MANAGEMENT BOARD’S REPORT ON OPERATING AND FINANCIAL PERFORMANCE OF TP GROUP
4 MOBILE SEGMENT .1 Financial Performance
Mobile segment, Income statement
6 months ended
PLN million June 30, 2008 June 30, 2007 Change
Revenues, of which: 4,232 3,824 10.7%
Retail 3,075 2,755 11.6%
Wholesale 1,157 1,069 8.2%
Gross Operating Margin (GOM) 1,645 1,472 11.8%
Margin, % 38.9% 38.5%
Operating income 952 866 9.9%
Margin, % 22.5% 22.7%
Mobile revenues rose to PLN 4,232 million in the first half of 2008, representing an increase of PLN 408 million over the first half of 2007:
• Retail revenue was up 11.6% as a result of higher customer base and higher usage, mainly in on-net traffic;
• Wholesale revenue was up 8.2%, despite UKE’s decision on MTR reduction in May 2007 (see section 11.1.6 for details), as a result of higher traffic.
In the first half of 2008, GOM was PLN 1,645 million, which is an increase of 11.8% or PLN 173 million (year-on-year). GOM as a % of revenues was 38.9% during the reported period, an increase of 0.4 percentage points compared to the first half of 2007. The increase in GOM reflects mainly the revenue growth in 2008 decreased by:
• As a result of increased volume, interconnect and roaming costs increased by PLN 112 million in spite of MTR reductions and roaming rate reduction in the European Union member states by the European Parliament (see section 4.4.1 for details). Overall, payments to other operators increased by PLN 164 million;
• Commercial costs increased by PLN 68 million in order to sustain growth in the customer base.
With depreciation and amortisation up PLN 83 million compared with the first half of 2007, operating income increased by PLN 86 million or 9.9% (year-on-year) to PLN 947 million. Operating margin was 22.5%.
4.2 Market and Competition
The Polish mobile market continued to expand in an intensely competitive environment in the first half of 2008.
According to the Central Statistical Office’s data, the mobile market expanded in volume by 7.7% year-on-year and totalled 41.7 million users at the end of June of 2008. As a result, the penetration rate reached 109.9% (up from 101.6% at the end of June 2007).
In the first half of 2008, PTK Centertel remained the market leader both by volume and by value. According to PTK Centertel’s estimates, its market shares at 30 June 2008 were:
• 33.3% in terms of customer base (compared to 33.7% at the end of June 2007);
• 34.0% in terms of value (compared to 34.1% at the end of June 2007).
4.3 Mobile Voice Services
Mobile voice, key performance indicators
6 months ended
‘000, unless indicated otherwise June 30, 2008 June 30, 2007 Change
Total subscribers 13,900 13,056 6.5%
PTK Centertel’s customer base was 13.9 million at the end of June 2007, up 6.5% year-on-year.
The post-paid segment accounted for 42% of all customers (compared to 40% at the end of June 2007).
In the first half of 2008, PTK Centertel’s net additions were negative (-258,000), as a result of a decrease in the pre-paid customer base (-517,000), which was only partially offset by positive net additions in the post-paid segment (+258,000). The decrease in the pre-paid customer base results from the ongoing rationalization of the one-time and low usage pre-paid customer base, without any deterioration to the value of pre-paid mobile sub segment.
PTK Centertel was able to grow its subscriber base (year-on-year) while reducing acquisition costs. Blended unit SAC (subscriber acquisition cost) was PLN 125 in the first half of 2008, down 8.9% compared with the same period of 2007.
Blended ARPU stood at PLN 48 in both the first half of 2008 and the first half of 2007.
Mass Market
The most important development in the mass market in the first half of 2008 was the introduction of new Orange post-paid and mix offers. Both offers feature a unique pool of minutes that can be used not only for local calls, but also SMSs, MMSs, ILD calls, roaming or other telecommunications services. In addition to a pool of minutes, customers receive the services of their choice as a gift ‘for ever’, so they can call their relatives and friends even cheaper.
The underlying purpose of the new offer was to retain customers, so for the first time in the Polish market the offer for the existing customers is better than that for new customers. The existing customers are offered cheaper call prices and one gift more. This concept was enthusiastically received by the market. However, the offer for prospective users is also very attractive: the prices of calls to almost all networks have been reduced and customers can choose from a broad range of handsets starting from PLN 1, provided that they sign an agreement for 36, 30 or 24 months. Further promotional activities will focus on presenting all the benefits and the competitive advantage of the offer.
The new Orange post-paid and mix offer comprises six tariff plans. For prospective customers, they feature:
• PLN 25 monthly: PLN 0.59 per minute of calls (all networks);
• PLN 35 monthly: PLN 0.57 per minute of calls (all networks), one gift of choice for ever;
• PLN 55 monthly: PLN 0.55 per minute of calls (all networks), two gifts of choice for ever;
• PLN 75 monthly: PLN 0.52 per minute of calls (all networks), three gifts of choice for ever;
• PLN 100 monthly: PLN 0.50 per minute of calls (all networks), four gifts of choice for ever;
• PLN 200 monthly: PLN 0.50 per minute of calls (all networks), four gifts of choice for ever.
