Mobile operators livid over entry terms for new competitor
A new mobile operator should appear by the end of 2008, but existing operators are criticising the price for the license, which is up to 50 times less than costs in the past
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Romania is destined to have a new mobile phone operator by the end of this summer, but the terms of awarding the new license have been accused of being anti-competitive.
“We want another mobile operator who can help Romania increase the usage of mobile telecom services especially in the countryside, by providing services at low prices,” says Minister of IT&C Karoly Borbely.
Up for sale is the 410-415, 420-425 MHz frequency, for mobile voice and data, which is suitable for CDMA technology.
But the Government is planning to sell this license for only one million Euro. This compares to the auctions for GSM, which Dialog (later bought by Orange) and Connex (later bought by Vodafone) purchased in 1996 at 50 million USD and the 44.4 million Euro price tags for the two most recent 3G licenses sold to Zapp and RCS&RDS. Existing operators Vodafone, Orange and Zapp-owners Telemobil all believe the prices should be aligned to previous licenses.
“Why there is such a huge discrepancy between the cost of the 3G license and the cost of this license doesn’t seem to make a lot of sense,” says CEO of Orange Romania Richard Moat.
The authorities argue that this license is not as substantial as the spectrum for 3G, but existing operators are shocked at the massive reduction.
“When a regulator fixes a price significantly below what was sold before and the restricts who can bid for it, this is completely unfair,” says CEO of Zapp Romania Chris Bataillard. “Either a regulator gives frequencies away or auctions them at a similar rate. They cannot be different from one year to another.”
The Diplomat asked the European Commissioner for Information Society and Media, Viviane Reding, if she believed the auction of the license could be accused of being anti-competitive. “It is for a member state and not for the European Commission to decide the way the frequencies are going to be handled,” she said. “Prices should be brought down so that more competition can come into the market.”
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The Government is echoing this argument by encouraging the appearance on the Romanian market of a new competitor, but existing operators argue this comes at their expense. “Some of the announcements by the regulator are slightly anachronistic,” says Moat. “They talk as if there is no competition on the market, but Cosmote is over 15 per cent of the market, having acquired that in a short period of time. There are three large players and two more with the potential to grow.”
Meanwhile Zapp argues that one massive indicator of Romania’s competitiveness is that the country has the lowest prices for data and voice in the EU.
But the regulators believe that the telecom market is reaching saturation point, which means it will be tough for a new player. “Another operator would assume a very high financial risk, having to come with qualitative services and a competitive price if it would want to win a segment in the Romanian market,” the Minister says.
The Ministry is also considering whether the winner should cover a certain percentage of disadvantaged areas where there is difficult access to communication services. This may not be a business proposal that would attract many dynamic operators.
“For today one million Euro for a license is still attractive,” says Dan Georgescu, president of the National Regulatory Authority for Communications and Information Technology (ANRCTI). “If we ask for more, nobody will come.”
The authorities have interest from foreign and local companies, while no current mobile phone operator on the Romanian market is allowed to bid for this spectrum – even if they take on the potential loss-making conditions of servicing remote rural areas. “All operators should have equal chances of participation,” says CEO of Vodafone Romania Liliana Solomon.
But the license could be attractive for fixed line operators who may want to go mobile, such as UPC and Romtelecom. Despite having the same shareholder as mobile operator Cosmote in OTE, Romtelecom could bid for this license. Romtelecom and Cosmote are two discrete companies, even if their plans for 2008 include further partnership. “If the authorities want to make the rules like that, then I’m sure I could bid for it,” says Zapp’s Bataillard. “I’m sure I have a company in the closet somewhere.”
If Romtelecom wins the license, one scenario could see the company merge in the future with Cosmote, which would then have an extra dosage of spectrum purchased at a knock-down price.
“If this happens,” says one telecom expert, “Romtelecom will have outsmarted the Government.”
When approached by The Diplomat, Romtelecom would not confirm nor deny any interest in this license.
Fourth 3G player must come to market
This year, telecom operator RCS/RDS has quietly launched its third generation (3G) telephone service, while Telemobil’s Zapp brand must launch operations by the mid 2008 or face a fine from the national authorities.
Zapp is under compulsion to use the 2100 MHz frequency which it bought at the end of 2006 for 22.2 million Euro.
“The service must be in place for the consumers,” says Dan Georgescu. “There needs to be the infrastructure in place and a network operational by 30 June.”
If this does not happen, there will be a warning followed by a fine which could be up to 35 million Euro. If the 3G still remains non-operational, the regulators can take away the license.
Zapp argues that the licence specifies that the company must only have a network in the 2100 MHz frequency deployed by 30 June. “We are in the process of roll-out,” says new CEO of Zapp Chris Bataillard. “We will have the network up and running by June, with the commercial launch at some point in 2008 between June and November.”
