Home EuropeEurope II 2002 The Development of the Czech Telecommunications Market Since the Internet

The Development of the Czech Telecommunications Market Since the Internet

by david.nunes
Vit SubertIssue:Europe II 2002
Article no.:9
Topic:The Development of the Czech Telecommunications Market Since the Internet
Author:Vit Subert
Organisation:Nextra (A Telenor company) Czech and Slovak Republics
PDF size:20KB

About author

Not available

Article abstract

The Czech Telecommunications market did not grow after the Revolution of 1989. It was only pushed into growing by Internet boom that attracted many small companies to the market. Foreign groups, more interested in customers – for alternative telecommunications in a market monopolised by Ceský Telecom – than in the Internet, later bought the more successful of these companies. Price wars have since pushed many companies out of the market and now seriously jeopardise the growth of competition in the sector.

Full Article

The Development of the Czech Telecommunications Market Since The Internet? It would, I expect, be helpful to explain the title of this article. The Czech Telco market began changing radically just five years ago. Why has it been changing for only 5 years? One would suppose that the Czech Republic’s telecommunication market began to open up and grow soon after our so-called Velvet Revolution in 1989, but this was not the case. Although it is true that large foreign investors started to come to the Czech Republic in 1990, these first investments flowed primarily into companies involved in the FMCG – the fast moving consumer goods -market. The revival of the telecommunication market began, approximately, in 1997 with the arrival of the Internet boom. The Internet boom resulted in the entry of many smaller firms from the telecommunication area. Until this time, Ceský Telecom, as the monopoly operator of telecommunication (primarily voice) services was the de facto “owner of the market.” The mobile operators were the only other significant providers, then, of voice services. At the time two of them had an equal share of the market, and Ceský Telecom held, and still holds, a majority interest in one of them. Ceský Telecom, itself, began to provide Internet services as of 1998, having entered this field relatively late. Despite this, within 12 months it managed to gain a leading position in the Internet market, primarily through dial-up services. In 1998-2000 many of the early, comparatively successful local Internet providers were acquired by foreign companies such as Telenor, Tiscali, Telekom Austria etc. These foreign groups were really more interested in the opportunity to build up a position as an alternative telecommunication operator than in the Internet business in and of itself. However, because of their customers, Internet providers provided a suitable and easily manageable way to start operations in the country. The voice market only began to open up significantly during the year 2000, despite the fact that, in practice, it has yet to be fully liberalised. Whilst it is true that in this market – primarily the business to business, or B2B, market – there are full-service alternative operators providing services to tens of thousands of customers, true full liberalisation will probably only occur at the moment of Ceský Telecom’s privatisation. Over the past year the country’s regulatory authority has started to defend the rights of alternative operators far more emphatically, but the framework of telecommunication laws is still far from perfect and still complicates the trading of these operators. In many respects it complicates, even more, the work of the regulatory authority itself. Although the above serve as a sort chronological overview of the development of the telecommunication market in the Czech Republic, it does not give a full picture. It might appear that the market in the Czech Republic is still underdeveloped, but this is not true. The quality of local mobile telephony services, Internet and conventional voice services are often at a very high level. Indeed, they are comparable to the services available in the comparatively developed markets of Western Europe. Two points of view There are two points of view concerning the situation of the Czech telecommunications market. The first point of view has it that, on the basis of the above mentioned facts, we may say that the market suffers from imperfect laws, a dominant operator owned by the state, a non-functioning regulator and / or anti-monopoly office. This point of view, however, would be relatively one-sided, simplistic and not wholly objective. The second point of view is somewhat more realistic. Alternative operators certainly do not have ideal conditions to do business. The question is whether something which could be described as “ideal conditions” really exists, except philosophically. It is impossible to conceive and put a “perfect law” on the books, and it is not possible to anticipate a perfect and wholly objective regulator for all parties, neither is it possible to anticipate a perfect dominant operator. A better question to ask, to understand the real-world market, is whether the alternative operators themselves share the blame for the fact that their indicators such as EBITDA, EBIT or cash flow are not as good as they themselves would wish them to be. After all, it was the alternative operators themselves who started the price war in their struggle to raise the indicator known as market share. Unfortunately, while building their market share, they forgot to heed other, no less important, indicators, such as profit. And this, to a certain extent, is the essence of the problem. The alternative operators exhausted and destroyed each other in a price war giving, in the meantime, the incumbent a chance to prepare another blow. This blow was inflicted in the summer, at a time when the alternative operators began to understand that the price war was not leading to the results they had anticipated. The incumbent itself could describe this blow as the initiation of a price war. Lowering prices may seem illogical on the part of a dominant operator that owns most of the local telecommunication market. On the other hand, it was obvious that after two years of the price war, many of the alternative operators were financially exhausted, and this step could break them definitively. The alternative operators had decided to fight on the price front, the front where incumbents have the best weapons and the strongest position. The question is why the alternative operators did not chose to fight for the market using service quality and, primarily, flexibility and customer orientation, where they have the greatest potential advantage where their chances of success are significantly higher and the financial risks are significantly lower. What will the future be like? This is obviously a question owners and shareholders of telecommunication operators on the market in the Czech Republic, and elsewhere, would like to have answered. Let us attempt, at least in part, to foresee which ways the Czech market might turn and what the result might be. One of the possible ways out of the current telecommunication crisis would be to stop, definitively, the current price war. This price war is being waged most insistently, at present, by Ceský Telecom. Given the fact that the privatisation of Ceský Telecom recently failed, this situation, the price war, is de facto in the hands of the Czech state as the majority owner. Since the state was not able to sell Ceský Telecom, it should, at least, be interested in maximising the revenues from this firm. This, perhaps, might be the key to finally put an end to the price war. The question still remains as to whether Ceský Telecom should not continue in this war and thus allow the alternative operators to “die off” one by one. The answer to this question may well be linked to the entry of the Czech Republic into the EU, the European Union. This will probably happen in 2004. The European Union is a staunch supporter of the use of competition in the telecommunications sector as a means to drive innovation, better services for the consumer and lower prices. The EU does not look kindly on state owned monopolies, much less state owned enterprises that use their power to stifle competition. The EU’s rules clearly call for the creation of a competitive environment, and not only in the telecommunication market. It is misleading to assume that a price war is advantageous for the customer, but this is misleading, it isn’t – at least not from a long- term point of view. During price war, operators can be expected to attempt to maximise their profit margins as best they can – or at least minimize their losses. This means they will try to cut expenses to the bone. New services, research and development, customer support and quality control are traditional candidates for the cost saver’s axe. Conclusion The way to end a price war – a situation where everybody loses including the winner of the war and the customers – is to get the combatants to seriously reconsider their basic business models and to reconsider the true needs of their owners, their clients and the necessity for market development. Only, by re-examining their mission and basic goals and developing a business model to serve it will they be able to position themselves for an era of constructive competition and healthy growth.

Related Articles

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More