Top Manager in Discussion: Thilo Kusch, CFO of Magyar Telekom
Magyar Telekom had barely begun to recover from the effects of the financial crisis when it was hit last autumn with a special tax on telecommunications companies, depriving the company of almost half of its expected profit in 2010 alone. CFO Thilo Kusch still remains optimistic but emphasises that the company’s success and Hungary’s success go hand in hand.
What is the impact of the telecommunications tax on your company?
It corresponds to around 42 per cent of our profit expected for 2010. We have decided to pay the special tax from planned dividends. That means numerous Hungarian investors will also have to do without one third of their dividends. On the other hand we as the management of Magyar Telekom have to recognise and explain to our owners that Hungary will achieve an impressive feat in reducing its budget deficit, with the help of our money. While other countries are struggling to obtain assistance, Hungary has decided to use radical means to approach the less than 3 per cent deficit target in 2011. As things stand it looks likely that we and the other companies affected will have to pay the special taxes until the end of 2012. I expect that Hungary will use the financial breathing space that it has won to get its economy and its public sector in shape.
So you have come to terms with the special tax?
We have little other choice, particularly given that it is not even our main worry at the moment. We are much more concerned currently about the insufficient intensity of dialogue between the ICT (information and communications technology) sector and the representatives of the state that would allow us to identify and discuss how we can contribute even more effectively to the long-term success of Hungary, which is clearly our common overall goal. I hope that the government will be open to develop such a dialogue and mutual co-operation with the sector.
What are your expectations regarding upcoming measures on telecommunications?
Key strategic goals clearly stated in the government’s digital strategy and relevant EU policies should be followed on all levels of regulation. We noticed that some new laws and regulatory decisions appear to have been drafted under great time pressure. Naturally mistakes can occur without any malicious intent. In such a short space of time not all possible effects can be properly thought through. Our company has thorough expertise and experience in regulatory affairs and remains open to discuss and provide assistance whenever novel and complex sets of rules are drawn up. There was a good example of such co-operation in the recent past: the Ministry of National Development has published the country’s overall 2011-2014 ICT strategy, a draft of which had been discussed with the telecom sector in great depth and many of our observations were taken into account. I was pleased to see that the public administration identified and definitely appreciates those strategic goals that we, as players in the ICT sector, will need to accomplish together with the government. Together we can ensure that the Hungarian people and the economy remain prepared to face the ever-increasing digital challenges of the upcoming years and fully benefit from exciting technological developments that may, for instance, make our lives more comfortable and help the public administration become more efficient. I look forward to developing a mutually fruitful dialogue among stakeholders regarding all aspects of ICT regulations.
Do you think it is still worth investing in Hungary?
In the past five years alone Magyar Telekom has invested around EUR 1.5 billion in Hungary, which exceeds investments of MOL Hungarian Oil and Gas or energy trader MVM and is roughly equal to the combined volume of the two massive investments that Audi and Opel announced last year. Pursuant to our business policy, each year we invest more than the amount of the dividends we pay. But the indirect impact of our developments in Hungary is even more important than the sheer figures. When investment decisions are made, firms take into account not only the level of transport infrastructure but also the level of telecommunications. The level of data transmission infrastructure that Hungary can offer is an important factor, particularly when it comes to shared service centres that the ICT strategy hopes to attract. The extent to which we can contribute to Hungary’s attractiveness as a business location depends for example on how much financial leeway we are given for the development of our glass-fibre networks. In 2009 our company won an award for the “the world’s best mobile internet network”. I am certain that has also contributed and will continue to contribute tangibly to the country’s attractiveness. The telecom sector’s prospects directly and substantially affect the prospects of the national economy. The government’s stated aim is to make Hungary the “most competitive country in the region”. We are committed to support this goal because we are deep-rooted in the country and its economic prosperity is in our utmost interest. However, this community of interest is no one-way street: Hungary’s success is dependent upon our performance and, in more general, the willingness of investors to further invest in this country. Decision-makers thus need to constantly remind themselves of the direct and indirect benefits an investor-friendly environment brings to the Hungarian people.
So you still have confidence in the country?
