Thomas White Global Investing
Emerging Leaders

Emerging Leaders

June 2011

Christopher Mattheisen, Chairman & CEO, Magyar Telekom, Hungary


Christopher Mattheisen

Image Credit: Magyar Telekom

“…The life cycle of the industry and the development of new technology demand a lot more investment.”

— Chris Mattheisen, quoted by Financial Times


This may be a yet another classic example of a world without borders. Christopher Mattheisen, a U.S-born, Columbia University-educated economist, has been serving as the chairman and chief executive of Hungary’s biggest telecom services company Magyar Telekom since 2006. Mattheisen made Budapest his home after arriving in the country for the first time in 1990 to establish a business consulting firm.

The rise and fall of any business enterprise is often tied to the fortunes of the economy in which it operates. Magyar Telekom is no exception. The Hungarian economy had plunged into utter chaos and confusion following the collapse of the Soviet empire in 1989. Exports slumped and unemployment rose to alarming levels, which sent the country’s GDP falling. Interestingly, the present day telecom services behemoth had its humble beginnings during this transition period. After a few chaotic years, the turnaround time for the economy came in March 1995 when the new Prime Minister Gyula Horn launched an austerity program to contain fiscal deficits, followed by the privatization of state assets. The process of privatization of Magyar’s predecessor company, Matav Hungarian Telecommunications Company Ltd., was completed in December 1995. The rest, as they say, is history, both for the emerging economy and the telecommunications company.

During this period, the company moved in tandem with the giant strides made by the economy. Thanks to the reforms initiated to smoothen Hungary’s transition to a market-oriented economy, inflation eased and the budget deficit was brought down to 3% of the GDP by 2000. The private sector began to contribute almost half of the economy’s output. The country would clock an average annual GDP growth of 4% during 2000-07. The Hungarian economic model won accolades globally, so much so that many transition economies tried to emulate the success story. Specifically, the Hungarian Information and Communications Technology (ICT) sector also grew 50% between 2002 and 2007.

Meanwhile, the sub-plot which featured Magyar Telekom was also playing out well in the background. After the completion of the firm’s privatization, its shares started trading simultaneously on the Budapest and New York stock exchanges in 1997, the first company from Central and Eastern Europe to list on the Big Board. The company currently trades as a Level 1 ADR on the OTC market.

Beyond 2012, there is complete uncertainty.

— Chris Mattheisen, on the impact of new taxes, quoted in Reuters

In 2000, Germany’s Deutsche Telekom AG’s acquisition of a majority stake in the company catapulted the firm into the big league of global telecoms. Following this transaction, the company embarked on an overseas expansion drive by becoming the majority owner of Macedonia’s national telecommunications firm MakTel in 2001. Hungary’s accession to the European Union in May 2004 also gave a big boost to the company’s expansion plans. Following the takeover of Telekom Montenegro in March 2005, the original Matav Group was renamed Magyar Telekom Group.

Mattheisen had a distinguished career in the telecom industry even before he joined the Magyar Telekom Group. In 1993, he launched various Hungarian, Czech, and Polish mobile service operators as the marketing manager for U.S. West International. Moving on, Mattheisen functioned as the marketing and sales director of TMH between 1993 and 1996. For the next two years, he was in charge of marketing and sales at MediaOne, based in London. A short tenure with BT’s Cellnet in the U.K. as their marketing director followed. In September 2002, Mattheisen made his debut with Magyar as the chief operating officer of the Wireline Services unit of Magyar Telekom, where he was instrumental in expanding the business into foreign markets. Under his able stewardship, the company successfully ventured into the broadband market and consolidated its position in the Hungarian market. In December of 2006, Mattheisen took over the company’s reins from his long-serving predecessor Elek Straub, who resigned following an investigation into allegations of irregularities at the company’s Montenegrin subsidiary.

But Mattheisen’s stint at the top was anything but a smooth ride. He started off by changing the management structure of the company, with the focus shifting from technology to customer demand. However, his acid test was the financial crisis, which took the world by storm in the second half of 2008. Plunging revenues and missed earnings estimates became the norm for a series of quarters as consumers cut down on non-essential spending. Huge severance payments for laid-off employees impacted the firm’s profitability during 2009. An internal probe into certain contracts awarded to the company’s foreign units also dented the company’s bottom line during the period. The broader economy was in no better shape either as Hungary became the first country in the region to receive an IMF-EU loan. Just as the economy was slowly strutting back to normal, the newly-elected Viktor Orban government slapped a special tax on telecom companies in 2010 to bridge the country’s widening budget deficit, a key stipulation for sanctioning loans. Notwithstanding these headwinds, Mattheisen’s business prowess has helped his company win awards such as the Best Employer in Hungary (2009) and in Central and Eastern Europe (2010).

Mattheisen acknowledged that the taxes, some of which are likely to remain in place until 2012, will definitely derail the company’s expansion plans, with new levies eating into the cash earmarked for investment to compete in a global marketplace. Magyar’s dominant share in the Hungarian market also puts the firm at a distinct disadvantage. It would have to shell out almost half of the total taxes imposed on the telecom sector, which was estimated at about $128 million last year.

Ever realistic, Mattheisen says that notwithstanding the export rebound, a pick-up in domestic demand is the key to his company’s business. With a hands-on management style, this dynamic executive juggles travel between Bonn to meet his top bosses every month and Macedonia and Montenegro to monitor the company’s units there. While in Hungary, Mattheisen’s fluency in Hungarian and German is a big plus on local company visits. Out and out a family man, Mattheisen, aged 50, is married with four children.

As the global telecommunications industry graduates to become an integrated telecom, information, media, and entertainment market, the challenge for any company would be to position itself to address the latest customer needs. And Mattheisen seems to be steering the firm in the right direction, already setting his eyes on grabbing the top spot in the Hungarian pay television market. What’s more, the company recently rolled out electricity and gas retail services in Hungary, offering discounts for Magyar Telekom subscribers. On its part, the company management also decided not to change horses mid-stream, extending Mattheisen’s tenure by another five years. Still, Mattheisen’s training as an economist will likely come in handy as he takes on the next stretch in the telecom race.

 

 

 

 

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