How will the sale of T-Systems change Hungary's Magyar Telekom?

It was announced today that 4iG is buying T-Systems, the IT subsidiary of Magyar Telekom for an undisclosed sum. After the transaction, it is mainly MTel’s turnover that could be hit the hardest, but as T-Systems has been operating with relatively low margins, the profit impact is likely to be much less dramatic than the revenue impact.In the following, we have used the data from the last few years and adjusted MTel’s numbers for those of T-Systems. The figures we got this way are only an indication as to how Magyar Telekom’s numbers may change.

How big MTel will be without T-Systems?

T-Systems delivered nearly one sixth of group revenues for MTel. Deducting the total turnover of the company would result in a nearly 17% smaller revenue for MTel.

T-Systems has been operating with extremely low margins in the last few years, delivering merely 3.5% of group EBITDA.

T-Systems did not add too much to the consolidated after-tax profit either, it generated only 4.5% of it.

What is Magyar Telekom losing with the sale of T-Systems?

• It would lose a company with annual turnover of over HUF 100 bn which is contributing nearly one sixth of consolidated revenues and which was responsible for most of MTel’s revenue growth in the last few years.
• Magyar Telekom’s position will be weakened in one of the ‘sexiest’ areas. Gellért Jászai, Chairman-CEO of 4iG, said in respect of his plans that IT and digitalisation is the most innovative of industries that is about take off in Hungary and in the entire Central and Eastern European region. This is the future itself, the new dimension of the economy.
• Although T-Systems is a relatively separate unit within MTel, the company is obviously making an impact on MTel’s operations. IT contracts often came hand in hand with telecom orders (and vice versa), and these synergies could now be lost.
• Although T-Systems has outsourced a lot of tasks to subcontractors, the hundreds-strong group of IT experts working there is a huge value. It is difficult to recruit highly qualified professionals particularly these days, and Telekom will be seeing off many of them at once by selling T-Systems.

What is MTel winning on the transaction?

MTel will, of course, not only lose, it will also win by selling T-Systems:

• given that the proceeds from the sale may be used to carry out major developments, and it does need these. Firstly, because it will need to protect/strengthen its positions against its rivals that are suddenly growing big (Digi+Invitel, Vodafone+UPC). Secondly, because buying 5G frequencies and setting up the 5G network will not be cheap, either;
• management will no longer need to focus at once on two very different activities (IT, telecoms);
• overall, the group will be saying goodbye to an activity with extremely low margins.

Cover photo by Joan Cros/NurPhoto via Getty Images

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