Definitely. We as Magyar Telekom form an integral part of the economy. On an annual level we spend nearly HUF 250 billion (EUR 900 million) in Hungary on investments, wages, taxes and charity. As the leading telecommunications service provider we serve more than 9 million subscribers. Further, even before the special tax was introduced, MT, as one of the key taxpayers in Hungary, paid more than HUF 110 billion (EUR 399.18 million) annually directly to the national budget. We are also the largest corporate sponsor in the country; we spend an annual HUF 1.5 billion (EUR 5.44 million) on supporting sport, culture, education and environmental protection. As one of the largest buyers in Hungary we spend more than HUF 270 billion (EUR 979.90 million) annually on procurements; a large proportion of this amount goes directly or indirectly to roughly 3,000 Hungarian small- and medium-sized enterprise suppliers, helping thereby national entrepreneurs survive even during the most difficult times. As an important factor, Magyar Telekom inherently contributes to ensuring that its contractors operate legally and transparently, so we indirectly help further whiten the economy. Last but not least, as one of the largest employers in Hungary the number of our employees exceeds 8,000; our staff are rewarded with an excellent level of salaries and benefits and their working environment and working culture is outstanding. About 170,000 people work at our suppliers. Overall Magyar Telekom directly and indirectly accounts for around 2 per cent of GDP. Being such a fundamental contributor to the economy, Magyar Telekom has no chance but to fully trust and remain loyal to this country.
Is this loyalty unconditional?
We have always appreciated that our success and Hungary’s success go hand in hand. I am sure the state also recognises this. We are optimistic that the special tax is just a short-term measure so for now it won’t have a significant effect on our long-term plans. However, although we were told that the special tax will not last beyond 2012 the picture is somewhat vague. Presumptions are not good enough: it is imperative to have full clarity and predictability. When we draw up the company’s long-term business plans and decide on the scope and extent of further investments, we need to have a clear picture as to where Hungary and its telecommunications regulations and market are headed. Our shareholders, among them Deutsche Telekom, will be reluctant to keep up with financing the intensive network developments worth billions and billions of forints unless we can guarantee a certain degree of predictability, reliability and credibility. Without this we as Magyar Telekom will have a very hard time convincing our owners to bring money, to bring confidence to this country. And, as I explained, our presence and achievements in Hungary have far more significant bearing on the economy and people than reflected by sheer investment figures.
Do you think DT as Magyar Telekom’s majority shareholder appreciates these goals?
I believe it does. However, to ensure that the DT Group continues to invest in Hungary, it needs to have confidence in this country and be able to make reliable predictions about rate of return to their owners. It needs to know for sure that a level playing field is guaranteed and fair market rules prevail. If we wish to expand our business further we have to be able to argue our case in Germany. In an environment with uncertainties, that is naturally difficult in some cases and not only for us. Thanks to the cabinet’s firm steps many macro parameters are gradually becoming positive again. However, it needs to be kept in mind that Hungary’s economic growth is very strongly dependent on international investors. To remain an attractive investment location, more certainty and predictability would greatly help all those concerned.
How do you think predictability can be furthered?
Now that the most pressing issues have been taken care of and the economy is recovering, I am certain that both the ICT sector and the administration will take the time to efficiently communicate in a timely manner before any further substantive regulatory decisions are made. Let’s not forget: dialogue is the only means to secure “win-win” situations, and without either of these two “wins” the other “win” will not last either.
Do you think that Hungary still has international investors’ trust?
Trust is a very fragile thing. It is more difficult to win back than to maintain. There is definitely a need for positive, confidence-building measures. The state needs to appreciate that we have common interests. The telecommunications and energy sectors have a strong, long-term interest in Hungary’s prosperity, not least due to their massive investments. If Hungary is successful we will also be successful and vice-versa.
What is the mood like among your employees?
Good. We suffered a lot during the past two years, which were the hardest in our history, because of the crisis. The whole company, however, reacted extremely well to the immense challenges. That makes our staff proud and gives us confidence that we can overcome new challenges. Our employees are among the best even in an international comparison and have an excellent fighting spirit, not least because they know that we offer good products and are well positioned. We will do everything in our power to overcome the difficulties. So far there has been no change to our long-term strategy.
“When investment decisions are made, firms take into account not only the level of transport infrastructure but also the level of telecommunications. The level of data transmission infrastructure that Hungary can offer is an important factor, particularly when it comes to shared service centres that the ICT strategy hopes to attract. The extent to which we can contribute to Hungary’s attractiveness as a business location depends for example on how much financial leeway we are given for the development of our glass-fibre networks.”
“Trust is a very fragile thing. It is more difficult to win back than to maintain. There is definitely a need for positive, confidence-building measures. The state needs to appreciate that we have common interests. The telecommunications and energy sectors have a strong, long-term interest in Hungary’s prosperity, not least due to their massive investments. If Hungary is successful we will also be successful and vice-versa.” – Magyar Telekom CFO Thilo Kusch