Customers who sign up to the new plan pay an activation fee of PLN 50, but they can spend the entire amount for services. The new offer features time-based billing and a monthly pool of cash. Customers can use a number of cost control services or value-added services to reduce the costs of calls.
Business Market
The main business offers are New Orange For Business, addressed mainly to SOHO customers, and New Package For Business, a package offer addressed to higher customer segments in which customers receive a pool they can use for calls or other services for a ‘monthly commitment’. These offers include attractive pools (that can be used also in the subsequent month) and low rates for calls within special corporate zones and calls to other companies as well as special dedicated services. The key priority remains to adjust the business offer to the needs of different segments of this market.
In the first half of 2008, the marketing initiatives related to mobile voice services focused on enhancement of the existing tariff portfolio based on the tariff plans launched in the first half of 2007 and addressed to post-paid business customers:
• New Orange For Business: 5 tariff plans, namely:
– Orange For Business 40;
– Orange For Business 80;
– Orange For Business 160;
– Orange For Business 320; and – Orange For Business 600.
Each plan is available even for a single activation. The new plans offer the same flat rate for calls to all networks. The prices of calls on the Orange or fixed networks may be reduced by signing to the ‘Cheap Calls’
service.
On the basis of the aforementioned tariff plans, two promotional campaigns were launched in the first half of 2008:
• Cheap Calls For Business: The promotion offers a handset for an attractive price, provided that a loyalty agreement is signed for 24 or 30 months. If a customer signs to the ‘Cheap Calls For Business’ service right from the start, the low rate of PLN 0.10 + VAT per minute is charged for calls on the Orange or fixed networks. Furthermore, owing to an extra pool of minutes, the number of free minutes for calls on the Orange or fixed networks may be as high as 3,000 (in the top-end tariff plan).
• Double Benefits For Business: A promotional offer based on Orange For Business and New Mix For Business tariff plans. Upon signing a loyalty agreement with Orange For Business 80 to 600 plan for 24 or 30 months, a customer may purchase an additional activation with the New Mix For Business 10 plan plus a handset for PLN 1, subject to a loyalty agreement for 12 months. The promotion offers another handset for PLN 1 and an extra pool of minutes on-net calls for 24 months.
4.4 Mobile Data Services
In the first half of 2008, PTK Centertel increased the range of its HSDPA 7.2 Mbps service to cover further towns. The service is already available to Orange customers in the following locations: Warsaw conurbation, Katowice conurbation, Kraków, Poznań, Tricity, Łódź, Szczecin, Bielsko-Biała, Wrocław, Częstochowa, Elbląg, Gorzów Wielkopolski, Kalisz, Koszalin, Opole, Rzeszów, Wałbrzych, Szczyrk, Tarnów, Ostrów Wielkopolski, Lublin, Olsztyn, Kielce, Głogów, Ostrowiec Świętokrzyski, Stegna and Jastarnia. By the end of 2008, approximately 55% of Poland’s population is to be covered by this fastest mobile internet technology.
Simultaneously, Orange has been implementing the mobile data technology HSUPA, which enables data transmission at a rate of up to 1.9 Mbps.
Currently, the data portfolio includes Business Everywhere and Internet for Business services for business customers as well as Orange Free service for residential customers.
The mobile broadband customer base (3G and EDGE) reached 297,000 customers at the end of June 2008, up from 131,000 at the end of June 2007.
4.5 Other Developments in the Mobile Segment
4.5.1 Roaming
The number of roaming partners further increased in 2008. As of the end of June, Orange offered roaming services on 392 networks in 182 countries worldwide, including GPRS roaming on 190 networks in 77 countries and 3G roaming on 42 networks in 28 countries. Roaming revenues growth slowed down as a result of a roaming regulation introduced in June 2007 by the European Commission. The regulation capped wholesale and retail prices for calls within the EU and reduced roaming rates by almost 50%, which was not compensated by an increase in traffic.
Roaming offers:
• Roaming Business Zone: A service in which a group of countries with individually defined rates may be chosen (launched in April 2008).
• Euro 2008 Package: Cheaper roaming during the European Football Championship (lower roaming rates for customers visiting Austria or Switzerland between 1 and 30 June).
4.5.2 MVNO Hosting
In the first half of 2008, PTK Centertel’s infrastructure was used by the following virtual operators:
• Avon Mobile Sp. z o.o., offering myAvon service (launched on 22 May 2007);
• Wirtualna Polska Sp. z o.o., offering WPMobi service (launched on 29 August 2007);
• MNI Telecom Sp. z o.o., offering:
Simpfonia and EZO mobile services (launched on 19 December 2007),
Snickers Mobile service (in co-operation with Mars Polska, launched on 21 April 2008),
Telepin mobi service (in co-operation with MediaTel S.A., scheduled for launching in June/July 2008);
• Aster Sp. z o.o. (the MVNO service agreement was signed on 30 November 2007 and the service is expected to be launched in July 2008).
4.5.3 Fixed Broadband
In 2007, PTK Centertel signed a Bitstream Access service agreement with TP in order to offer fixed broadband services to Orange customers. This move is part of TP Group’s cross-selling strategy aiming at increasing the average revenue pert customer. The take-up of this fixed broadband offer reached approximately 40,000 subscribers at the end of June 2008.