In recent years, TDC and the telecommunications industry have undergone significant changes in terms of technology, competition, customer demand and regulation. Over the past five years, TDC has transformed itself into a geographically more focused, significantly more efficient, commercially astute operator, with world-class networks, a highly diverse product portfolio, strong positive momentum and a clear strategic vision. While this transformation is still ongoing, we believe TDC is now well equipped to seize opportunities in the coming years.
NTC acquires TDC
On November 30, 2005, Nordic Telephone Company ApS (NTC), a company ultimately controlled by investment funds, each of which is advised or managed, directly or indirectly, by Apax Partners Worldwide LLP, The Blackstone Group International Limited, Kohlberg Kravis Roberts & Co. L.P., Permira Advisers KB and Providence Equity Partners Limited, launched a tender offer for all the TDC shares (listed on the OMX Copenhagen Stock Exchange). In January 2006, NTC acquired 87.9% of the shares in TDC. Subsequent to NTC taking control of TDC, a new overall strategy was implemented consisting of:
• Re-organization and management strengthening
• A focused portfolio & Nordic strategy
• Operational excellence
• Commercial excellence
• World-class infrastructure
• Improved market position
Re-organization & management strengthening
TDC has taken a number of steps to change its business from a product/technology-centric to a customer-centric organization, thereby optimizing sales channels and enabling cross-selling and bundling. TDC’s Nordic Business now consists of five business units – Consumer, TDC Business, TDC Nordic, Operations & Wholesale and YouSee (see The TDC Group, Business Activities for a detailed description). In addition, TDC has significantly strengthened its senior management team and upgraded its focus on performance management and incentive programs to further improve the organization.
A focused portfolio & Nordic strategy
While TDC’s wholly or partly owned European telecommunications subsidiaries and international operations contributed approximately 50% of revenue and 29% of total EBITDA in 2005, they provided no or limited synergies in the core Nordic business. Consequently, in 2006, TDC embarked on a strategy to concentrate on its core markets and become a clear and focused Nordic leader. As such, TDC initiated a process to divest its non-core assets. In parallel, TDC has strengthened its domestic position through in-market consolidation, and has acquired a series of complementary network operators and service providers in Denmark. This has provided TDC with a very strong platform from which to pursue its focused Nordic strategy.
As a result of divestments of business activities outside the Nordic countries from 2005 to 2009, TDC’s revenue decreased by 23% from DKK 46.61m in 2005 to DKK 35.9m in 2009.
|Domestic divestments and outsourcing|
|Domestic in-market consolidation|
As part of the strategy, TDC has implemented a detailed value-creation program to improve operating efficiency and reduce costs. This has, for example, included removing duplicate headquarters and business line functions, consolidating call centers from 14 to 4 locations, outsourcing non-core processes as well as reducing facility costs through physical consolidation and disposal of buildings. These initiatives, in combination with the strategic decision to refocus on core Nordic markets, have significantly reduced the number of full-time employees. In Denmark, at year-end 2009, 4,451 fewer FTEs were employed compared with year-end 20042. Internationally, the number of FTEs dropped from 4,128 at year-end 2004 to 2,841 at year-end 20093.
TDC has significantly improved its margins by enhancing high-margin areas while eliminating or de-emphasizing a number of low-margin areas, and has improved its return on invested capital. Within the last five years, to further optimize its business, TDC has outsourced its IT operations and the planning, roll-out and operation of its mobile network. The company has also optimized its working capital and capex prioritization process on an ongoing basis.
In the past five years, TDC has sought to reclaim commercial leadership and momentum in both the business and residential segments of the domestic market, and has constantly remained at the forefront of technological developments. This includes a shift from a single-brand to a multi-brand strategy to leverage the full potential of its consumer brands: TDC, YouSee, Telmore and Fullrate. Moreover, TDC has revitalized its main brand.
Through its extensive, fast and reliable infrastructure, TDC has launched innovative and successful products such as the multi-play products HomeDuo, HomeTrio, HomeTrio Work and the flat-rate product ‘TDC til TDC’ (‘TDC to TDC’4), which has increased retention and is the best-selling add-on service in TDC’s history. Also, TDC’s recently launched ‘TDC SamtalePlus’ (‘TalkPlus’) allows landline customers to call the more than 9m mobile and landline customers in Denmark at an attractive flat-rate charge. YouSee has introduced YouSee Clear, which supplies high-quality digital TV to YouSee’s customers at no additional charge and YouSee Plus, which gives TV customers add-on digital services. TDC PLAY/YouSee Play, launched in 2008, is a unique, award-winning service that gives mobile and broadband customers unlimited downloads of 6.3 million music tracks at no additional charge. Finally, the ‘Connect-it’ concept, which secures that combined mobile and landline broadband customers always receive the best possible connection, has also been introduced.
