Telekom Austria : Annual Financial Report 2020 PDF (1.85 MB)

Annual Financial Report 2020

The following documents are translations from the original German versions, which are solely valid.

Table of Contents

A1 Telekom Austria Group

Group Management Report	3
Consolidated Financial Statements	34
Auditor's Report	97
Declaration of the Management Board	101

Financial Statements Of Telekom Austria AG

Financial Statements	102
Management Report	117
Auditor's Report	130
Declaration of the Management Board	134
Consolidated Non-Financial Report
According to § 267a UGB	135

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Group Management Report

General economic environment

As a result of the COVID-19 pandemic and the accompanying political measures to curb the spread of the virus, there was a recession on all the A1 Telekom Austria Group's markets in 2020. Clearly negative growth rates are expected in gross domestic product. In a forecast published in November 2020, the European Commission estimated the decline in economic growth in the European Union for 2020 at 7.4 %. A recovery with growth of 4.1 % is assumed for 2021.

The ECB kept its key interest rate unchanged at 0.00 % and its deposit rate at -0.50 % in the year under review. A pandemic emergency purchase program of EUR 750 billion was resolved in the middle of March 2020 and increased to EUR 1,350 bn at the start of June 2020 and to EUR 1,850 bn in December 2020. In two steps at the start of and in the middle of March 2020, the US Federal Reserve lowered its key interest rate from 1.50 -1.75 % to recently 0.00-0.25 %.

Development of real GDP in the markets of A1 Telekom Austria Group (in %) 1)

	2019	2020e	2021e
Austria	1.4	-7.1	4.1
Bulgaria	3.7	-5.1	2.6
Croatia	2.9	-9.6	5.7
Belarus	1.2	-3.0	2.2
Slovenia	3.2	-7.1	5.1
Serbia	4.2	-1.8	4.8
North Macedonia	3.6	-4.9	3.8

Sources: IMF for Belarus; European Commission for all other countries

Industry trends and competition

Developments on the markets relevant to A1 Telekom Austria Group were characterized by the global COVID-19 pandemic in the reporting year. There were sharp declines in gross additions and customer churn during the first lockdown in almost all markets in the spring. There was increased demand for products and services to facilitate working from home,

such as mobile WiFi routers and VPN connections. Mobile network providers offered their customers additional offerings at reduced cost or free of charge. The market environment remained intensively competitive in both fixed-line and mobile communications throughout this period. One example of this can be seen in the no-frills 2) segment in Austria, where there was sustained pressure on prices due to the aggressive pricing policy of mobile virtual network operators (MVNOs).

The latest market report issued by the regulatory authority, which tracked the most recent market data in Austria up to the end of the second quarter of 2020, describes the following average trends across all operators: 3)

• The number of SIM cards (excl. M2M) decreased slightly by
  0.8 % year-on-year, from 13.1 million in the sec-ond quarter of 2019 to 13.0 million in the second quarter of 2020. There continued to be strong stimulus from smartphone users, the number of which grew by 5.8 % to more than 7.2 million, while the number of prepaid SIM cards de- clined significantly due to the mandatory registration that has been in effect since January 1, 2019. Total mobile retail revenues remained stable over the same period (-0.3 %).
• There were 12.3 million mobile and fixed-line broadband connections on the broadband market in the second quarter of 2020, a year-on-year increase of 2.8 % that was mainly driven by smartphone tariffs and mobile WiFi routers. The fixed-line broadband market grew by 1.2 % in the same period.
• Rapid growth in data volumes in mobile telecommunications as a whole, which consists of pure mobile broadband plus smartphone users according to the definition of the regula- tory authority, continued in the second quarter of 2020 with a year-on-year increase of 40.5 %. The data volume transferred by fixed-line broadband likewise rose by 18.4 %, with a ratio of mobile to fixed-line data of around 1:2. There was a clear growth trend in average monthly data volume per user over the same period, to 143.8 GB for fixed-line broadband (Q2 2019: 123.0 GB) and 89.2 GB for mobile data tariffs (Q2 2019: 64.9 GB).
• While NGA (Next Generation Access; availability of a minimum fixed-line bandwidth of 30 mbps) coverage in Austria has increased steadily over recent years and is now at virtually 90 %, 41 % of customers were us-ing products with a speed of more than 30 Mbit/s at the end of 2019, though there is a clear trend visible towards higher band- widths (2017: 30 %). 4)