The operator argues that its available technology now has 3G capabilities, but the new band will allow more capacity to download data. “There is a limit to how much you can talk all day,” says Batalliard. “There is no limit to how much you can download. If we overlay the cities we will increase our capacity by ten to 15 times.”
Online lags behind mobile
Romanians love talking, but have been more reluctant to go online. The country is almost on a parallel with the west in the terms of mobile communications, but behind in terms of Internet use.
The number of customers in 2007 of mobile phone operators reached 106 per cent of the population, according to the regulators. In the west, penetration can reach up to 150 per cent because this includes customers who have two or more operators. Actual penetration in Romania – the percentage of people with mobile phones – is closer to between 70 and 80 per cent.
“The market is starting to level out almost inevitably and the challenge for operators is to find what continues to drive organic growth,” says Orange’s Richard Moat. “Human penetration can rise to more than 80 per cent, but that requires probably pushing into lower income groups and finding models for distribution that are going to work for those groups.”
Vodafone considers that the Romanian telecommunications market still has growth potential. “This will be mainly driven by the uptake of mobile Internet and broadband services, as technology becomes more advanced and affordable to a larger customer base,” says Vodafone’s Liliana Solomon.
With the higher use of data and WiMax, the take-up of sim cards is also likely to expand. By the end of 2009 the market could reach saturation, adds Moat.
Romania is not far behind the west in terms of its technological adaptability. The only factor holding the country back is that its average revenue per user is much lower than the west. But as wages rise, this too will harmonise.
“Romanians have a great appetite for new technologies and the country had an accelerated development in the last years,” adds Solomon. “If we keep this development pace in the future, I expect we recover this gap in the next three to five years.”
But only 20 per cent of Romanians have easy access to the Internet, while the EU average is 40 per cent. For Broadband Internet, the EU average is 30 per cent, while in Romania this reaches only ten per cent. To tackle this issue, the Ministry of IT&C will start working this month on the National Strategy for Broadband, which has to be approved by all member states by 2010.
Fight for download space begins
Operators are preparing to battle for two new licenses offering faster and bigger data download services
Telephone operators are now drafting the reasons why they have the best case for picking up a new spectrum suitable for broadband wireless access with a high download capacity, the so-called WiMax frequencies.
The 3.6 to 3.8 spectrum will be available to two operators later this year,
allowing a larger capacity for downloading data through radiowaves.
“WiMax will help diminish the digital disparity between rural and urban in terms of access to communications, which is an EU objective,” says Minister of IT&C Karoly Borbely.
The Government has to authorise the license fee for the auction to begin. The regulators are confident the two Wimax licenses will be available this year.
“This will be a beauty contest,” says president of the National Regulatory Authority for Communications and Information Technology (ANRCTI), Dan Georgescu. The operator showing the best business plan, coverage and speed of bringing the product to market will win. The authorities intend to convince the winners of the auction to invest in the first two to three years in the infrastructure for Broadband electronic communication in the countryside.
Georgescu says the cost for the license will be “as low as possible”. The Government will decide the final figure, which will probably be in the region of six million Euro.
The president of ANRCTI says there is “great interest” in this license. Approached by The Diplomat, Zapp’s owners Telemobil, Orange and fixed market leader Romtelecom all confirmed their interest in the license.
“This serves our goal to bring broadband Internet in every home and office,” says Catalin Dima, chief of legal and corporate affairs officer, Romtelecom.
Meanwhile Vodafone is examining the possibility. “We are currently evaluating the opportunity to participate in the auction for a WiMax license,” says Liliana Solomon, CEO of Vodafone Romania.
Orange has already deployed WiMax in 20 of the largest cities in Romania in its seven MHz of spectrum. “This is somewhat constraining and we would like to get more,” says CEO of Orange Romania Richard Moat. “We would definitely be able to push for a larger share of the market if we had that license.”
The new license offers a complementary spectrum in a similar bandwidth to one in which Vodafone already operates, where it offers integrated communication services to over 6,000 business customers.
Because the two 3.6 to 3.8 frequencies are very high, a mobile operator bidding for the license needs many base stations. Every doubling of a frequency halves the distance it travels at the same power level.
“If an operator already has a network, there is an argument for purchasing the WiMax license,” argues Zapp’s Chris Bataillard, “because the existing base stations can be used and added to. “If there is no network, the interest is not clear. Someone who wants to do WiMax on a standalone basis would have to spend a lot of money.”
Case for bundling phonelines with TV put to question
The combined service of fixed, mobile, broadband and cable TV, known as Quadplay will probably increase in popularity in 2008, but some operators are not convinced about the profitability of the business model.
“Quadplay will become more popular,” says Orange’s Richard Moat. “But there is not an enormous demand. Because there is a segment interested which will expand, we want to participate in the Quadplay space.”
Orange has undertaken trials with UPC and Moat says that when the results on this are ready, his company will have further discussions on whether to expand the cooperation.
