, incumbents consider the following segments as their growth drivers: Mobile broadband. As the biggest competitor to fixed broadband, mobile broadband access using data cards or dongles continued to grow rapidly. The mobile broadband population penetration in the EU grew from 5.2% in January 2010 to 6.1% in July 2010, according to the EU Commission report. In some countries with the highest mobile broadband penetration, such as Austria (16.7%, July 2010) and Finland (21.5%, July 2010), mobile broadband is considered a substitute for fixed broadband. Mobile broadband development as of 2Q11 Thousands Access % y/y As % of subscribers Telekom Austria % 13.6% Magyar Telekom % 14.6% TPSA % 4.4% Telefónica O % 6.2% Source: Companies data Telekom Austria: Mobile data revenues as a percentage of mobile traffic revenues rose from 40.6% in 2Q10 to 44.9% in 2Q11. Magyar Telekom: Mobile non-voice revenues grew by 8.8% y/y and represented 19.9% of total mobile revenues in 2Q11. The mobile broadband penetration in Hungary was at 4.2%, still below the EU average level of 6.1% (July 2010, source: EU Commission). Erste Group Research Sector Report September 7, 2011 Page 11

12 Telefónica O2 CR: Non-SMS data ARPU represented 11.9% of total blended ARPU, while its data ARPU including SMS represented 26.7% of total blended ARPU in 2Q11. The mobile broadband penetration in the Czech Republic was at 3.6%, considerably below the EU average level of 6.1% in July 2010, according to the EU Commission. TPSA: Mobile messaging and content revenues rose by 9% y/y and represented 21.1% of total mobile revenues in 2Q11. The mobile broadband penetration in Poland was at 6.5% in July 2010, according to the EU Commission. Turkcell Turkey: Mobile Internet revenues grew by 55% y/y to TRY 166mn. This represented 16.1% of total revenues in 2Q11. The considerable contribution came just two years after the 3G service launch in July Mobile broadband penetration Penetration Mobile broadband 3Q10 Population Household Austria 16.7% 38.4% Croatia (March 2011) 7.6% 22.7% Poland 6.5% 18.2% EU 6.1% 14.6% Turkey (June 2011) 5.1% 20.3% Hungary 4.2% 10.9% Czech Rep. 3.6% 9.0% Slovenia 2.3% 6.4% Source: ComReg, Turkish Telecom Regulator, HAKOM Smartphones. Users of smartphones generates higher ARPU than average mobile users. Telekom Austria currently offers smartphone tariffs of EUR /month, much higher than the voice/sms tariff of EUR 12.9/month. All our covered companies experienced solid increases in smartphone penetration. In Turkey, smartphone penetration should particularly benefit from the 3G network expansion launched in July Smartphone penetration 2Q11 No.of phones (mn) As % of total subscribers % y/y T-Mobile Hungary % 39.7% TPSA % 38.9% Turkcell % 100.0% Telefónica CR % 51.8% Source: Companies data IPTV, cable TV, satellite TV: These TV products are mainly sold as a bundled package with other fixedline services (fixed access and/or Internet). IPTV service was launched generally in 2006 in our covered CEE countries. To extend the TV coverage, some incumbents such as TPSA, Magyar Telekom and T- Hrvatski Telekom started to offer satellite TV as well. This has proven to be a successful move, as TPSA and Magyar Telekom already have far more satellite TV subscribers than IPTV. Satellite TV is especially popular in rural areas, where the fixed broadband infrastructure is not available or not fast enough to support IPTV. VIPnet, the Croatian mobile arm of Telekom Austria, recently (August 2011) bought the largest cable operator in Croatia, B.net. Last year, Mobiltel, the Bulgarian mobile arm of Telekom Austria, bought cable operators Megalan and Spectrum Net. The transaction transforms VIPnet and Mobiltel into an integrated operator and allows them to offer both fixed (access, broadband Internet, TV) and mobile products. Erste Group Research Sector Report September 7, 2011 Page 12

