Interview for “InFlight Magazine”
Mr Dimitrov, this year Mtel was rebranded as A1. How do you assess the effects?
We are extremely pleased with the rebranding. The results are much better than we expected. According to the latest surveys, over 95% of our customers know that Mtel has become А1. We have about 40% spontaneous recognition, which is very good for a three-to-fourmonth-old brand. The new services and the new manner of work we have offered our customers are well received. There were many risks, as with any such rebranding, for history also knows of unsuccessful examples.
Rebranding was logically accompanied by a large-scale advertising campaign. Will this continue in 2019, what ad budgets do you plan? We have really conducted an impressive campaign since May. Thanks to it we enjoy such good brand recognition. This was at the expense of greatly reduced advertising investments in the first five months of the year, which is why we won’t have more costs on an annual basis. We are currently planning our 2019 budget. We will continue to be one of the largest advertisers in the country. Since we are planning many new services, we will certainly have to promote them.
We have no concrete figures, especially given that there is, in principle, advertising inflation in Bulgaria. There will probably be some budget increase, but it will greatly depend on the specific products and the specific deals we will make mainly with the televisions.
However, advertising costs are only part of rebranding. We have invested much more money in network optimization, store rebranding, and changing systems within the company. Our latest results, announced in October, show a revenue growth of 5.7% and a 6.6% growth in operating profit year-on-year.
However, there has been some slowdown in the last quarter. How do you explain it?
There is no slowdown. Our incredibly good results for the second quarter are due to one-off effects – several big deals we made from the sale of lines and ITS equipment. This led to a bigger growth year-on-year, but there were no such deals in the third quarter. On the other hand, our trend is growing by more than 5%, which is higher than last year and fully meets the expectations of both the management and
shareholders. The services turnover index is of particular importance for us. Growth in the second quarter was 3.2%, now it is 3.7%, which confirms the trend. Overall, we attribute this year’s growth to a two-digit jump in fixed services due to television, sports content, and our increased business with complex corporate solutions. The second pillar of growth is the sale of devices, and the third is the slower drop in mobile revenue. There has been a slight increase in the number of users and the average revenue per customer, which translates into a 0.7% growth year-on-year. You invest between 120 and 140 million leva in Bulgaria annually.
What share goes into the development of the mobile network, the fibre optic infrastructure and your new digital services, respectively?
We are trying to invest an average between 15% and 20% of turnover in network and infrastructure development. I cannot say what share goes to the mobile network and what share to fibre optic infrastructure, because a large part of our infrastructure has already been converged. Both mobile and fixed traffic use the same routes. Most of our systems are cloud-based, so that all kinds of services go through them. Our business is such that in order to keep on top of technology, you have to constantly update your infrastructure. Last year, we launched over 200 new base stations to improve coverage. Our main investment went into improving the 4.5G network, which enables our customers to have mobile internet speeds of up to 150 megabits per second. We also continue to develop the optical network. We now have over 16,000 km of fibre optics.
The third part are investments in new technologies. As you know, 2018 was the year in which we entered the TV business. We already have four own channels, studios, speakers and commentators.
Are you planning to launch more TV channels?
Yes. We’ve just launched Max Sport 3. We think we are currently the strongest player in the exclusive sports content market and we will continue to develop. As a big company, we have the opportunity to make sufficiently serious initial investments to afford that content. In the first quarter of 2019 we will launch a fourth channel with even more sports content. We are currently negotiating with potential partners in this field.
Does sport remain a priority or do you want to target other content?
It remains one of our focuses. We are exploring the possibilities of movies, production of TV series with Bulgarian actors, reality shows. What is stopping us is the unclear situation with piracy in Bulgaria. It is very difficult for a cinema or television project to pay off because of the huge percentage of piracy. Nevertheless, we are working in this direction. Very soon we will surprise our customers.
Can they expect you to also launch a video streaming service?
We believe this to be the only possible way for video development. We prepare, we work. It is very important what we will stream. We have very strong competition. On the one hand, there are global platforms such as HBO GO and Netflix, and on the other there are pirate platforms.
We have to find appropriate content that is attractive to customers, but also easy to access, precisely because a very large part of the market consists of free pirated movies.
Does it not worry you that even Netflix and HBO are still not investing in creating content only for Bulgaria?
On the contrary, it pleases us because it gives us the opportunity to do it ourselves. It is a very serious challenge for us to compete with the big global platforms. At the same time, the fact that we are local and aware of the habits and tastes of our customers, as well as the ability to locate content, give us an advantage. A1 Xplore Music is a case in point. As you know, we have launched a music platform, which is a risk in itself because it steps on the playing field of global companies such as Apple Music, Spotify, Google. At the same time, we have three important advantages which these big companies could not possibly have here. First of all, we have collected all the Bulgarian music, regardless of genre. Secondly, thanks to our in-house editors, we have created playlists for the Bulgarian taste. They are not global playlists for the whole market. A company like Spotify certainly cannot pay attention to our market. And the third very important thing is that streaming for our customers through the А1 mobile network is free.
Do you expect to profit from the music service, considering that big players such as Spotify are still not making a profit?
