VISION AND STRATEGY

Digitalisation is opening up huge opportunities for economic growth as well as social and individual development. At the same time, it is offering promising potential for a more sustainable lifestyle in the interests of humanity and the environment. For all of these reasons, it is a key element within the scope of the Group’s strategic focus. The strategy is aiming at excelling in the core business, expanding the portfolio as well as targeted M&A. This is all based on an improvement in cost and investment efficiency.

EMPOWERING DIGITAL LIFE

The Telekom Austria Group’s vision ‘Empowering Digital Life’ also shows that the Group has more to offer than just ‘traditional’ telecommunication services. Its self-perception goes far be- yond the provision of infrastructure, connectivity and bandwidth. It sees itself as a pioneer and driver of digitalisation with the expertise to create and maintain digital business models and solutions from concept to operation.

However, digitalisation is not a brand new or a temporary megatrend. It is here to stay. The ques- tion here is not whether one wishes to participate in this or not because it is taking place in any case and will definitely shape living conditions and development possibilities. Rather, this is about getting the best out of the resulting opportunities. The disruptive effects of digitalisation cover a wide range of industries, business models, social conventions and also individual areas of life. This is why it is often referred to as the fourth industrial revolution or Industry 4.0. It is obvi- ous that information and communication technologies play a significant role here. However, digi- talisation, with its impact on business processes, is becoming an increasingly important topic in a wide range of business areas due to its high strategic significance for innovation, profitability and competitiveness. In the context of its transformation from a traditional telecommunications provider to an ideal digitalisation partner – and as a commitment to its customers – the Telekom Austria Group has also committed to increasing efficiency, flexibility, security and sustainability. Sustainability is anything but subordinate because the consumption of digital instead of physical experience or interactive offers can make a substantial contribution to saving resources and pro- tecting the environment (for more details, see chapter ‘Sustainability’).

TELEKOM AUSTRIA GROUP’S STRATEGY

For these reasons, digitalisation plays a significant part in the Telekom Austria Group’s strategic focus, which consists of three core elements: Excel in the core business, expand the portfolio, targeted M&A. Cost and CAPEX efficiency form the basis for all strategic decisions. In the con- text of its growth strategy, the Group is relying not only on its leading role in the CEE region, but also on the strength of one of the largest telecommunications providers in the world, as part of América Móvil, with around 280 million customers in the mobile segment alone.

EXCEL IN THE CORE BUSINESS

The Telekom Austria Group is focusing on intensifying sales and targeted cross- and upselling activities in order to optimise its core business. This involves the key objective of gaining households which are already covered as customers and thereby optimising the ratio of house- holds that are covered and those already connected. Convergence is another important starting point. In addition to Austria, Bulgaria, Croatia, Slovenia and the Republic of Macedonia, the Group is now offering fixed-line and mobile services in Belarus. Infrastructure leadership re- mains a key differentiation factor against competition.

EXPAND THE PORTFOLIO

Standing out from the competition is crucial. This requires the courage to be innovative and creative. This is why the Telekom Austria Group’s objective is to become the first point of con- tact and key partner for the digital transformation of companies in order to unlock new poten- tial in digital services, such as cloud and ICT solutions. Telecommunications solutions are en- compassing an increasing number of areas of life, which is a trend that the Group is making use of in the residential business. It is increasingly focusing on solutions for entire households and covering all customer requirements with convergent product bundles that include, for in- stance, TV and music streaming services or cloud solutions.

TARGETED M&A

In addition to measures to generate organic growth, the Telekom Austria Group will also continue to grow via targeted and value-accretive acquisitions. The Group is focusing mainly on the exist- ing markets as well as the pursuit of its convergence strategy and subsequently on tapping into new markets. In the year under review, the Belarusian subsidiary velcom became a convergent op- erator following the acquisition of the fixed-line operator Atlant Telecom and its subsidiary Tele- Set. In Croatia, the acquisition of Metronet strengthened the fixed-line position, especially in the business segment (for more details, see chapter ‘Market development and operating milestones’).

EXCELLENCE IN EXECUTION – IMPROVED COST AND INVESTMENT EFFICIENCY

In order to have financial flexibility for investments, operating excellence is crucial when im- plementing the Group strategy. All structures, processes and investment decisions are therefore reviewed and called into question on an ongoing basis. Marginal improvements lead to an in- crease in efficiency. We regularly challenge our way of thinking and working. The Telekom Aus- tria Group has set itself the goal of becoming more efficient every single day.

For example, in addition to a regional presence and call centres, services and advice are increas- ingly being provided on online platforms in order to assist customers efficiently.

The Telekom Austria Group’s goal is not to redevelop products multiple times across its mar- kets, but rather to roll out established products in other markets rapidly. For instance, this was successfully implemented with the over-the-top (OTT) TV solution ‘TAG NOW’. After its launch in Austria in January 2016, TAG NOW is now available in four other markets of the Group.

All types of investment must either generate revenues or reduce costs. This is why investments are deliberately being made in technologies which allow an increase in efficiency. The Telekom Austria Group’s focus on network function virtualisation (NFV) serves as a good example here. In Belarus, velcom was the first telecommunications company in the world to implement a ful- ly virtualised core network. This led to a decrease in total costs of ownership of more than 50% (for more details, see chapter ‘Innovation and Technology’).

GUIDING PRINCIPLES

The implementation of the Telekom Austria Group’s strategy within the company is built on the guiding principles incorporated in the corporate culture. ‘Team’, ‘Trust’ and ‘Agility’ are key val- ues that are ultimately aimed at providing a premium end-to-end experience for customers (for more details, see chapter ‘Employees’).

More opportunities: Beyond providing infrastructure, connectivity and bandwidth we are supplying the expertise for digital business models and solutions as a driver of digitalisation – from the design phase right through to operation.

Through the establishment of ‘A1 Digital International GmbH’ as an independent sub- sidiary, the Group is highlighting its self-perception as a driver of digitalisation. This new company operates mainly in the B2B area and offers comprehensive services while accom- panying and supporting companies in the process of digitalisation in order to successful- ly make use of this potential in their area of business. A1 digital focuses on two areas in particular: Solutions for the Internet of Things (IoT), which are being developed on an on- going basis, and cloud-based ICT solutions.

In the first case, increasingly cost-efficient and thus more widely available sensors, screens and more powerful processors that are increasingly smaller provide an abun- dance of applications and business models – for instance, in the areas of asset tracking or predictive maintenance. In the second case, software solutions via cloud-based market- places are also being made available to small and medium-sized enterprises (software as a service; SaaS). Infrastructure as a service (IaaS) is reducing the complex and costly acquisi- tion and modernisation of hardware, such as servers. IaaS also allows customers to achieve optimal flexibility and scalability – also in terms of costs.

In all of these areas, the Telekom Austria Group is increasing its current data centre capac- ity in Austria and other countries in its operating region while ensuring the best practice data protection standards at European level. In this way, the Group is positioning itself as the first and most reliable choice for its customers as a competent partner for digital transformation.