13 Market subscribers of EU 25 Equipment e 2012e Cable TV Satellite TV IPTV Total TV Growth rate y/y e 2012e Cable TV -1.5% -1.3% -1.2% -1.4% Satellite TV 6.2% 5.4% 2.1% 2.1% IPTV 37.4% 28.3% 22.0% 51.5% Total TV 3.8% 3.8% 2.7% 7.1% Magyar Telekom reported 14.4% y/y growth in its TV revenues to HUF 7.8bn or 5.4% of its group revenues. Turk Telekom had more than 1.1mn web-tv users, after the launch in February In February 2011, Turk Telekom launched IPTV and now has around 30,000 customers. TV subcribers and growth rate as of 2Q11 Thousands IPTV % y/y Satellite TV % y/y Cable TV % y/y TPSA % % Magyar Telekom % % % Telekom Austria % Telefónica O % T-Hrvatski Telekom % Source: Companies data Fixed broadband: The number of fixed broadband lines in the EU grew by 7.5% y/y to 128.4mn in July 2010, lower from a year earlier at 9% y/y (source: EU Commission). Fixed broadband penetration in the EU 27 grew from 23.9% in July 2009 to 25.6% in July Fixed broadband is competing heavily with mobile broadband. They are more substituting for each other than complementing each other. Nevertheless, some households do have both fixed and mobile broadband access. If we look at the household-based broadband penetration, we can see that 61.4% of households already had fixed broadband access in July Slovenia even reached 66.1% household fixed broadband penetration in the same period. It is no wonder than the growth of fixed broadband access has and will continue to slow down. Fixed broadband penetration Penetration Fixed broadband 3Q10 Population Household EU 25.6% 61.4% Slovenia 23.6% 66.1% Austria 23.5% 54.1% Czech Rep. 20.4% 51.0% Hungary 19.7% 51.2% Croatia (March 2011) 18.7% 56.1% Poland 14.9% 41.7% Turkey (June 2011) 9.9% 39.5% Source: ComReg, Turkish Telecom Regulator, HAKOM Some incumbents still enjoyed healthy broadband revenue growth, supported by the low broadband penetration (Turkey) and limited competition (Turk Telekom and T-Hrvatski Telekom). Turk Telekom saw 29.2% y/y ADSL revenue growth, due to 15.4% more customers and a 12.2% price increase in January 2011 for its unlimited tariff. T-Hrvatski Telekom reported a 9% y/y increase in Internet revenues in 1H11, driven by 10.9% y/y more customers diluted with 5.9% y/y lower ARPU. Telefónica O2 CR posted 0.9% Internet and broadband revenue growth in 1H11, although the number of broadband lines grew 11.1% y/y. This was due to intensive competition with cable operator UPS, wireless local loop providers and T-Mobile. Erste Group Research Sector Report September 7, 2011 Page 13

14 Broadband revenue development in 2010 and 1H , 15.6% 1H11, 29.2% Turk Telekom 1H11, 9.0% 2010, 19.4% 1H11, 0.9% 2010, 17.4% 1H11, -4.2% 2010, -2.4% 1H11, -4.4% 2010, -2.2% T-Hrvatski Telekom Telefonica O2 Magyar Telekom TPSA Source: Company data Other incumbents can no longer report increasing fixed broadband revenues, as the access growth could not compensate for competition- and recession-driven lower prices. Magyar Telekom posted a 4.2% y/y Internet revenue decline in 1H11, although the number of broadband lines grew 4.9% y/y. This was due to strong competition from cable operators with their cheap bundled products. TPSA