First of all, international expansion is necessary and feasible. The next target can be Montenegro Telecom, and then we can focus on our expansion to the rest potential company in Balkan Region. It is based on following reasons: 1)The domestic telecommunication market is almost saturated and competitive It is no doubt that MATAV is the most competitive company in Hungary telecommunication market. We are dominant currently in all telecommunication services. However, besides internet services, both Mobile and fixed line penetration are high and there is no more room to improve them.
Although MATAV is dominant in fixed line business, it is declining due to mobile substitution. Moreover, the competition is extremely intensive. In Mobile segment, the continuous price wars between different companies impacted MATAV to improve the market share (47% Market share). The other company, such as Pannon GSM, is catching up with MATAV closely (37% Market share). The Hungary Government also welcomes the competition, such as supporting UPC to block MATAV’s attempt to gain more market share in cable TV market.
The losing of its first important government contract to Pantel indicated that the old relationship with government did not work any more in this open and competitive market. With fully and deep competition, the domestic market is becoming mature and there is limiting growth opportunity in domestic. 2)MATAV has already had extensive experience for international expansion The good example is that MATAV bought up the majority share of Martel in 2000. Since then, MATAV restructured MarTel in many aspects efficiently and successfully.
It transferred its knowledge of a financial control system, professional regulatory management and tariff packages to rebalance fixed line fees. It also implanted a market-oriented doctrine gradually and trained the local staff. By 2003, Martel has become a company with all telecommunication services including fixed line business, mobile business and internet services. However, before it was purchased by MATAV, Martel can only provide fixed line service. The EBITDA has almost doubled from 82 Euro million in 2000 to 157 Euro million in 2003.
The net income also almost doubled. The Martel’s performance in these three years has proved that this expansion is very successful for MATAV. It also helped MATAV to get extensive experience for how to manage oversea company efficiently and effectively, such as how to communicate with the local government, how to get along with local staff, etc. 3)Deutche Telekom also supports MATAV’s expansion in Eastern Europe As Deutch Telekom CEO Kai-Uwe Ricke said, Detuche TeleKom has put a “special focus” on Eastern Europe.
Since 1993, with rich experience and resource from Deutche TeleKom and Ameritch, MATAV has already become a fully integrated telecommunication company in 2004. Deutche TeleKom is glad to look at its composition of growth. Due to the successful restructuring Martel by MATAV, Deutche TeleKom is more confident that MATAV can be capable of further expansion in Balkan region. Through MATAV international expansion in this region, Deutche TeleKom can realize its own expansion indirectly. It treats MATAV as a Central/Eastern European hub. So as main owner of MATAV, Deutche TeleKom will support MATAV’s expansion definitely.