|Topic:||Wireless Access in Liberalized Price Sensitive Markets|
|Title:||Strategic Planning Advisor|
The liberalisation of Romania’s telecommunications market, the government imposed tariff structure and local economics have accelerated the growth of mobile telephony, put a stop to the growth of traditional telephony and opened the door to the introduction of new technologies, not used elsewhere, to compete with the incumbent’s system. A wide range of cellular systems are used in Romania and DECT wireless technology will soon be competing with the fixed system which, from lack of investment is losing ground.
Two technologies were competing for the Romanian telecommunications market prior to its liberalisation on January 1st 2003: fixed telephony and mobile telephony. After liberalisation at least other two technologies, cable TV (CATV) and DECT, became potential competitors in the access market. Fixed Telephony When Liberalised During the last 13 years, Romanian fixed telephony evolved slowly in comparison with other Central European countries: lower penetration, lower digitalisation, etc. This was largely due to the fact that, in the past, RomTelecom collected insufficient revenues to maintain its system properly due to an incoherent tariff structure, set far lower than necessary to recover the cost of an efficient system. By the end of 2002, the situation of RomTelecom (now 54% owned by Greece’s OTE) results was: * Low penetration – about 20%, namely 4.3m phone lines; * Long waiting list and delay to obtain a phone; * Low digitalisation – 72%, but improving; * Delayed tariff re-balancing; * Low productivity – 140 main lines/employee; and * Stagnating revenues – US$200/line during the last few years, too low for a rapid return on investment A 1998 government decision established a “price cap” formula for tariff adjustment. RomTelecom used this formula in 1999 to increase its tariffs, but it faced strong criticism and has not increased tariffs in real terms since 2000 – an effective tariff reduction. In the recently liberalized market, tariff rebalancing is one of RomTelecom’s main problems, since it affects the company’s investment capacity. Telemobil – from NMT450 to CDMA 2000 in 450MHz Telefonica Romania launched the first Romanian mobile telephony service (NMT450), Telemobil, in April 1993. By the end of 1996 they had only 20,000 subscribers in an area covering 40% of population. In May of 1999, Telemobil launched a new service, SunTel, based on LEMS (Low Emission Mobile System) technology. . One month after re-launching, Telemobil attracted 5,000 new subscribers and grew to 15,000 subscribers; by the end of 1999 Telemobil still had less than 20,000 subscribers. In December 2001, Telemobil once again, launched a new service, Zapp Mobile, based on CDMA 2000 technology using the same 450MHz band. It was the first network in the world to do so. Zapp Mobile provides voice, data transmission at 153Kb/s, mobile Internet, web access, HTML web page visualisation and dedicated business solutions. By March 2003, Zapp Mobile covered 85% of the country’s urban population, a US$300million investment, and had 100,000 users. Due to lower specific investment, the tariffs for mobile voice service were set lower than those for fixed telephony. GSM900 operators – the drivers of Romanian telecommunications In 1996 two GSM 900 operating licences were awarded. Each company invested some US$700 million to roll out a network covering now more than 95% of population and some 80% of surface. By the end of first quarter 2003, Connex had 2.673 million mobile users while Mobil Rom, now Orange, had 2.375 million. Both operators provide data transmissions using GPRS and have recently launched MMS. Together they have 96% of the market. The success of these operators is due to their international shareholders: Orange, in Orange Romania, and Vodafone and TIW in Connex. CosmoRom – the first failure in the European mobile business? The first GSM-1, 800 Romanian mobile operators, RomTelecom’s CosmoRom, began operations in March 2000. By March 2003 CosmoRom had some 92,000 mobile, less than its maximum of 110,000 in 2001. In addition to losing subscribers, CosmoRom reported losses and had problems with loan repayments. Its poor results stemmed from its delayed launching, lack of financing and limited network roll out. All these reflect the lack of a strategic partner with experience, both in mobile telephony and competitive markets to raise funds on international markets. A recent declaration from Athens announced their intention to shut down CosmoRom. This could be the first failure in the European mobile GSM market! In 2002, the mobile telephony subscriber base grew 33.3% to 5.0 