posted a 4.4% broadband revenue decline in 1H11, although the number of retail broadband access grew by 2.2% y/y. This was due to the large price reduction, ranging from 16% for the lowest speed to 56.3% for the highest speed, which could not be compensated for by the low net additions. TPSA and Telefónica O2 CR launched VDSL in 2Q11, which should help to reduce the churn rate and ARPU erosion. Mobile post-paid: Mobile post-paid users generate roughly 3-4 times higher ARPU than pre-paid users. Furthermore, post-paid users show a much lower churn rate than pre-paid individuals. The minimum contract period ranges from 12 to 24 months. As mobile penetration exceeds 100% and the subscriber growth rate slows down, mobile operators rely on a higher number of post-paid subscribers for revenue growth. Postpaid vs. prepaid Mobile KPI 1H11 Telekom T-Mobile Telefónica T-Mobile TPSA Turkcell Turk Austria Hungary CR Croatia Telekom Subscribers (mn) Prepaid 23.2% 55.5% 39.3% 65.3% 52.1% 68.3% 57.6% Postpaid 76.8% 44.5% 60.7% 34.7% 47.9% 31.7% 42.4% Currency EUR HUF CZK HRK PLN TRY TRY Blended ARPU , Prepaid 6.2 1, Postpaid , Blended ARPU EUR Churn rate monthly 1.2% 1.6% 1.9% 1.7% 3.3% 2.5% 3.3% Prepaid 2.5% 1.8% n.a. n.a. 5.3% n.a. n.a. Postpaid 0.8% 1.3% n.a. 1.1% 1.1% n.a. n.a. Source: Companies data Other services such as energy trading and IT services. Magyar Telekom started to offer energy trading services in April 2010 and generated HUF 1.1bn in 1H11. The EBITDA margin of the energy trading business, however, is smaller (single-digit). IT services used to be the revenue growth driver for Telefónica O2 CR and Magyar Telekom. However, public sector spending was reduced in the Czech Republic and Hungary, leading to cancellation and postponement of projects. Normally, the segment should deliver around 5-6% y/y revenue growth. In 2Q11, Telefónica O2 CR and Magyar Telekom reported 7.3% and 12.2% revenue declines in IT services, respectively. As the macroeconomic situation improves, IT services should contribute to revenue growth again. T-Hrvatski Telekom started to expand into IT services by acquiring IT system integrator Combis in June Combis should contribute around 4% to FY11 revenues. Erste Group Research Sector Report September 7, 2011 Page 14

15 IT services revenue development Revenues e 2012e 2013e Magyar Telekom (HUFmn) 41,561 41,396 43,913 44,773 45,892 49,334 53,034 Growth y/y 68.4% -0.4% 6.1% 2.0% 2.5% 7.5% 7.5% As % of group revenues 6.1% 6.2% 6.8% 7.3% 7.8% 8.4% 9.0% Telefónica CR (CZK mn) 1,715 2,066 2,406 2,146 2,232 2,455 2,651 Growth y/y 193.7% 20.5% 16.5% -10.8% 4.0% 10.0% 8.0% As % of group revenues 2.7% 3.2% 4.0% 3.9% 4.2% 4.6% 4.8% Source: Companies data, Erste Group estimates Market overview Austria The telecom service sector in Austria is shrinking at a CAGR e of 0.6%, driven mainly by falling fixed and mobile voice revenues. The number of voice minutes fell by 0.7% y/y in 2010 to 27.94bn. Mobile users generated 80% of the traffic in Mobile traffic still grew 4%, while fixed-line traffic declined 13.4% y/y in Telecommunication services market value in Austria Services (EURmn) e 2012e CAGR 10/12 Fixed line voice 1,058 1, % Fixed line internet % Mobile voice 1,795 1,615 1,485 1, % Mobile data , % Business data % Pay TV % Total telecom services 4,728 4,543 4,493 4, % % y/y -4.2% -3.9% -1.1% -0.1% The mobile segment is larger than the fixed-line segment, thanks to the strong growth of mobile data. The number of SMS grew at 12.1% y/y in 4Q10 to 1.78bn. There were 1.7mn (+29.4% y/y) mobile broadband access points, compared to 1.16mn (+13.5% y/y) xdsl access in Mobile broadband growth is cannibalizing fixed broadband growth. 