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Magyar Telekom Nyrt., the Hungarian unit of Deutsche Telekom AG (DTE), said Hungary replacing its “crisis tax” with a levy on phone calls may have an impact on its dividend as it affects the widest part of its customer base.
The new phone tax, passed by the Hungarian government yesterday, has a monthly cap that will affect lower earners, the biggest part of the customers, Chief Executive Officer Christopher Mattheisen said today. The tax will be payable from July and is levied on phone calls per minute, with a maximum monthly charge of 700 forint per subscription for individual customers and 2,500 forint per subscription for companies.
Hungary is introducing taxes on banking, energy, telecommunications and insurance companies to allay European Union concern that its budget was unsustainable. The “crisis tax” now in force, which will be replaced with the new levies, is a major determinant of the current dividend level, Mattheisen said, adding that it is too soon to give a precise forecast for the payout.
The new tax “is definitely a burden on the industry but it is also a burden on consumers,” Mattheisen told reporters in Budapest. “The impact will be higher for lower income customers which represent the mass of our customer base.”
Magyar Telekom’s first-quarter net income fell 14 percent to 13 billion forint ($58 million) as tax expenses increased and margins narrowed, according to a statement posted on the website of the Budapest Stock Exchange today. The result exceeded the median estimate of 12.2 billion forint in a Bloomberg poll of three analysts.
The company paid a dividend of 50 forint per share after both its 2011 and 2010 earnings, compared with 74 forint for 2009, because of the special “crisis” tax on the industry which will be phased out next year.
“We expected the dividend to rise to 65 forint from 2013,” Akos Kuti, an analyst at Budapest-based broker Equilor Befektetesi Zrt., wrote in a research report today. “The situation has changed however with the introduction of the telephone tax, so it’s more likely the company will keep the 50 forint payout.”
The European Union said in March it will sue Hungary as the current tax violates rules forbidding sector-specific charges to generate revenue for the budget.
The new tax may also raise the question whether it contravenes EU regulations, Mattheisen said.
The European Commission will examine whether the new tax is compatible with EU law, said Emer Traynor, a spokeswoman on tax affairs.
“Given past problems with telecoms taxes in Hungary, the Commission services will closely follow the adoption of this draft measure,” Traynor said by e-mail.
The government may also fail to introduce the tax in time if operators are unable to adjust their computer systems to meet the deadline, Mattheisen said. In addition, the state may fall short of plans to collect 30 billion forint from the levy this year and at least 50 billion forint in 2013, he said.
“The fact that it does fall in a much heavier way on a lower income swathe of the population, introduces an element of risk of how much can actually be collected,” he said.
Magyar Telekom’s earnings before interest, taxes, depreciation and amortization declined 3.1 percent to 51.6 billion forint. Underlying Ebitda fell 5.5 percent, while total revenue rose 2.9 percent to 146.6 billion forint. The EBITDA margin fell to 35.2 percent from 37.4 percent in the same period a year earlier.
Revenue from energy services, which has lower margin than other activities, increased to 6 billion forint compared 0.7 billion forint in the first quarter of 2011, Magyar Telekom said.
“We were able to turn the corner on revenue in the overall business thanks in part to a very healthy growth in the energy side of business,” Mattheisen said.
The company’s shares fell 0.2 percent to 465 forint by close in Budapest, after falling 3.3 percent yesterday.
“We are keeping our recommendation at hold as the expected introduction of the telecommunications provider tax in July will have a negative impact,” Peter Fazakas and Gergely Palffy, analysts at broker Buda-Cash Brokerhaz Zrt., wrote in a research report today.
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