Operations & Wholesale

Operations & Wholesale

Operating review

In 2010, Operations & Wholesale successfully migrated customers up the value chain, from ULL to broadband solutions, resulting in higher ARPU. Operations & Wholesale has also managed to reduce churn-rates on landline telephony, while MVNO revenue has continued to grow.

Optimisation of operations continued, with further consolidation of locations and improved space management. In 2010, TDC completed the two largest space-management initiatives so far. Fault rates were reduced further, resulting in both savings on fault corrections and improved customer satisfaction. However, customer satisfaction remains an area of improvement.

In 2010, Operations & Wholesale was challenged by increased price competition in the mobile segment as well as stagnation in the capacity markets.

KPI development 2009-2010

Operations & Wholesale had 805,000 RGUs at the end of 2010, down 14.5% compared with the end of 2009.

  • The decrease was driven primarily by 40,1% fewer mobile voice RGUs, due to TDC's acquisition of M1 in January 2010, which resulted in a transfer of RGUs from Wholesale to Consumer, and fewer brand partner RGUs. Service provider ARPU was almost unchanged (DKK 121 per month in 2009 and DKK 122 in 2010).
  • The number of landline RGUs decreased by 9.1% due to the migration from traditional landline to mobile and VoIP. PSTN/ISDN ARPU was unchanged at DKK 100 per month from 2009 to 2010. VoIP RGUs grew throughout 2010 as Wholesale managed to switch service providers from providing their own solution, to buying from Wholesale.
  • The number of landline broadband RGUs increased by 10.8%, due to more BSA/xDSL RGUs, while BSA/xDSL ARPU decreased from DKK 159 per month in 2009 to DKK 149 in 2010, due to price regulation.

Financial review

Revenue

2009-2010

Revenue from Operations & Wholesale declined by DKK 32m, or 1.2%, to DKK 2,550m.

Wholesale's revenue rose by DKK 18m, or 0.8%, to DKK 2,253m.

  • Landline telephony revenue declined due mainly to fewer RGUs, which was partly offset by an increase in revenue from international traffic.
  • Mobility services revenue declined due mainly to the decrease in RGUs and lower revenue from inbound international roaming due to regulation, but was partly offset by increased MVNO traffic on TDC's mobile network.
  • Revenue from internet and network was positively affected by the acquisition of DONG Energy's fibre network and increased revenue from BSA/xDSL. This was offset by Consumer's acquisition of Fullrate which had a negative impact on internet and network revenue in Wholesale.
  • Other revenue increased due to the transfer of mobile sites from Operations, an impact from a change in the allocation of revenue regarding services telephony between business divisions (no Group impact) and a change in disclosure of incoming mobile and landline traffic. The increase in Other revenue was partly offset by the divestment of the satellite business.

Operations' revenue was DKK 297m, a decrease of DKK 50m, or 14.4%.

  • This was due mainly to lower external revenues from mobile sites which was moved to Wholesale in 2010, as well as reduced internal revenue from information technology services, which was partly offset by increased revenues from facility management.

2008-2009

In 2009, revenue from Operations & Wholesale was DKK 2,582m, a decline of DKK 166m, or 6.0%.

Wholesale's revenue was DKK 2,235m, a decrease of DKK 155m, or 6.5%.

  • Revenue from landline telephony decreased due mainly to fewer service provider landline RGUs and, to a lesser extent, lower transit traffic volumes following the divestment of International Carrier Services.
  • Revenue from mobility services increased primarily as a result of more service provider RGUs and higher ARPU. This was only partly offset by a decline in roaming revenue resulting from a 12% decrease in international roaming traffic on TDC's mobile network in Denmark following the economic recession, and the regulation of MTR and international roaming charges.
  • Revenue from internet and network decreased mainly due to Consumer's acquisition of Fullrate (which moved RGUs from Wholesale to Consumer).
  • Wholesale's revenue was positively impacted by Other revenue, due mainly to the changed disclosure of incoming traffic as well as the impact from service telephony, resulting largely from changed internal transfer practice and mobile sites. This was partly offset by the divestment of the satellite business.

Operations' revenue was DKK 347m, a decrease of DKK 11m, or 3.1%.

  • This reflected mainly lower intra-group sales.

Gross profit

2009-2010

Gross profit in Operations & Wholesale was DKK 1,985m, a decline of DKK 76m, or 3.7%.

  • The decrease was due to lower roaming charges, as inbound roaming charge reductions have full gross profit impact in Operations, and lower landline and mobile activity. The decrease was partly offset by the acquisition of DONG Energy's fibre network.
  • The gross profit margin decreased from 79.8% to 77.8%, primarily as a result of the reduced international roaming charges and changed product mix towards lower margin products (e.g. MVNO).

2008-2009

Gross profit from Operations & Wholesale was DKK 2,061m, a decrease of DKK 130m, or 5.9%.