3G network coverage amounts to 75% of the population for T-Mobile, 70% for Orange, 94% for 3 Austria (by year-end 2011) and 90% for A1 (Telekom Austria). As one of the leaders in mobile broadband, Austria has even launched 4G-based services. The national regulator targets 25% population coverage of LTE by the end of T-Mobile offered residents in four major cities allinclusive mobile broadband Internet with download speeds up to 100 MBps for EUR 80/month. T-Mobile aims to upgrade more than 50% of its 3G network to 4G network by the end of Telekom Austria offers residents in Vienna A1 Broadband LTE for EUR 89.9/month. Croatia The telecom service sector in Croatia still suffers from macroeconomic pressure, with GDP down 0.9% y/y in 1Q11 and a high unemployment rate of 16.9% in June Furthermore, the government applies a mobile tax of 6% of gross mobile voice and data revenues (since August 1, 2009). Until now, we have seen no indication that the tax would be abolished. Mobile services represented 57% of the telecom services market in 2009, followed by fixed telephony at 30% and Internet at 9.4% (source: HAKOM). There are three mobile operators and no MVNOs. Fixedline penetration has remained stable in the past eight years at 42% of the population in 2010, while mobile penetration continues to rise to 143.5% in Erste Group Research Sector Report September 7, 2011 Page 15

16 Mobile penetration and market share based on number of subscriptions Q11* Mobile penetration 57.1% 63.8% 82.0% 99.0% 113.4% 132.6% 136.1% 143.5% 117.1% Mobile subscribers (000) 2,537 2,836 3,650 4,395 5,035 5,880 6,035 6,362 5,193 Market share: T-Mobile 52.5% 54.0% 52.0% 49.1% 47.4% 45.8% 47.4% 45.6% 46.8% VIPnet 47.5% 46.0% 44.1% 43.5% 43.3% 42.3% 42.7% 42.8% 39.3% Tele2 3.8% 7.4% 9.3% 12.0% 9.9% 11.6% 13.9% Source: HAKOM *) As of 2011 the prepaid subscribers' definition is changed to 90 days. The penetration in the old definition would be 145.4%. According to our estimates, the combined revenues of all mobile operators fell by 6.3% y/y to HRK 8.0bn in This was due to lower consumer spending, competitive pressure, a 16.7% y/y mobile termination rate reduction and the impact of mobile taxes. Mobile broadband access, however, grew 24.6% y/y to 335,233 in 1Q11, giving a population penetration of 7.56% - which is higher than the average EU level of 6.1%. Key performance indicators of mobile players 2010 T-Mobile VIPnet Tele2 Revenues (HRK mn) 3,691 3,316 1,028 % y/y -7.0% -5.0% 14.8% Mobile subscribers (000) 2,901 2, Market share 45.4% 43.0% 11.6% % postpaid 48.1% 43.2% na. Blended ARPU (HRK/month) na. Source: Companies data Consolidation took place in the market, with the second largest mobile operator, VIPnet, acquiring the largest cable operator, B.net, in August This positions VIPnet as a fully integrated operator, offering mobile voice and broadband, voice-over cable, cable broadband and TV services. Fixed broadband access grew 16.4% y/y to 828,443 in 1Q11, giving a population penetration of 18.68% in 1Q11. Despite the strong increase in fixed broadband access, penetration stood well below the EU level of 25.6%. xdsl dominates the fixed broadband market, as cable penetration is low at only 34.2% in Thanks to this low cable penetration, IPTV grew significantly and now represents 59% of TV households in 1Q11. The number of IPTV subscribers of T-Hrvatski Telekom grew 25.4% y/y