Industry Trend Analysis - Exoscale To Boost A1 Digital's IoT Ambitions - NOV 2017

BMI View : Investing in Exoscale gives Telekom Austria access to a proprietary c loud services platform, reducing its dependence on non-re gional providers and strengthening its credibility as a digital services provider outside its core footprint.

A1 Digital, the IT services unit of Telekom Austria, has invested in the Swiss cloud services provider, Exoscale. A1 Digital will fast-track the launch of access points in Austria and Germany and will likely roll out coverage to markets where its mobile wireline operations are increasingly in need of a centrally-managed in-house platform that can host common Internet of Things (IoT) solutions. We believe that lower operating costs will be instrumental in the new entrant's ability to displace established players across its European footprint and, therefore, this investment poses multiple upsides to the company's ambitious growth plan.

Cloud To Benefit Multiple A1 Digital Markets
Telekom Austria FY2016 Revenues By Market
Source: Telekom Austria

Through A1 Digital, Telekom Austria aims to become a disruptive provider of digital services, both for its own mobile and wireline operations as well as independent businesses requiring advanced cloud-hosted value-added services it has so far been unable to serve directly. Launched in 2016, A1 Digital is only just beginning to build momentum, securing small and medium size enterprise clients in the construction, logistics and manufacturing industries in its eight-market footprint as well as Germany. Growth, however, must be accelerated in order to offset lacklustre growth in its core wireline and mobile voice and broadband business, so this investment is a welcome move.

In FY2016, Telekom Austria recorded just 2.1% growth in consolidated revenues, hampered by lower income from international roaming services, muted demand for value-added services, the revenue-dilutive impact of product bundling and negative foreign exchange developments. Consolidated EBITDA, meanwhile, declined by 1.1%, exacerbated by acquisitions and spending on both passive and active infrastructure.

The majority of Telekom Austria customers are low-value consumers and, in international markets, the group has struggled to win higher-value enterprise customers from incumbents as well as domestic cloud/hosting providers. Exoscale's cloud-plus value-added service business model will enable Telekom Austria to ensure that customers' data are stored locally and this will appeal to regulators and businesses alike, increasing the potential for Telekom Austria to monetise solutions that will leverage IoT applications.