But the technical model is under heavy criticism.
“Quadplay offers are not a success in any of the European markets,” says Vodafone Romania CEO Liliana Solomon. “The infrastructure that is needed for delivering TV and mobile services is very different and, therefore, there are little synergies between these services.”
By bundling every form of communication together, one profitable service, such as broadband, may have to subsidise a loss-making aspect, such as a cable TV subscription.
“At some point there is a crossover, where it doesn’t become profitable anymore,” says CEO of Zapp Chris Bataillard. “With the lowest price for satellite TV in Romania at four Euro per month and fixed line in decline, I don’t drink the kool-aid on the combination.”
Vodafone also believes the business model remains unattractive.
“This might change in the future,” says Solomon, “through the technology development: the standardisation of mobile TV products or IPTV [Internet TV] services development.”
There is also a question mark over whether there is any point in having a fixed phone in the combination. “Why would you need a fixed line product if your mobile terminal has exactly the same cost structure?” says Bataillard.
Number exchange set to benefit small players
Romanians will be able to take their existing phone number to another operator from 21 October in a move which insiders believe will help the smaller operators on the mobile and fixed market – namely Cosmote, Zapp, RCS/RDS and the new player due this summer.
“It’s an opportunity for smaller operators to get some new subscribers if they have good offers,” says president of ANRCTI Dan Georgescu. “It will exert as much pressure as possible on the operators to keep their subscribers in the network.”
Customers will move to where they can see the best offers or to the brands which their closest friends or business colleagues use. Fixed line users will be able to switch their number to other fixed line operators, while mobile customers will be able to switch between the brands.
“People who benefit from migration are little guys,” says CEO of Zapp Romania, Chris Bataillard. “We have a lot of potential customers who have GSM sim cards. They want our service but want to keep their number. The number of users transferring could increase by up to 15 per cent between all networks.”
Vodafone does not expect the move will change users’ preferences or bring major shifts to the market. “We will continue to develop on all areas and value our competitive advantages through offering unique products, services and tariff plans,” says Vodafone’s Liliana Solomon.
Meanwhile Orange’s Richard Moat does not believe the change will shake the foundations of the industry. “In virtually every country where number portability has been introduced has not been a significant change in the number of people switching between networks,” says Moat. “I would not think it would be that much different here.”
Feature by Michael Bird
Additional reporting: Alexandra
Pehlivan and Ana-Maria Nitoi
State of players
■ Vodafone Romania
Owned by Vodafone [Great Britain]
Customers: 8.8 million [December 2007]
Vodafone is currently evaluating the possibility of purchasing one of the
so-called WiMax licenses this year.
■ Orange
Owned by France Telecom [France]
Customers: ten million [March 2008]
Orange is targeting 10.7 million customers by the end of 2008 and is interested in the so-called WiMax, due for sale this year.
■ Zapp
Owned by Saudi Oger [Saudi Arabia]
Customers: 500,000 [June 2007]
Zapp is preparing to launch a pre-pay service for voice and is interested in bidding for one of the so-called WiMax licenses. New CEO Chris Batalliard says that Zapp, the fourth largest of five mobile operators, is not for sale. “We are looking for partnerships,” he adds. “We are not planning to make any purchases on the market, but nothing is excluded.”
■ Cosmote
Owner: OTE [Greece]
Customers: 3.6 million [March 2007]
This year, Cosmote Romania plans to put special emphasis on its post-paid segment. The company hopes to make its first net profit by 2009. Deutsche Telekom last March announced its purchase of 20 per cent of OTE, which will give the Germans twenty per cent of the Greek company’s stake in Romtelecom and Cosmote.
■ Romtelecom
Owner: OTE [Greece]: 54. 01 per cent, the Romanian state: 45.99
per cent
Romtelecom is interested in buying the so-called WiMax license up for grabs this year to increase broadband penetration. The company also offers a cable television service, Dolce. “This year we will focus on giving more consistency to the partnership with Cosmote to provide also mobile telephony services,” says Yorgos Ioannidis, CEO of Romtelecom.
■ RCS/RDS
Owned by Cable Communications Systems [The Netherlands]
Launched its 3G service this year.
The company is specialised in providing fixed telephony, Internet services and cable and satellite television.
Government prepares to sell Romtelecom on stock markets
The Ministry of IT&C is planning to sell at least ten per cent of its 45.99 per cent shares in Romtelecom, the largest Romanian fixed telephony company. The majority stock of 54.01 per cent of the total shares belongs to Greek company OTE. Now the authorities are trying to organise an auction to hire a consultant to evaluate how many shares to sell and which stock markets to use. The options are Bucharest, London, Vienna and/or Frankfurt. “In case the stock markets are down, we could postpone the initial public offer until the situation will give us a successful listing,” says Minister Karoly Borbely.
