Telekom Serbia facing huge financial problems

NEWS 01.07.2021 19:23
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Nova Ekonomija magazine said that Telekom Serbia has aggressively appeared on the multi-media services market and has turned its business model around by expanding its optical network over the past few years.

The disclosure of financial reports for 2020 gave us a first glance at the financial effects of the dynamic changes in the company. At the end of 2017, the company had long-term debts of 289 million Euro and at the end of 2020 the debt was 1.44 billion, an increase of 1.150 billion Euro over a three year period, it said.

It said that Telekom Serbia has been shutting down its land-line telephone services for years. In 2016, Telekom’s land-line phone income was almost 330 million Euro or more than 31 percent of its overall income, dropping to 220 million Euro or 20 percent of the overall income in 2020 with the downward trend continuing, the magazine said, adding that Telekom’s annual income from land-line phones dropped by 110 million Euro compared to 2016. That segment of its operations was one of the main cash generators for years with little investment and very low current expenses.

Income from mobile phone services has stabilized at around 63 billion Dinars (1 Euro – 118 Dinars) a year and there is no reason for optimism because that segment is the most competitive segment of the telecommunications business which means drops in prices. The A1 (former VIP Mobile) operator recently offered a package which meets the needs of 95 percent of users at a price 30-40 percent lower than other operators.

The state is expected to issue 5G licenses soon which will allow the SBB company to enter the mobile phone market while Telenor has said that it will enter the multi-media services market.

Nova Ekonomija said that the development of the state-controlled Telekom ended in 2008 with the arrival of Branko Radujko as CEO (later rewarded with the post of Customs Service chief), adding that a lack of development inevitable brings disaster in the highly competitive business. “In order to fill the budget prior to elections, the authorities chose privatization in 2011 but the first attempt to seel the company ended with just one extremely low offer of 950 million Euro for 51 percent of the company from Telekom Austria even though the tender said the lowest price is 1.4 billion Euro. Deutshce Telekom, Turkcell, France Telecom, America Mobile and Veder Investment picked up the tender documents but made no offer.

The state did not learn its lesson from that failed tender and the new authorities continue to pulverize Telekom as their predecesors did calling a new privatization tender in 2015 even though all indicators showed that it was worth less than in 2011. Then Prime Minister Aleksandar Vucic expected a much better offer but the tender ended with a humiliating offer even lower than the previous tender from investment funds not operators which was not even released to the public.

The failure of the tender was no surprise to informed sources since Telekom lost 300,000 clients in the time between the two tenders. Vucic made statements after the second tender which showed that he knew about the huge problems, Nova Ekonomija said. The authorities continued to exhaust the company and neglected the multi-media market which allowed SBB to expand and become the biggest provider with an almost 50 percent market share.

Then after 10 years of vegetative existence, Telekom Serbia started expanding into the multi-media market and developing its optical network for Internet access in the second half of 2018. That strategy was authored by Vladimir Lucic who was made coordinator for multi-media development and went on to become Telekom CEO late last year. That sudden expansion began with the acquisition of the Kopernikus cable and Internet services provider for 195 million Euro late in 2018 (from a ranking official of the ruling SNS party as co-owner who used the money to buy two TV stations with nation-wide frequencies). Telekom went on to buy Radijus Vektor and 17 other small cable providers for a total of 400 million Euro.

According to a report from the RATEL electronic media agency for the last quarter of 2020, Telekom and SBB are almost equal with a combined share of almost 90 percent of the market in Serbia. Telekom seems to have advanced greatly in terms of user numbers but data on the financial effects of the expansion are not encouraging, the magazine said. “Sales income grew from 1.02 billion Euro to 1.1 billion over the past five years while expenses rose from by 106 million Euro and that brought huge debts. Long-term debts at the end of 2017 were at 289 million Euro and jumped to 1.44 billion at the end of 2020.

Nova Ekonomija said the real debts are even greater since short-term debts are 349 million Euro greater than the company’s current assets, a change from 2018 when those numbers were in balance. The difference shows that the company is having huge liquidity problems and will have to take new loans for operations and not just for investments. That leads to the conclusion that Telekom actually owes 1.788 billion Euro. Telekom invoked a National Bank of Serbia decision on the COVID crisis to reprogram a 49 million Euro loan even though it did not face difficulties because of the pandemic. “The delay in repaying a bank loan is a sign of serious financial difficulties in Telekom,” the magazine said and recalled that Telekom issued corporate bonds worth 200 million Euro in September 2020 with a five year due date. A large part of those bonds ended up with the central bank which shows a lack of confidence in the company. Telekom is due to repay a total of 440 million Euro in loans this year, not including short-term debts.

Most of Telekom’s income comes from Serbia where it faces the risk of a depreciation of the Dinar. A five percent change in the exchange rate would increase its expenses by 55 million Euro and could even jeopardize all of its profits. Most of the Telekom debts are at changeable interest rates, the magazine said and added that even a small increase in interest rates would bring the company to brink of disaster. The large debts mean that Telekom has to take loans at much higher rates.

CEO Lucic said in June that he had promised that Telekom would be worth four billion Euro in 2023 or even next year but that would require a miracle, the magazine said.

Nova Ekonomija said that Telekom should have gone on the offensive on the multi-media market long ago but has paid too much in its expansion because its overall debt is almost at 1.8 billion Euro but despite all those problems the company is planning to pay out four billion Dinars in dividends.

“The impression is that Telekom is on the brink but could resolve its financial problems with a radical change in its business operations and the attitude of the authorities,” Nova Ekonomija said.