2006-2007 Eastern European Telecoms Markets and Statistics

A diverse and developing region, Eastern European telecoms is evolving to meet the challenges it faces such as competition in the more liberalised EU markets and offering new services to keep up with demand in developing markets, a trend that will continue during 2007 as economic growth in the region continues. The non-EU region as a whole is slowly embracing market liberalisation as part of EU and WTO ascension requirements, presenting new opportunities for end users, alternative operators and investors. The Eastern European annual reports have been designed to offer extensive coverage of the region, highlighting regulatory and market developments, introducing the major players and the services on offer, as well as providing a wealth of insightful statistics and forecasts, no doubt making essential reading for anyone holding an interest in the region’s telecoms sector. Data in the reports are the latest available at the time of preparation and may not be for the current year.

Central Eastern Europe (CEE)

• Liberalised markets are undergoing consolidation, as alternative telecoms operators are not as successful as initially anticipated. The number of significant alternative operators is decreasing and further consolidation is expected in the coming years, with the growing size of the emerging survivors providing scale to more effectively compete against the fixed-line incumbent.
• Converging telecom and broadcasting markets most evident in the competition between the fixed-line incumbents and cable operators. Cable operators and now fixed-line incumbents have launched triple play services, bringing the two once-distinct groups into direct competition in the Czech Republic, Poland and Hungary.
• The effects of unbundling are now being seen, with unbundled lines being taken up by the public, particularly in Hungary, which has experienced the most success out of the five countries with IP bitstream access. Slovenia is also seeing the beginnings of access-based competition, with unbundled, shared access and bitstream access lines numbering in the thousands as at March 2006. We expect unbundling activity to increase during 2007 as most regulators had only completed analysis of wholesale broadband markets in 2006.

Baltic

• The incumbents still dominate the liberalised fixed-line market in each country, a situation partly brought about by the regulators which have been slow to complete the prerequisite analysis of 18 communications markets to identify market inefficiencies and recommend Significant Market Power (SMP) obligations. A number of alternative operators do offer services, with the region’s well-established cable operators providing the most competition due to the significant reach of their networks. We anticipate the alternative operators will make further market progress in 2007 and beyond as the regulators finish analysing markets, recommend and implement SMP operator obligations. The primary uncertainty will be how effectively the SMP operators delay implementing their obligations through the courts, as has been the case of all SMP operators in EU telecoms markets.
• All three fixed-line incumbents share TeliaSonera as either a majority or significant shareholder, with Latvia the only country where it does not hold majority ownership. TeliaSonera attempted to further consolidate its position in the Baltic region by acquiring a significant Baltic IT services operator, a move that was approved in Estonia and Latvia but rejected in Lithuania.

Balkans

• Both Bulgaria and Romania have liberalised their markets as part of EU requirements, with alternative operators making significant progress in the fixed-line market in Romania. However alternative operators in the two countries have complained of the tactics used by the incumbent to delay offering access, a tactic seen all too well in each EU country which liberalised its fixed-line market. As seen in Western Europe, the incumbents will eventually accept the regulator’s authority rather than raise objections to every decision they make, but this will take time. Croatia, Macedonia, Bosnia and Herzegovina, Albania, and Serbia and Montenegro have also liberalised their markets with important developments such as the issuing of reference interconnect offers concluded.
• Greece has finally transposed the EU’s regulatory framework for communications into national law, a move that will benefit competition and help drive broadband growth, which is among the lowest out all 25 EU nations.
• Telekom Srpske, one of the three incumbent operators in Bosnia-Herzegovina, was in the process of being privatised in late 2006, which follows the successful privatisation of the country’s publicly-owned mobile operator. Privatisation plans were also underway in Greece, Macedonia and Romania for each country’s respective fixed-line incumbent. Transferring public ownership of incumbent operators to the private sector will allow the country’s regulators to focus on their jobs, ultimately benefiting competition in the long term.
• Increased large-scale international merger and acquisition activity is being witnessed leading to the emergence of regional players in the non-mobile markets such as Hungary’s Magyar Telekom, Greece’s OTE, Romania’s RCS/RDS and Liberty Global’s UPC, a trend which is expected to continue due to recently liberalised markets.

CIS

• Russia’s domestic and international long-distance voice services market was finally liberalised in January 2006. Numerous long-distance licences have awarded. Conditional to receiving the licence is the requirement to offer services in all of Russia’s 89 regions. Consequently licence holders have rolled out infrastructure. Belarus is continuing preparations for liberalisation in 2007 as part of World Trade Organisation entry requirements.
• Privatisation of the Russia’s state-owned telecoms group Svyazinvest continues to be delayed. The privatisation of Svyazinvest is significant as it holds controlling stakes in all seven ‘mega-regional’ operators that dominate their respective markets but require upgrades to infrastructure. Privatisation of Ukraine’s fixed-line incumbent has also been delayed again, this time by the need to adopt a new privatisation program.
• Alternative operators are making inroads into the fixed-line market in Russia and Ukraine. A number of Ukrainian CDMA WLL alternative operators are experiencing strong subscriber growth, a trend likely to continue given aggressive expansion plans to offer national coverage expected by 2007. Alternative operator Golden Telecom is also active in the wireless sector, revealing plans to rollout a mobile network with UMA capability in Kiev.