We are already profiting from gaining the respect of our customers, their loyalty, because we offer a service they cannot get elsewhere. Our financial models show that with a good enough distribution, we will not lose much from this service. Of course, it is still in its cradle, but the fact that we are part of America Movil helps us because the cost of developing this platform is distributed among many countries around the world.
You are betting on your own digital A1 Wallet, and on your own credit card. How did you decide on this step?
This is one of my favourite services, not only because I am personally involved in its creation, but also because it shows where the world is going. We believe that financial services will continue to be digitized and operators like us are the natural link between people’s money and the places they want to spend it. Given that people’s phones are constantly with them, it is only logical and normal for phones to become a means of payment.
Considering the low financial culture in Bulgaria and the fact that a large part of consumers are still apprehensive of card payments, is it not too early for this move?
Only about 20% of payments in Bulgaria are made with credit cards, which is a good thing for us because there is a very strong potential for development. We believe that entering this business at such an early stage will help to position us much better. Moreover, we have a virtually unique service for Bulgaria: our customers can transfer money between them without charge – peer-2-peer.
Provided we manage this wallet correctly, it can become a much more serious centre of Bulgarians’ financial culture.
Your business is constantly expanding into new areas. Is this the future of telecoms?
Unlike Mtel, which was always viewed as a mobile operator, we believe that А1 should be seen as a converged operator, as a provider of a whole range of digital services, starting with hardware and ending with cloud solutions or exclusive sports content. According to statistics, every modern person looks at his phone 150 times a day. This is something that can be used in a variety of ways, and we believe that by diversifying our portfolio we will give customers a better experience.
This year, you acquired an operator from Yambol. Are you thinking of further acquisitions and what companies do you target?
We are constantly looking at the market. We believe that consolidation, at both national and European level, is the way that operators have to go. At local level we are already big enough to need some serious acquisitions. We look mainly for opportunities to develop our optical network.
But we do not rely only on acquisitions, we ourselves invest a lot for this. Currently we have over 1.5 million households that are connected by fibre optics, which helps us to offer a better service.
After the withdrawal of Telenor Group from Bulgaria and the entry of PPF Group, do you expect competition, especially in the field of digital services, to become more aggressive?
Doing telecommunication business in Bulgaria is not at all easy and Telenor obviously realized this after a few years on the market. We will follow the development of our colleagues at PPF with interest. We believe that we have a much larger portfolio than theirs. They are only a mobile operator, while we have a lot more services. The Bulgarian market has always been sufficiently competitive both in terms of price and service quality. The average speeds of both the mobile and the fixed internet in Bulgaria are in the world’s Top 10. The quality of the mobile network is also one of the best. We are not afraid of the competition because we have always lived with it. We know how to fight and do not intend to give up our leading position.
In the beginning of the year, the government approved memoranda with Serbia and Macedonia on the reduction of the international roaming charges of telecommunication services. The aim was to encourage telecoms to sign better agreements. When will a one-minute call to Serbia stop costing 7 leva?
We have had better conditions in the Balkan countries for more than a year and a half, long before the government thought of it. Our “Group Balkans” package offer is for 2 leva per day, with which you can make mobile calls, browse and send SMS. We recently also included Turkey, to which many Bulgarians travel, in this group. Since this was something our customers wanted, we provided it at an earlier stage. We have sister companies in all Balkan countries, which enables us to have such attractive prices, and we do not need additional regulation from the government to do it.
Can we expect prices to fall already next year?
History shows that the prices of telecommunication services are constantly going down. The percentage of GDP that Bulgarians spend on telecommunications has been almost halved in the last 10 years. At the same time, the consumption of minutes, megabytes and additional services has grown several-fold.
The future of the industry depends directly on the development of 5G networks. In the US, Verizon has already released 5G in several cities. When can we expect similar steps in Bulgaria, too?
As a matter of fact, we are not far behind. The 5G global standards are yet to be specified. Half of this process was accomplished this year and will be completed next year. At the same time, there are three things than need to happen for 5G. The first is standardization. We are participating in an organization that is currently specifying the standards, and we expect to have a final decision on the 5G technical parameters in the next few months.
Secondly, to have 5G, you must have devices for it. Right now there aren’t any. The third very important thing, specifically for Bulgaria, is for the state to provide a suitable spectrum for the launch of 5G. We are getting ready. The upgrade we made on 4.5G puts us one step ahead in this direction because most of the hardware for the 5G network has already been installed. When the time comes, we believe that we will be the first operator in Bulgaria to offer 5G. But the state has to solve the big problems we have with the spectrum.
When do you expect the Communications Regulation Commission to release the suitable frequencies of 700 and 800 megahertz?
The decision is still pending. At present, a fairly large part of the spectrum that might be suitable for the development of these telecommunication services is occupied by the military. We still have no idea what will happen in this direction. We are following the process.
Overall, the American 5G idea entails a strong consolidation of the sector. Do you expect regulators in Europe to also allow this to happen on the territory of the continent to stimulate bigger investments in new generation networks?
Our company believes that this consolidation will greatly help service development. There are five or six big operators in the US. Europe, which is roughly similar in territory and population, has 100. Consolidation would be good for business, but much depends on the policy of the European Union and on the financial situation of the market.
Author: Elena Kirilova
Photography IVAILO PETROV
Provided by A1 Bulgaria / Source: InFlight Magazine