  • The decline resulted from lower landline telephony and internet and network activity as well as the international roaming regulation.
  • Despite a decrease in gross profits, the gross profit margin remained stable from 2008 to 2009 (79.7% in 2008 and 79.8% in 2009). This reflected primarily the divestment of the low margin satellite business and declining MTR, which was almost offset by a reduction in international roaming charges.

EBITDA

2009-2010

EBITDA in Operations & Wholesale was DKK 1,114m, a decline of DKK 299m, or 21.2%. Over the same period, the EBITDA margin decreased from 54.7% in 2009 to 43.7% in 2010.

  • The decline in EBITDA reflected the decline in gross profit. In addition, Operations & Wholesale's reductions in other external expenses and wages, salaries and pension costs (related primarily to fewer average full-time employee equivalents and strong cost focus) were more than offset by a reduction in the costs that were allocated to TDC's other business divisions.

2008-2009

EBITDA from Operations & Wholesale was DKK 1,413m, a decrease of DKK 87m, or 5.8%.The EBITDA margin was stable, increasing slightly from 54.6% in 2008 to 54.7% in 2009, which was due to the divestment of low margin International Carrier Services and the satellite business.

  • The decreased EBITDA related primarily to the lower gross profit as well as a decline in Other income resulting from lower accounting gains from divestments and lower cable damage compensation from third-party contractors. This was only partly offset by lower fault handling costs (caused mainly by improved fault rates), as well as lower property costs, wages, salaries and pension costs and employee-related costs (all due primarily to fewer full-time employee equivalents).

Selected financial and operational data Excluding special items
Operations & Wholesale 2010 2009 2008 Change in % 2010 vs. 2009 Change in % 2009 vs. 2008
DKKm
Revenue 2,550 2,582 2,748 (1.2) (6.0)
   Wholesale 2,253 2,235 2,390 0.8 (6.5)
   Other 297 347 358 (14.4) (3.1)
   Landline telephony 550 599 990 (8.2) (39.5)
   Mobility services 590 658 551 (10.3) 19.4
   Internet and network 941 945 982 (0.4) (3.8)
   Other 469 380 225 23.4 68.9
Transmission costs and cost of goods sold (565) (521) (557) (8.4) 6.5
Gross profit 1,985 2,061 2,191 (3.7) (5.9)
Other external expenses (2,219) (2,343) (2,599) 5.3 9.8
Wages, salaries and pension costs (1,346) (1,414) (1,647) 4.8 14.1
Operating expenses allocated to other
business divisions
2,630 3,009 3,341 (12.6) (9.9)
Other income and expenses 64 100 214 (36.0) (53.3)
EBITDA 1,114 1,413 1,500 (21.2) (5.8)
Gross profit margin % 77.8 79.8 79.7 - -
EBITDA margin % 43.7 54.7 54.6 - -
Adjusted revenue¹ DKKm 2,550 2,400 2,290 6.3 4.8
Adjusted EBITDA² DKKm 1,109 1,211 1,132 (8.4) 7.0
RGU base ('000)
Landline 220 242 297 (9.1) (18.5)
Mobile voice 187 312 202 (40.1) 54.5
Mobile broadband 9 7 2 28.6 -
Internet 154 139 124 10.8 12.1
Other networks and data connections 233 240 313 (2.9) (23.3)
TDC TV 2 1 0 100.0 -
RGU base, total 805 941 938 (14.5) 0.3
ARPU (year-average) DKK / month
PSTN/ISDN 100 100 100 - -
Mobile voice, Service Provider 122 121 92 0.8 31.5
FTEs
Number of FTEs (EoY) 3,868 4,409 4,406 (12.3) 0.1
Average number of FTEs (YTD) 4,106 4,363 5,056 (5.9) (13.7)
  1. Revenue for 2009-2010 has been adjusted for the acquisition of DONG Energy's fibre network, Consumer's acquisitions of M1 and Fullrate, the divestment of the satellite business; and regulation of landline interconnection, mobile termination and international roaming charges. Revenue for 2008-2009 was adjusted for the acquisition of DONG Energy's fibre network, Consumer's acquisition of Fullrate, the divestments of International Carrier Services and the satellite business, as well as regulation of mobile termination and international roaming charges.
  2. EBITDA for 2009-2010 has been adjusted for the acquisition of DONG Energy's fibre network, Consumer's acquisitions of M1 and Fullrate, the divestment of the satellite business,the sale of property, plant and equipment and regulation of landline interconnection and international roaming charges. EBITDA for 2008-2009 was adjusted for the acquisition of DONG Energy's fibre network, Consumer's acquisition of Fullrate, the divestments of International Carrier Services, the satellite business and TDC Produktion, the sale of property, plant and equipment as well as regulation of international roaming charges.

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