to 322,000 in 2Q11. Czech Republic The telecom service sector in the Czech Republic is shrinking at a CAGR e of 0.6%, driven mainly by falling fixed and mobile voice revenues. The number of outgoing voice minutes fell 5% y/y in 2009 to 16.4bn. Mobile users generated 88.8% of the traffic in 2009 (source: Czech statistical office). Mobile traffic still grew 8.9% y/y, while fixed-line traffic declined 10.3% y/y in Telecommunication services market value in Czech Republic Services (EURmn) e 2012e CAGR 10/12 Fixed line voice % Fixed line internet % Mobile voice 1,826 1,720 1,653 1, % Mobile data % Business data % Pay TV % Total telecom services 4,062 3,844 3,823 3, % % y/y -4.2% -5.4% -0.5% 1.3% Fixed broadband is growing strongly, driven by xdsl and unusually within the EU - wireless local loop users (Wi- Fi). Alternative operators introduced wireless local loop before ADSL became widespread. xdsl represented 32.7% of broadband access in 2009, wireless local loop 28.6%. Mobile data cards represented only 15.6% of broadband access. The relatively low number of mobile broadband access points can be explained by the low 3G coverage. Telefónica O2 CR had 55% population penetration, Vodafone 48% and T-Mobile 51% as of June Erste Group Research Sector Report September 7, 2011 Page 16

17 KPI of mobile operators in Czech Republic 1H11 T-Mobile Vodafone Telefònica Subscribers Growth y/y -0.7% 6.3% 0.5% Market share 40.1% 23.9% 36.0% Revenues CZK 13,375 4,367 12,925 Growth y/y -8.3% -51.3% -9.7% Market share 43.6% 14.2% 42.1% Source: Companies data T-Mobile has been the market leader in the mobile market since Its market share remains relatively stable at around 40%. Meanwhile, Vodafone has been gaining market share at the expense of Telefónica O2 CR. Hungary The telecom service sector in Hungary is expected to grow at a CAGR e of 0.3%, driven by mobile data and pay TV growth. Mobile broadband access grew 47.1% y/y to 1.19mn in 2Q11. T-Mobile is the market leader in mobile broadband access with a 49% share, compared to Vodafone s 27% and Telenor s 24% in 2Q11. 3G coverage amounts to 75% for T-Mobile (2Q11), 61% for Vodafone and 65% for Telenor (1Q11). Telecommunication services market value in Hungary Services (EURmn) e 2012e CAGR 10/12 Fixed line voice % Fixed line internet % Mobile voice 1,368 1,290 1,245 1, % Mobile data % Business data % Pay TV % Total telecom services 3,515 3,403 3,400 3, % % y/y -4.5% -3.2% -0.1% 0.7% Hungary is characterized by high pay TV penetration at 3.173mn or 64% of households in 2Q11 (source: NHH), driven by Hungarians strong interest in watching TV. The numbers of pay TV subscribers grew 5.6% y/y in 2Q11. EITO and Magyar Telekom cite strong migration from cable TV to IPTV and satellite TV. The following data from EITO only covers around 86% of TV providers, which leads to lower total pay TV subscribers. Pay TV subscribers e 2012e CAGR 10/12 Cable TV 1,628 1,636 1,603 1, % Satellite TV % IPTV % Total pay TV 2,455 2,664 2,752 2, % Poland The telecom service sector in Poland is expected to grow at a CAGR e of 0.3%, driven mainly by mobile data, followed by fixed broadband and pay TV. Telecommunication services market value in Poland Services (EURmn) e 2012e CAGR 10/12 Fixed line voice 1,555 1,311 1, % Fixed line internet % Mobile voice 3,363 3,207 3,140 3, % Mobile data 1,062 1,156 1,314 1, % Business data % Pay TV 1,364 1,603 1,663 1, % Total telecom services 8,449 8,443 8,459 8, % % y/y -4.9% -0.1% 0.2% 0.4% Erste Group Research Sector Report September 7, 2011 Page 17