Catherine HoughtonSCO Vienna, Austria

 Trade Winds Conference

May 14-15, 2007Arlington, VA

Important Trends -Europe's evolving IT/Telecom market:

AUSTRIA

I. AUSTRIA AT A GLANCE 

II. COMPUTER SOFTWARE AND IT SERVICES 

III. TELECOMMUNICATIONS

IV. MARKET ENTRY STRATEGIES: TWO

SUCCESSES

Overview

I. Austria at a Glance

Small but dynamic:

• Population 8.2 millionPopulation 8.2 million• GDP $320 billionGDP $320 billion• Growth 3.3 percentGrowth 3.3 percent• Per capita income $38,631Per capita income $38,631• Unemployment 4.9 percentUnemployment 4.9 percent• Close historical and economic ties to the 8 Close historical and economic ties to the 8

countries surrounding it, boosting its countries surrounding it, boosting its economic vitality and flexibility. economic vitality and flexibility.

U.S. Business in Austria

• After Germany and Italy, U.S. is Austria's third most important trading partner, and its number one partner outside Europe, with $10.7 billion in bilateral trade.

•  U.S. is the number two investor in Austria after Germany, with $6.2 billion invested, and 370 U.S. firms, of which 150 have regional responsibilities in Central and Eastern Europe.

II COMPUTER SOFTWARE AND IT SERVICES

Market size:

• Software: $1.5 billion (growth 7.1%)• IT services: $3.7 billion (growth 5.7%)• Combined expenditures in 2006: $5.2 billion• But key differences between two sectors:

•Major expansion of software as a service, esp. among SMEs, with Web 2.0 technologies•Limited opportunities for traditional IT services, with saturated demand and intense competition

Market overview:

• Dramatic development in software industry is changing how businesses integrate and operate their systems.• Areas to watch: convergence of software and services, security software as priority, and Virtualization 2.0

Market trends:

Software:• Dynamic change, as Web/Enterprise 2.0 solutions drive innovation.• Blogs, wikis, mash-ups, composite applications, social networking, online communities, Internet book marking, social tagging, voice over IP, instant messaging and presence, Ajax and Flash programming, personal dashboards, use of online hubs…

Market trends:

IT SERVICES: • Flat or modest growth, saturated demand, intensifying competition, and no clear drivers. Fewer large-scale projects, each fiercely fought over, with vendors lowering prices to capture the deal.• An increasingly virtualized IT environment, creating opportunities for vendors of infrastructure software to help businesses manage it. Performance monitoring, provisioning, compliance reporting, cluster visibility, and change and configuration management.

Additional trends:

• Mergers and acquisitions as a way of growing and staying competitive• Government projects, master plans, and IT upgrades in Ministries • More selectivity in outsourcing• Growth in security software and vulnerability management• Expanding mobile networks, and related security

III TELECOMMUNICATIONS

Market size:

• Services: $6.9 billion • Equipment: $370 million • Total telecommunications expenditures in 2006: $7.3 billion

Market overview:

Austria is one of the most sophisticated, competitive, and fastest-growing telecom markets in Western Europe.• Market structure and development patterns are similar to Germany.• Consolidation has been rapid, with mergers and acquisitions by both fixed and mobile operators.• Major opportunities exist in growth of broadband and in mobile data services.

Market overview:

• Telekom Austria (30%-controlled by a state holding co.) has 54% of market.• Tele2UTA (product of a merger) has a 26% share. • In broadband, Telekom Austria's ADSL accounts for 60% of market.• UPC Telekabel (the cable TV operator which also bought Inode), accounts for most of the remaining market.

Market overview:

• In mobile, TA's wholly owned sub Mobilcom has 42% of market.*• Number two wireless operator T-Mobile (which bought tele-ring) has 37%.• ONE has 19% and was being courted by new entrant Tele2.• Hutchison 3G is another fast growing new entrant.* Mobilcom operates GSM/GPRS and 3G UMTS networks.

Market trends:

• VoIP is the wave of the future: Markets for IP PBX, IP Centrex, and Mobile PBX are growing rapidly. IP PBX will reach 23%, IP Centrex 20%, and Mobile PBX 12% by 2010.• Attractions: Cost-savings and increased efficiency resulting from IP, outsource-ability of IP, adaptability of IP to a mobile workforce. • Challenges: Quality of service and security.

Other trends in network architecture:

• Migration to All-IP platforms• Convergence of data and voice• Increasing flexibility of IMS-based networks (Internet Protocol Multimedia Subsystems)• Mobile operators' offer of 100 percent wireless solutions instead of PBX systems for data and voice

Other trends in network architecture:

• Equipment vendors will see intense competition, especially in PBX and Centrex IP solutions. Tips: Focus on clearly identified market segments and choose a good partner.• System integrators and value-added resellers will focus more on medium and large firms and IP PBX, and less on small businesses. However they will have opportunities in IP Centrex at carrier and service provider sites.

Other trends in telecom:

• Mobile broadband -- the global evolution of UMTS/HSPA - 3GPP release 7• Telematics: telemedicine, distance learning, and intelligent traffic and weather systems for the highways. • Convergence: wireline and wireless; interoperable satellite and terrestrial mobile; telecom and non-telecom including media and IT; mobile TV and Internet TV; and broadband Internet via fiber optic cable TV.

IV. Market Entry Strategies:

Two Successes

Success Number 1:

Industry: Specialized applications software for telecom billing and accounting.Strategy: CS Vienna organized a targeted Gold Key search to find appropriate partners for this niche market firm.CS programs: Counseling, Gold Key Service

Success Number 1:

Players: U.S. exporter, a privately owned specialty software firm, had sales of $15 million and 80 employees. Was just researching and entering European market. Austrian buyers were the largest and second largest mobile telecom companies in Austria, a smaller mobile operator new to the market, and one of the largest electronic equipment manufacturers.

Success Number 1:

Strategy and success: Initially company's rep balked at fee for Gold Key and tried to get appointments herself. No party returned her calls. She then signed up for GKS. CS Vienna obtained six meetings for her, and four produced business. Lesson learned: Client companies sometimes need to learn value of CS services the hard way -- in industry contacts identified, doors opened, and knowledge condensed.

Success Number 2:

Industry: Highly automated inter-modal logistics services Strategy: CS Vienna worked over nearly three years to help U.S. client educate Austrian public entity on advantages of project, intervening at critical levels of authority to save it. CS programs: Counseling and advocacy

Success Number 2:

Players: U.S. investor (privately owned), which reports $7 to 13 million in annual revenues, will have 50 employees at site and generate 150 additional jobs for a total of 200 jobs in U.S. Austrian buyer is an infrastructure facility and its organization (a monopoly), owned by Vienna City Government.

Success Number 2:

Strategy and success: At outset, negotiations were upbeat, and U.S. firm expected a contract soon. Three years later, after many near failures and delays, and repeated high level intervention and conciliation by CS Vienna to save project, as well as repeated prevarication on project owner's part, contract was signed.

Success Number 2:

 Lesson learned: A U.S. new to market firm introducing a state-of-the-art services concept to a conservative partner may encounter many barriers before success. (Fear of strikes by unions, defiance of EU rules, changing of terms of contract midstream.) Patience maybe required to get agreement.

For specific guidance on market entry, including competitive factors, market access rules under the EU, criteria to be met, and distribution channels, please contact:

Ingeborg DoblingerCommercial SpecialistU.S. Commercial ServiceVienna, AustriaTel. +43-1-31339-2120Fax +43-1-310-6917E-mail: Ingeborg.Doblinger@mail.doc.gov