To improve its end-to-end customer experience, TDC has also initiated ‘TAK’ (take responsibility for the customer), a comprehensive customer-centric program. Customer lifecycle management and churn-prevention practices have been upgraded, special programs to contain PSTN churn have been initiated and the TDC Shops have been refurbished.
TDC’s infrastructure and coverage are best in class, and within the past five years, capex has consistently been maintained at 14-15% of revenue in Nordic Business. TDC has also continued to expand its widespread infrastructure on all platforms – copper, coax, fiber, GSM and UMTS.
Since 2005, TDC’s copper network has been enhanced to increase coverage and expand bandwidths to deliver more advanced services such as VoIP, TV and multi-play. As a result, TDC’s broadband population coverage is now one of the highest among European incumbents.
At the beginning of 2005, the cable network passed 38% of Danish homes and over the past five years, the coverage of the cable infrastructure has increased to 55% of Danish homes. In addition, DOCSIS 3.0 upgrade investments have improved capacity and enhanced services. By year-end 2009, 77% of homes passed by the cable network were able to receive speeds of 50 Mbps, and in the first quarter of 2010, YouSee expects to be able to deliver 100 Mbps. YouSee’s cable infrastructure is now fully upgraded and digitized and almost all YouSee customers have transitioned to digital TV5.
TDC has invested heavily in its fiber network, and with the acquisition of DONG Energy’s fiber network in November 2009, TDC now has an additional 5,498km access and 836km backbone fiber network located in the densely populated areas in and north of Copenhagen. As a result, TDC operates the largest fiber network in Denmark, with 37,586 km of fiber and 390,000 homes passed. These investments put TDC in a very strong position to address the future highspeed broadband and data market.
In the past five years, outdoor GSM coverage has been close to 100% while indoor GSM coverage has been 86%. In order to increase coverage and expand its mobile broadband customer base, TDC has extended its mobile (GSM/UMTS) network roll-out in Denmark. By year-end 2009, 90% of the population had UMTS access, which allows customers with laptops, 3G mobile phones or smartphones to surf the internet via the UMTS network at speeds considerably faster than those of the GSM mobile network. While coverage is constantly being increased, capacity and available data speeds will be continuously upgraded to match customer expectations. Turbo 3G was launched in January 2008 and is based on HSPA technology to provide customers with high-bandwidth broadband access via the mobile network.
Improved market position
In a rapidly changing telecommunications industry, with major technological developments, TDC has maintained or improved its market-leading position in Denmark across the various communications segments. This has been achieved through active infrastructure and platform upgrades, renewed product offerings (in particular in broadband) and its superior customer value proposition.
Landline and mobile telephony
While the traditional landline telephony market has decreased over the past five years, this has been more than compensated for by customers’ migration to VoIP and mobile voice. However, as ARPU on mobile voice and VoIP are significantly lower than ARPU on PSTN/ISDN, this has put pressure on revenue. Despite its size, TDC has managed to adapt to the changing markets, maintaining a solid approximately 82% market share of traditional landline telephony from 2004 to year-end 2009. With a marketleading 50% share of the VoIP market gained during the past five years, TDC’s strong performance is supported by the positive impact of its multi-brand strategy featuring the TDC, Fullrate and YouSee brands. In the mobile voice market, TDC has been able to attract an increasing number of customers, and despite growing competition has succeeded in raising its leading network market share to 46%.
The broadband market has grown significantly over the last five years. TDC has increased its share of the total broadband market from 60% at year-end 2004 to 63% at yearend 2009. In the xDSL and coax markets, TDC held leading market shares of 72% and 64%, respectively, at year-end 2009 compared with 73% and 40%, respectively, in mid-2005. These market shares, which are the result of heavy infrastructure investments in xDSL, cable and fiber allow TDC to fully benefit from further market growth in broadband, both landline and mobile.
In 2005, multi-play was in its early stages. Today, the fast landline broadband speeds, combined with the intensifying competition in the telecommunications industry, are prompting an increasing number of providers to attract and retain customers by offering bundled services or dual-/triple- play on TV, broadband and IP or mobile telephony. TDC introduced attractive multi-play packages on various commercial platforms in 2009. The acquired subsidiary, Fullrate, supplies a dual-play package while the TDC HomeDuo and TDC HomeTrio broadband-based multi-play packages have been available since January 2009. Since then, the number of full-bundle TDC customers has increased significantly from zero to 299,000. Interest in TDC Home Duo/Trio has been significant and with a share of 62%, TDC has established itself as the clear leader in the triple-play market.
To match customer demand for flexibility and constant connection, in July 2008, TDC launched its mobile broadband offering6. At year-end 2009, the Danish mobile broadband market7 amounted to 478,000 customers, with TDC’s market share totaling 32%. The mobile broadband market is expected to increase significantly in the future in both the business and residential segments.
