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Cesky sale jeopardised by lowest nine-month profit in eight years?

31 Oct 2003

The Czech Republic’s dominant fixed line carrier Cesky Telecom has reported net income of CZK3.7 billion (EUR115.8 million) for the nine months to 30 September 2003, a drop of 6% year-on-year and its lowest profit for eight years. However, the company reported a 16% growth in revenues to CZK6.1 billion from its data, broadband and internet-related operations, to help bolster Group turnover, which it said dropped by 5% to CZK37.5 billion. The PTO is awaiting developments in the ongoing sale of 27% of its shares held by the TelSource Consortium and, having acquiesced to allowing a maximum of five interested parties to conduct due diligence on both the company and its 51%-owned mobile arm Eurotel, Cesky will no doubt hope that its latest financials will not dampen the ardour of would-be investors. The TelSource consortium, which comprises Swisscom and KPN, wants to offload its minority holding via an international offering to financial institutions.

The strong performance from Cesky’s data-based businesses were driven by the increasing popularity of its euroISDN service. In the first nine months of 2003 the total number of ISDN channels climbed by 20% year-on-year to 460,000, while turnover rose by 15% to CZK3.8 billion. The company’s ADSL service, launched in March 2003, had signed up 10,000 subscribers by the end of September, generating revenues of CZK70 million, while internet operations added a further CZK426 million. Meanwhile, Eurotel Prague continued to grow, increasing its customer base to 4.02 million by the end of September, a rise of 9% on the corresponding period of 2002. On a consolidated basis, Eurotel Prague added CZK10.2 billion to Cesky’s revenues – or 27% of the total – although standalone revenues of CZK21.6 billion were only 2% higher than 2002. In August this year Cesky received permission from the Czech Office for the Protection of Economic Competition to purchase the 49% of Eurotel Prague that it does not already own from Atlantic West, a joint venture between US telcos Verizon and AT&T Wireless. The PTO has been trying to buy the stake since 2001, viewing the cellco as key to raising its own value prior to its privatisation; the deal will be worth around USD1 billion.

On a less positive note Cesky’s traditional core PSTN service revenue dropped by 15% to CZK15.7 billion, as a result of stiffening competition from fixed-to-mobile substitution and increased cellular usage in general. The number of main lines in service dipped by 2% to around 3.6 million, representing a teledensity of 35%, compared with a mobile penetration rate of nearly 90%. Commenting on the results, the company’s vice-chairman and CFO Juraj Sedivy conceded that ‘in addition to the expected impact of liberalisation, some regulatory rulings related mainly to internet dial-up interconnection and tariff re-balancing make it increasingly difficult to protect overall profitability, specifically in the fixed line segment’.

Czech Republic
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