1. Sources: European Union, Austria, Bulgaria, Croatia, Slovenia, Serbia, and North Macedonia: European Commission
   https://ec.europa.eu/info/sites/info/files/economy-finance/ip136_en.pdf, page 215; Belarus: IMF IWF https://www.imf.org/en/Publications/WEO/ Issues/2020/09/30/world-economic-outlook-october-2020, page 55
2. The so-calledno-frills segment consists of mobile communications providers and brands that deliberately focus on simple tariffs without additional offers and are aimed in particular at price-sensitive customers.
3. https://www.rtr.at/de/inf/telekom-monitor-q22020
4. Broadband in Austria. 2019 evaluation report (page 50) https://www.bmlrt.gv.at/dam/jcr:5de13346-e12a-4ff8-9c83-30b14c5000e3/Evaluierungsbericht2019.pdf; Broadband strategy 2030 (page 9 and 12) https://www.bmlrt.gv.at/dam/jcr:8ee598ba-0172-4773-945f-73932957fc55/breitbandstrategie2030_ua.pdf

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GROUP MANAGEMENT REPORT

• According to the latest OECD report on the digital economy,
  Austria ranks in the middle compared with other OECD countries with fixed broadband coverage of > 30 Mbit/s in rural areas, but its number of fixed broadband connections of > 30 Mbit/s is in the lower third. In sharp contrast to this is the data consumption of mobile broadband connections, which ranks second after Finland at around 16 GB per month, compared with the OECD average of around 5 GB per month. Austria also ranks second, behind Sweden, in M2M 5) SIM cards at 56 per 100 inhabitants (OECD average: 24). 6)

In Bulgaria, the trend seen in recent years continued, with the Internet penetration rate across all households increasing to 78.9 % in 2020 compared with 75.1 % in the previous year. While fixed-line penetration increased to 59.4 % (2019: 57.8 %), mobile penetration also continued to rise to 68.0 % (2019: 64.0 %). 7)

The number of broadband connections in Croatia increased by 15.0 % year-on-year to 5.5 million in the second quarter of 2020 as a result of an increase in the mobile broadband offering of 23.0 %. Growth in fiber connections was also high at 22.3 %. 8)

The telecommunications market in Belarus has developed strongly in recent years, leading to a steady rise in the number of Internet customers, while the number of mobile network users has remained flat. As of the end of 2019, the share of households with Internet access was 82.8 % (2018: 79.1 %). 9) Households with Internet, respectively broadband access were also up in Slovenia, Serbia and North Macedonia. 10) 11) 12)

Regulation

Upload and download volumes in Austria

Volume in Petabyte

				1133	1047
925	884	956	998
				603	631
448	449	479	530
Q1	Q2	Q3	Q4	Q1	Q2
2019	2019	2019	2019	2020	2020
mobile broadband		fixed broadband

Source: RTR

The A1 Telekom Austria Group is subject to various regulatory regimes on its markets. For certain product and service markets in Austria, it is classified as a provider with substantial market power and is therefore subject to the corresponding regulatory measures. These include extensive network access and price regulations. The international subsidiaries of the A1 Telekom Austria Group are also subject to far-reaching regulatory provisions on their respective national markets. In particular, for any business activities by subsidiaries in countries that are part of the European Union (Austria, Bulgaria, Croatia, Slovenia),

regulatory decisions are made not just at national level, but also at European level, for instance to guarantee harmonized conditions within the EU. This applies in particular to the EU- level roaming and net neutrality regulations and the harmonization of mobile and fixed-line termination rates as a result of the European Electronic Communications Code (EECC), which apply equally to all EU Member States.

1. Machine-to-machine(M2M) SIM cards are used for communication between devices, enabling IoT (Internet of Things) applications such as asset tracking services.
2. https://www.oecd-ilibrary.org/sites/bb167041-en/1/3/3/index.html?itemId=/content/publication/bb167041-en&_csp_=509e10cb8ea8559b-6f9cc53015e8814d&itemIGO=oecd&itemContentType=book#section-38
3. https://www.nsi.bg/sites/default/files/files/pressreleases/ICT_hh2020_en_PSRP7D5.pdf
4. https://www.hakom.hr/UserDocsImages/2020/e_trziste/Croatian%20Quarterly%20electronic%20communications%20data,Q22020.eng.pdf
5. https://www.belstat.gov.by/upload/iblock/7d0/7d0ed3586722991264205df8d056cf60.pdf, pages 395 and 399; Note: Figures for Belarus are available for 2019 only.
6. https://pxweb.stat.si/SiStatData/pxweb/en/Data/Data/2963309S.px/; A1 Telekom Austria Group calculations
7. https://data.stat.gov.rs/Home/Result/270105?languageCode=en-US
8. http://www.stat.gov.mk/pdf/2020/8.1.20.31_mk.pdf; http://www.stat.gov.mk/pdf/2019/8.1.19.32.pdf