The Pay-TV market grew considerably over the five-year period, and household penetration has now reached 82% in Denmark. TDC offers TVoIP and traditional cable TV (YouSee). From year-end 2004 to year-end 2009, TDC’s market share on the Pay-TV market stabilized at the current level of 54%. The number of providers and TV packages available also expanded significantly, with more customers choosing the larger packages. TDC’s TV customers (including YouSee) have access to the most popular Danish and international channels, video-on-demand and archive functionalities, and benefit from one of the most attractive offerings and value propositions in the market. YouSee provides almost all its TV customers with free access to digital TV8 and hosts add-on and on-demand services.
Copper line loss
During the last decade, TDC has experienced a steady net line loss on the copper network. This has resulted from the migration from PSTN to mobile only as well as the appearance and increase in competing infrastructure such as fiber and coax. However, TDC has been a major beneficiary of the migration away from copper, due to the flow into TDC’s own mobile-only customer base and YouSee’s cable customer base.
TDC’s copper line losses began to fall for the first time in 2H 2009, with a reduction in net line loss of 20,000, compared with 1H 2009. This was achieved through a strengthened focus on customer retention in PSTN lines in 2009 and the successful launch of the HomeDuo and HomeTrio multi-play offers specifically designed to boost customer retention.
In addition to the line loss, the total number of RGUs on the copper network has also decreased in recent years9. The RGU loss peaked in 2H 2008, but declined in 2009 due to the success of the multi-play offers.
Due to the increase in multi-play customers on TDC’s copper network, the number of RGUs per line increased in 2009.
As the leading player in most telecommunications market segments in Denmark, TDC has been subject to strict regulatory surveillance, including price regulation. Since 2005, in general, price regulation has further tightened TDC’s wholesale prices, and has been expanded to include mobile termination and international roaming. TDC has been working closely with the Danish regulatory authority to ensure fair wholesale prices that maintain the right balance of benefiting consumers while creating the right incentives to encourage network operators to invest in infrastructure.
|Price development on regulated prices, DKK excluding VAT|
|Local access, landline, peak hour, per minute||3.23||1.72||-47%|
|Local termination, landline, peak hour, per minute||2.76||1.47||-47%|
|Raw copper, annual price per unit||803||832||4%|
|Co-location, rack place, annual price per unit||2,114||1,939||-8%|
|BSA xDSL, average per year||1,146||1,030||-10%|
|Mobile termination, price per minute 1||1.00||0.44||-56%|
|Roaming, EU prices|
|Inbound roaming voice, wholesale, per minute||5.37||1.94||-64%|
|Outbound roaming voice, retail, per minute||6.52||3.20||-51%|
|Outbound receiving calls, retail, per minute||2.32||1.41||-39%|
- 2005 is an approximated weighted average price before price regulation. The price will be DKK 0.54 until May 1, 2010, when it will be further reduced to DKK 0.44.
The table above lists a representative selection of regulated prices that have had a considerable negative impact on TDC’s revenue and earnings. Further price reductions are expected with regard to local interconnection on landline as well as mobile termination and international roaming. TDC will also be required to offer wholesale access to broadband via its coax network10.
Sunrise and its core business focus
As in the rest of TDC, Sunrise has focused on its core business in the five years leading up to the merger with Orange. This has resulted in the divestment of the integrator business, SBC, and outsourcing of network maintenance. To strengthen its position in the landline and broadband markets, Sunrise acquired Tele2 in Switzerland in 2008. Regulatory development in Switzerland has given Sunrise the opportunity to supply broadband based on its own ULL infrastructure, improve customer management and benefit from higher margins on product bundles than were possible with resold xDSL from Swisscom.
TDC’s transformation is still under way. Building on recent successes, the management has designed and is implementing a strategy for building TDC for the future. For more details on both the short-term and long-term key pillars of this ambitious plan, please refer to ‘TDC at a glance’.
- Based on accounting principles at that time and before deconsolidations.
- Excluding TDC Directories, which was divested in 2005 and treated as a discontinued operation and is thus no longer included in TDC’s figures for year-end 2004.
- In addition, a number of divested subsidiaries (corresponding to approximately 1,700 FTEs) are treated as discontinuities and no longer included in TDC’s figures for year-end 2004.
- ‘TDC-til-TDC’ allows TDC’s residential customers to call all the 1.8m other TDC-brand mobile customers for a flat-rate fee.
- The only requirement is that customers must have a TV with a built-in digital receiver.
- TDC launched data services (mobile broadband) via the UMTS network (3G) in 2005, enabling high-speed data services such as video telephony, internet access, live streaming and games.
- Data-only subscriptions.
- The only requirement is that customers must have a TV with a built-in digital receiver.
- Fullrate is included in the figures as if it were fully owned by TDC from 2008. The acquisition of Fullrate had no impact on TDC’s line loss as Fullrate’s supply of broadband and VoIP is based on TDC’s infrastructure.
- TDC has appealed part of this decision to the Telecommunications Complaints Board.