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23 August 2018

DRFG: From the current holding structure, one of the largest carriers in Czechia will emerge

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Interview with Roman Řezníček, the new Head of the Telecommunication Division at DRFG Investment Group

“In our field, you probably won’t find anyone who doesn’t know our company. However, we have not actively communicated anything about Suntel NET to end customers and so they are mostly familiar with individual small local providers that in the meantime have become a part of our data network. For the beginning of 2019, we are preparing a merger of providers from our portfolio. The project will be given a new name, brand, visual identity and marketing strategy,” says Roman Řezníček, the new Head of the Telecommunication Division, introducing one of the many new things in the pipeline.

The last DRFG Activity Report stated that Suntel NET had about 41,000 customers and that the goal was to increase this figure to the 150,000-200,000 range. How close have you gotten to achieving this goal during the last six months?

We currently have around 60,000 customers and all the evidence shows that by the end of the year we will surpass the 100,000 mark.

Will you get there through acquisitions of additional local providers?

Yes, we are about to sign contracts for several such transactions. Many companies are aware that despite the currently optimistic economic situation, in the long run it is not sustainable to have that many small providers operating on the market. The behaviour of Internet users is changing significantly, online communication is more and more reliant on the media and VR technologies are becoming increasingly important. Data flows grow by a quarter or a third each year, which necessitates significant investment in infrastructure. Thousands of smaller firms can’t afford this and so some market consolidation is inevitable. Even from this perspective it is important that we are backed by an investment group that is willing to invest in technology and that bets on a future with a stable market that will provide customers with services they are satisfied with and for the cost they are willing to pay.

You were also planning to launch a uniform system for the online administration of customer accounts. When will this important step be made, what benefits will it bring to customers and how will it raise awareness of Suntel NET among the general public?

The final preparation phase has been in progress since June and the system should be launched on 1 January 2019. In this regard, it is important to mention an essential step which we are also preparing for the beginning of 2019. Up to now, Suntel NET has profiled itself as a company whose goal is to consolidate local Internet service providers. In this sector you won’t probably find anyone who doesn’t know our company. However, we have not actively communicated anything about Suntel NET to end customers and so they are mostly familiar with individual small local providers that in the meantime have become a part of our data network. For early 2019, we are preparing a merger of providers from our portfolio. One of the largest carriers in the Czech Republic will thus emerge from the holding structure. The project will be given a new name, brand, visual identity and marketing strategy. At the same time, a new website, a customer self-service shop and a mobile app will be launched. We are already intensively working on unifying and increasing the quality of customer care, which almost immediately drew positive feedback from our clients.

Up to now, your activities have been focused mainly on Moravia. Are you planning to expand your geographical reach?

Yes, we are. While Moravia will remain the main geographical area of our focus, we will gradually be expanding towards Bohemia. A 50% stake in the Suntel NET project has been acquired by Nordic Investors with its company Nordic Telecom, which is now relocating from Cyprus to the Czech Republic. Through this combination, we now have access to the 3.7 GHz frequency, which will be the key product of our portfolio. Although we have this frequency exclusively in Moravia, nothing prevents us from providing our services in Bohemia, too.

One of the large carriers has withdrawn from the auction for the 3.7 GHz frequency, as they believe that the price has soared ridiculously high. Suntel NET has also withdrawn from the auction and has only obtained access to this frequency thanks to cooperation with the winning company Nordic Telecom. What was the reason behind this strategy?

The price really was quite high. We can just compare the price for which the frequency was auctioned off in Czechia with the same price in Slovakia. As regards the reason why T-Mobile withdrew from the auction, I think it’s because they chose a completely different strategy, as they decided to massively invest in the construction of optic infrastructure. While I am not the right person to comment on whether this was a good or bad decision on the part of T-Mobile, I can say that Suntel NET will not be following this path. The reason for our withdrawal from the auction was different. The price to be paid for acquiring the frequency is only a fraction of the overall cost necessary for building the relevant infrastructure. Therefore, for strategic reasons, we were not willing to pay more than CZK 350 million for the frequency and we believed that we would be able to get the frequency on a wholesale basis. We eventually succeeded by establishing the partnership with Nordic Investors.

