To Our Shareholders
Let me now review the activities and results of the Telefónica O2 Czech Republic Group in the first half of 2010. As in 2009, also in the first six months of 2010 our performance was influenced by the challenging macroeconomic environment in the Czech Republic. The effects came mainly in the form of lower expenditure by our mobile customers, which resulted in falling revenues. However in the second quarter we saw a certain stabilising effect and the rate of revenue decline has slowed. Another factor that influenced our results was the competitive pressure which persevered, and even grew stronger in some areas. In spite of all these developments, we managed to maintain a solid growth in our customer base in the key areas, which attests to the right choice of our strategy of focusing on services driven by customer needs. Our simple and clear proposition to the market helped us in securing a significant growth of our customer base in Slovakia.
In the fixed-line segment, owing to our offer of broadband-based services, we continued to be successful in halting the rate of decline in the number of fixed lines. In the first half of 2010, the number of fixed lines cancelled fell 30% year on year to 62 thousand. This was driven mainly by the increased number of broadband internet users. The fact that we eliminated the commitment requirement helped us make the service O2 Internet more attractive to the market. New customers were offered internet connectivity with a speed of up to 16 MB/s at very competitive prices. The number of retail ADSL connections was 10.8% higher at the end of June than at the same time last year.
In the mobile segment we continued to focus on migrating customers from the prepaid service to contracts. The success of our O2 NEON tariffs drew in customers; their number increased 4.5% year on year, and their share in the total customer base as at the end of the first half of the year was 57.4%. Increasing this share further also helps with maintaining voice traffic. We also introduced new tariffs for small business and self-employed customers, O2 Podnikání, the first in the Czech market to offer unlimited calls during working hours within a flat monthly fee.
Customers of prepaid mobile services could, in addition to the tariffs O2 NA!PIŠTE and O2 NA!HLAS, enjoy calls from only CZK 1. The promotion Odměna za dobití (Top-up Reward) for regular credit top-ups continued. These activities helped us in stabilising our Average Revenue Per User for the prepaid service, and contributed to slowing down the rate of decline in their numbers.
In the segment of fast mobile internet, we continued to expand the coverage of our UMTS and EDGE networks. In mid-July, our 3G was available to a third of all Czech population, which means that we increased our head start on the competition again. In addition to expanding the coverage of mobile data networks we also introduced new services to our portfolio. The tariff O2 Předplacený mobilní internet for the prepaid mobile customer came with free internet connectivity, without the requirement of a contact and regular monthly payment. In June we presented four options of mobile internet tariffs O2 Mobilní Internet. Small and medium business customers could claim a netbook o a professional notebook with selected mobile data tariffs.
As I stated already at the beginning, our simple and clear tariffs O2 Fér in Slovakia, which give the customer more value, helped us draw more customers and improve the quality, structure and loyalty of the customer base. The number of customers increased by more than 150 thousand in the first half alone and reached 709 thousand. We at the same time strengthened our position in the Slovak mobile market; our market share went up to 12.3%. Those results also contributed to a more than 50% increase in revenues and improved financial performance.
As in the previous year, also in 2010 we push for better operating efficiency. With this goal in mind we decided to implement an ambitious restructuring programme; its aim is to realign the organisation into a more efficient form through a reduction of the number of organisation levels across the company. We also maintain our focus on better process efficiency through the continuing integration of fixed-line and mobile platforms and systems, with a special regard for network transformation, including the outsourcing of some activities. I am confident that the implementation of this programme will put us in a better competitive position and help us maintain our high financial performance.
As I am reviewing our financial results, I must again stress the effect of the macroeconomic environment on our revenues, which were also negatively impacted by the continuing cuts in mobile termination rates. The consolidated business revenues fell 6.6% year on year during the first half of the year and reached CZK 27.8 billion. However in the second quarter the rate of decline slowed down to 4.1%. The mobile segment revenues in the Czech Republic recorded an 8.5% drop to CZK 14.3 billion as a result of the optimisation of retail spending and the lower mobile termination rates, while the fixed-line segment revenues for the first half of the year fell 7.5% year on year to CZK 12.3 billion. The higher revenues from broadband internet and ICT services failed to compensate for the shortfall in voice revenues. The revenues in Slovakia went up by 51% and reached EUR 48.8 million. The year-on-year comparison of operating performance measured by OIBDA was influenced by several one-off items posted in 2009 and in 2010. In the first half of 2010, OIBDA reached CZK 11.2 billion, which translates into an 18.1% decrease. Without the one-off items, however, OIBDA went down by 4.5%, which is at a slower rate than the revenues, resulting in an increase of a fully comparable OIBDA margin by 0.7 percentage point to 43.4%. This improvement was powered by our continuing strive for efficient commercial and non-commercial operating expenditure. The net profit fell 23.9% to CZK 4.4 billion as a result of the aforementioned OIBDA decline, which has not been offset in full by the lower depreciation and tax.
I am glad that the results of the first half of the year and our expectations for the second half let us confirm the year-end outlook for a fully comparable OIBDA, where we expect a decline by 5–9% and investment expenditure, which should reach approximately CZK 6 billion. I believe that our successful proposition of products and services will secure a sufficient growth of customer base in the key areas and, together with the gradual recovery of the Czech economy, consumer spending trends will also improve. We will implement a stringent financial discipline with the aim to offset the falling revenues to the maximum extent, and to maintain high operating efficiency.
Luis Antonio Malvido
Chairman of the Board of Directors