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GROUP MANAGEMENT REPORT

Fixed-line

In line with the statutory requirements of the market analysis cycle, the Austrian regulator began the sixth round of the market analysis procedure in March 2020. It first focused on the two wholesale markets for local and central access, and on the existing market for certain standalone business customer tariffs at retail level. Extensive market surveys were conducted in spring and summer 2020 for this purpose. The regulatory authority is currently preparing the economic report (market analysis report), which is expected towards the end of Q1 2021.

The process regarding fixed-line termination 13) rates has been suspended to date, as the regulations set out in the new European legal framework (EECC) involve the definition of a low fixed-line termination rate to apply uniformly throughout Europe from the start of 2021. An absolute cap for this new termination rate was defined by the European Commission on December 21, 2020 in a separate legal act, a so-called "Delegated Regulation". This is associated with a significant reduction in fixed-network termination charges for all operators in Europe to a uniform EUR 0.07 cents / min as of January 1, 2022, although this value is to be achieved in a short transition phase in 2021 with an interim reduction in the current fixed-network termination charges. The amount of the charges for 2021 is specified in the regulation individually for each member state. This regulation will have a sustained negative impact on the respective revenues, but the impact on earnings should be limited.

Mobile communications markets

The mobile communications markets of the A1 Telekom Austria Group are subject to various regulatory systems. As EU Member States, Austria, Bulgaria, Croatia and Slovenia are subject

to the regulations of the EU and the European Economic Area (EEA). These essentially relate to roaming charges and termination rates between individual market players. The regulatory environment in Belarus, Serbia and North Macedonia are at different stages of development. There are general signs of gradual harmonization with EU statutory provisions in these countries as well. For example, roaming charges were reduced effective 1 July 2019 following the introduction of a regional retail roaming agreement for the Western Balkans, and are expected to be eliminated altogether by 1 July 2021. Within the A1 Telekom Austria Group, this affects Serbia and North Macedonia.

The European Union regulation on net neutrality and roaming has been in force since 2016. This requires Internet access service providers to treat all data traffic equally. In addition to Internet access services, specialized services can also be offered subject to certain limitations. It should be noted regarding the Austrian market that A1 Telekom Austria AG had appealed to the Austrian Federal Administrative Court regarding two decisions by the regulator on the subject of net neutrality. The appeal proceedings for both decisions are still pending.

The content of the roaming regulation has already been fully implemented at all A1 Telekom Austria Group companies that operate in EU Member States and have had a sustained negative impact on roaming revenues. The COVID-19 crisis also led to a dramatic reduction in roaming revenues in 2020.

Mobile termination rates

	July 2017	January 2018	March 2019	January 2020	April 2020	August 2020
Austria (EUR)	0.008049	0.008049	0.008049	0.008049	0.008049	0.008049
Bulgaria (BGN)	0.014	0.014	0.014	0.014	0.014	0.014
Croatia (HRK) 1)	0.047	0.047	0.047	0.045	0.045	0.045
Belarus (BYN) 2)	MTS:	MTS:	MTS:	MTS:	MTS:	MTS:
	0.025/0.0125	0.025/0.0125	0.025/0.0125	0.025/0.0125	0.025/0.0125	0.025/0.0125
	BeST:	BeST:	BeST:	BeST:	BeST:	BeST:
	0.018/0.009	0.018/0.009	0.018/0.009	0.018/0.009	0.018/0.009	0.018/0.009
Slovenia (EUR)	0.0114	0.0114	0.0114	0.0114	0.0114	0.00882
Serbia (RSD)	2.07	1.43	1.43	1.43	1.43	1.43
North Macedonia (MKD)	0.63	0.63	0.63	0.63	0.63	0.63

1. National MTRs stated. International MTRs differ
2. Figures for Belarus: prime time / downtime. MTS: Mobile TeleSystems; BeST: Belarus Telecommunications Network

1. The term termination rate refers to the amount that a telecommunications provider must pay during network interconnection for the termination (call delivery, call completion) of a telephone call to a third-party network or for the receipt of such a call from a third-party network.

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