What does the partnership between Suntel and Nordic Investors mean in practical terms?

It is a strategic decision that looks to the future. Our project was not originally designed for exit or for the entry of an investor. As we failed to get the 3.7 GHz frequency in an auction, we decided to take this step. We believe that the 3.7 GHz frequency is key for the company’s further growth in the market. This is a technology that will allow the launch of a 5G network and that will make it possible, without the very slow and costly construction of optical infrastructure, to provide customers with services at a similar level in locations where optical infrastructure makes no sense in terms of return on investment.

As to changes inside the company, we are not merging the Suntel and Nordic Investors teams. We share and mutually benefit from experience from various projects. Nordic Investors had a similar number of customers as we did, which makes it logical to use similar systems or the services of a virtual operator. Conversely, not only did we bring a customer portfolio and an investment in the future with a good return, but we also provided know-how on how to acquire local carriers. At the same time, Suntel TELCO should become a key entity for the construction of a 3.7 GHz network in Czechia as a whole.

Is cooperation still under way between Suntel TELCO and Vodafone and CETIN, which administers and operates the largest data and communication network covering the entire Czech Republic?

Not only is our cooperation continuing, it is actually expanding significantly. We were able to agree with Vodafone on a five-year contract. The contract confirms Suntel TELCO’s position as a key partner for Vodafone, as we are responsible for constructing over half of the communication infrastructure for this carrier. Moreover, thanks to the merger between Vodafone and UPC, there is now potential for the further expansion of this collaboration. At CETIN, for many years we have been participating in several projects involving the construction of fixed networks and since the middle of the last year, we have also been a partner for the construction of mobile networks and, looking ahead, our natural ambition is to expand this cooperation. On top of that, not only are we CETIN’s partner in the construction of communication networks, but we are also a major customer of CETIN’s services through Suntel NET.

One of your significant recent acquisitions is Backbone, another construction company. However, as far as I know, this acquisition is somewhat specific.

First, I would like to follow up on the previous question and I am glad to emphasize that with this acquisition we have also become a partner of the third carrier, i.e. T-Mobile. Backbone is T-Mobile’s longstanding and important supplier. But otherwise, yes: Backbone is our first acquisition where have not acquired a one hundred percent share. DRFG TELCO holds an approx. 80% stake in Backbone, as the original owners who had built the company wanted to remain active in the business. Backbone is a firm that was an active competitor of Suntel Germany on the German market. The demand from the market of our Western neighbours is many times higher than in the region of the Czech Republic and Slovakia and the prices that the local companies are willing to pay for services are also higher. Therefore, it made sense to set up an entity that would be ready to meet the demand from the German market. In Germany, they expect a significant expansion of the 5G network and we’re doing our utmost to be able to participate in this expansion.

What is the added value Suntel TELCO offers to its clients?

There is an increasing number of carriers who realize that the price is not everything and that quality is also important. Our major advantages include our own human resources and know-how gained from all our projects for carriers both in Czechia and Slovakia, as well as in Switzerland and Germany. With our own resources we cover everything from the design department to the production of our own steel at Suntel Steel. We can handle everything, spanning designs, land negotiations, acquisition activities, communication with building authorities, project management, supply of materials, commissioning of technology, hygiene reports, notifying the Czech Telecommunication Office and so on, and so on. Thus, we are able to provide a carrier with everything from A to Z, including a guarantee.

We keep hearing from various sources that there is now a shortage of qualified employees on the job market. On the other hand, communication and IT are among the most popular courses. What is your view of the situation?

Unfortunately, I can’t agree with the second part of this statement. Neither the Czech nor the global market generates young people with these technical skills. In the Czech Republic, there are only two telecommunication schools. We try to support schools and local organizations so that people are more attracted to this profession. For most people working in the telecommunication sector, their job is also their hobby. Once we have united all our activities under one brand, we would also like to start focusing on building more intensive links with specific schools and talented students.

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