million mobile users. Romania’s mobile subscriber growth rate – 900% in 1997, 220% in 1998, 110% in 1999, 80% in 2000 and 54% in 2001 – is among the highest in Europe. Cable TV operators – preparing for telecommunications liberalisation With over 3.2 million subscribers (45% household penetration rate), Romania is ranked sixth in Europe. This is mainly due to the US$4 monthly rate. In the last years, the industry’s turnover has increased steadily to some US$130 million in 2002. Services offered now include TV channels, data transmission, and Internet access. The modernised networks optical fibre trunk networks, permit bundled services: 100 TV channels, Internet, data, and telephony. The cable industry is profitable, but their net profit is too low to pay for network modernisation, and raising funds is a problem. Concentration has been a characteristic in recent years, raising the market value of a cable company from US$(15-20) / subscriber in 1991 to US$(80-120) / subscriber. Three groups now control 55% of the market. The 1 January 2003 market liberalisation has triggered a race. The important players started restructuring early, replacing coaxial cable with optical fibre and targeting smaller players. Last year, market leaders had pilot projects to field test telephony or data (Internet included) transmission. On the Horizon –Limited DECT Mobility In July 2003, Atlas Romania, a company that is 51% owned by the USA’s Atlas Telecom, who specialised in deregulated markets, launched a pilot project in Oradea creating the first DECT, Digitally Enhanced Cordless Telecommunications, metropolitan network in the world. They plan to offer low cost local and international dial-up telephony services. They intend to expand the project to another 19 cities by early next year. The total planned investment – US$100 million, in eight-years, will be paid for by the company’s own resources (40%), bank loans, and investment funds. They plan to have 30,000 clients by mid 2004 and one million within three years. The new service, which provides limited mobility within the covered area, is expected to launch commercially in August 2003. The DECT solution seems to fit well in a typical city layout. One antenna can reach three or four buildings giving high-density coverage in a relatively limited area. Atlas expects to profit from the call volume, since their cost structure will give them a profit even with Romania’s typically low ARPU (average revenue per user). Atlas will offer unlimited calls for a monthly flat fee and attempt to make local calls a commodity. In other cities, this same tariff scheme may blur the line between inter-county and local calls and further damage to RomTelecom. DECT phones are more attractive and cost less, at € 50 than the average, €100 for GSM handsets. Currently, Atlas only provides voice service, but there are plans for email, voice mail and SMS. Atlas Telecom plans to lease its fiber optics capacity from Orange Romania, and channel its international traffic through Belgacom and Matav. Romanian telecommunications industry Despite the poor macro-economic environment of the last years, the Romanian telecommunications industry has experienced continuous growth. Mobile telephony has been the market’s main drive. Mobile penetration has doubled during the last two years. Now, the majority of phones in Romania are connected to mobile networks, which have had continuously increasing subscriber bases in recent years. Because tariff rebalancing has been postponed, most of RomTelecom’s revenues, at least for fixed services, are coming from the local market; for mobile telephony, it is difficult to split revenues between local and long distance. The company had non-voice service income from CATV and ISP revenues, at least until the liberalisation. Competing technologies in access network The Romanian market is among the most permissive in Europe. It is open to almost all technologies and CATV, NMT450, GSM LEMS, CDMA and DECT have all had field trials here. Moreover, Romania’s liberalised market has benefited by its lack of entry barriers (no charge for license, numbering, etc.), and some 1,500 companies have filed requests for a license to operate fixed telephone services. For the time being, only two technologies are competing to provide local access: classical fixed telephony and mobile telephony, but soon, two other technologies are expected to enter the local market – CATV and DECT. Classical telephony no longer seems attractive, as it requires the highest investment and since RomTelecom is still rather slow, having stopped investing one year before deregulation. This is why the mobile operators are in the best position to take advantage of deregulation.