|Issue:||Europe II 2008|
|Topic:||Growing the Net in the Balkans|
Dinos Andreou is the CEO of OTEGlobe. He joined OTEGlobe at its start-up as Chief Financial Officer. Mr Andreou is also a member of the Board of Directors of OTEnet Telecoms Ltd, Cyprus. Prior to OTEGlobe he worked as Financial Director for Global One Communications Hellas S.A., responsible for finance, human resources and legal issues. Mr Andreou began his career at Coopers & Lybrand, where after continuous promotions both in the Athens branch and London’s headquarters, he was assigned a senior management position. Dinos Andreou holds a BSc in Mathematics with Operational Research and an MSc in Operational Research, from the University of London.
Internet penetration in the Balkans, although still quite low compared to the rest of Europe, is growing due in large part due to the stimulus provided by the accession of Romania and Bulgaria to the EU and the desire of other countries to follow their example. Wholesale international Internet carriers have a big role to play in the development of the Balkans, providing high-capacity connections to the rest of the world at a reasonable price to drive local development.
The broader Balkans region is undergoing massive change. The EU accession of Romania and Bulgaria, and the strong intention of the other countries in the region to become members of the European Union as well, has significantly boosted the development of this European region in every way. Regarding new technologies, the mobile penetration of more than 90 per cent clearly marks mobile telephony as a dominant trend. Fixed line penetration, however, is lagging significantly, especially in the rural areas. In this context, the Internet usage penetration rate in the broader region is behind that found in the rest of Europe. The broader Balkans region includes the following countries: Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, Greece, FYROM (the Former Yugoslav Republic of Macedonia), Moldova, Montenegro, Romania, Serbia, and Turkey. More specifically, the weighted Internet penetration in this region is 24.8 per cent, while the respective figure for the rest of Europe, according to Internetworldstats is 43.4 per cent and the world average is 20 per cent. It is obvious that there is significant room for growth. This is verified by the respective compound growth of the penetration rates for this region between 2000 and 2007. The usage growth rates range from 280 per cent for Greece, the most developed country in the region, to 18.748 per cent for Albania. This boost has been enabled by the rise of the broadband connections in the region specifically during 2007. From the perspective of an international wholesale telecommunications carrier, this region and its Internet growth is a challenge worth rising to. The region’s Internet service providers’ need for high capacity connections to the Internet Exchanges in Western Europe is immense. This need is driven by the increase in broadband penetration, which in turn has boosted the usage of consumer and corporate IP-based services. Needless to say, the bandwidth needs of websites like YouTube and MySpace to enable video and audio streaming has also had a big impact on the demand for capacity. This is reflected by the forecasts for growth of IPTV services, as well as video on demand (VoD), in the region. In line with this trend, the need for international Internet transit services in the region is growing. Internet service providers require high-capacity links to the main Internet exchanges and the ability to easily and cost effectively upgrade to handle higher volumes. Forecasting in times of rapid growth is difficult, especially if the Internet provider wants to offer Internet access to its end-users with better than average quality of service. In this context, the international wholesale markets in the Balkans are transforming rapidly, creating significant opportunities and challenges. The need for new fibre optic network infrastructure to connect the Balkans and the Middle East with the main European telecommunications hubs is clear. Addressing these needs, regional carriers have launched a new fibre optic infrastructure, with capacity of up to ten Gbps (Gigabits per second), to connect Greece and the broader Balkans region to Frankfurt. Nevertheless, it remains to be seen if the investment of international wholesale carriers in new infrastructure will be enough, on its own, to rise to the challenges of the Net’s growth and meet the customers’ requirements. In order to meet this need, close attention has to be paid to the requirements of Internet service providers in the region. The most important issue is network availability, and this is a message that carriers are getting from the service availability rates that customers expect in the service level agreements (SLAs) they insist upon. This issue was highlighted by the recent cuts of the submarine cables in the Middle East and Asia Pacific that left countries without Internet access for considerable periods. In other words, due to the increasing importance of the Net in everyday life, the failure to provide Internet service is causing serious distress in many ways, including financial and social. In order to ensure the best possible network availability, a carrier has to offer not only physical, but also geographical network diversity, if it is to guarantee service availability of 99,999 per cent. Another important requirement of Internet service providers (ISP) in the region is low-cost international Internet transit. This is mainly driven by the tight cost constraints they face in their local markets where they rely mostly on the incumbent operators’ networks for last mile access to their end users’ households. In addition, to balance the need for cost effectiveness with the need to offer high quality service, they wish to be able to upgrade easily whenever needed, based on very short-term forecasts for international bandwidth. In order to meet these customer needs, carriers must be able to offer the right price and respond quickly to the rising demand for capacity. The most effective way for the international carriers to achieve this and remain profitable, is to attract the highest possible volume of traffic on its networks. Services such as Ethernet access for Internet transit should be offered in order to facilitate the flexible capacity upgrades that customers may require. In this context however, and as an IDC report on the region (SEE Europe Wholesale Analysis, July 07) states: “The opportunities are bringing new competitors with large plans for the region, having an impact on prices, profitability and the shape of the market. The new competitors and their large investments are pushing down prices rapidly, limiting growth of the actual value of the market.” As a result, market growth in terms of revenues is growing more slowly than the growth of the capacity needed. This is an issue that carriers in the region have to deal with to profitably rise to the challenge of the Net’s growth. Over-investment in networks has to be avoided; it must be replaced by partnerships among carriers that will end in a win-win situation for all members of the value chain. This will lead to healthy competition, which in turn will result in:- • Carriers offering high quality of service and network availability to ISPs at a fairly low price that will enable them to operate their networks profitably; and • ISPs being able to compete aggressively by offering higher connection speeds and quality to their end users at better prices due to the improved cost structure. Hence, in order to rise to the challenge of net growth in the broader Balkans region, all the involved parties have to work together to ensure that the needs of service providers, wholesalers, retailers, and end users are met successfully. Isn’t this the spirit of the Net after all?