Fixed Telephony by Liberalization
In the last 13 years, Romanian fixed telephony has had a poor evolution in comparison with other Central European countries: lower penetration, lower digitalization, and so on. This is largely due to the fact that in the past RomTelecom collected insufficient revenues to maintain the system properly, because of incoherent tariffs, far lower than necessary to recover the cost of an efficient system. By the end of 2002, RomTelecom's (now 54 percent owned by Greece's OTE) results were:
Mobile Telephony: The Main Driver of Romanian Telecommunications
The mobile industry has experienced two very distinct periods in its 10-year history. The first monopolistic period was disappointing as a single NMT450 operator failed to develop the market. The second duopolistic period started in 1997 when two GSM900 operators launched their services, showing high growth rates despite poor macroeconomics. The third period, competition, has yet to start.
|
Telemobil: From NMT450 to CDMA 2000 in 450 MHz
Telefonica Romania was the first Romanian mobile telephony operator
to launch its NMT450 service, Telemobil, in April 1993. By the end of
1996 they had some 20,000 subscribers, or 0.09 percent penetration
rate, covering 40 percent of the population.
On May 25, 1999, Telemobil launched a new service, SunTel, based on
low emission mobile system (LEMS) technology, also operating in the
450 MHz band. One month after relaunching, Telemobil attracted 5000
new subscribers for a total of some 15,000 subscribers, while by the
end of 1999 Telemobil had fewer than 20,000 subscribers. Behind the
second failure one could find not only poor investments.
On December 7, 2001, Telemobil launched a new service, Zapp Mobile,
based on code-division multiple access (CDMA2000) technology using
the same band, 450 MHz, the first such network in the world. Zapp
Mobile provides voice, data transmissions at 153 kb/s, mobile
Internet, Web access, HTML Web page visualization, and dedicated
business solutions. By the end of March 2003, Zapp Mobile covered 85
percent of the urban population due to an investment of over US$300
million and has some 120,000 users. Due to lower specific investment,
the tariffs of voice services are lower than fixed telephony tariffs.
GSM900 Operators: The Drivers of Romanian Telecommunications
In December 1996 two GSM900 operating licences were awarded. MobiFon
launched its Connex service after four months on April 15, 1997, and
Mobil Rom launched its service, Dialog, two months later, on June 6.
Each company invested some US$800 million to roll out a network
covering now more than 95 percent of the population and some 80
percent of the surface. In early October 2003, Connex added the three
millionth mobile user, while Mobil Rom, which last year rebranded its
services Orange, had 2.92 million by the end of September 2003. Both
operators provide data transmission using General Packet Radio
Service (GPRS) and recently launched mobile multimedia service (MMS),
and together have 96 percent of the market. Behind the success of
GSM900 operators is the presence of international players in the
shareholders structure: Orange in Orange Romania, Vodafone and TIW in
Connex.
|
|
| |
|
CosmoRom: The First Failure in the
European Mobile Business?
The first GSM-1800 Romanian mobile operator, CosmoRom, 100 percent
owned by RomTelecom, was licensed in December 1998 and commercially
launched in March 2000. CosmoRom had some 80,000 mobile users in
mid-2003, its historical maximum being some 110,000 in 2001. Besides
decreasing in subscriber base, CosmoRom reported losses and had
problems with loan payments. Behind its poor results, one could find
a too delayed launching process (16 months compared to four months
for Connex!), too low financing and network rollout (coverage under
60 percent). All these are due to the lack of a strategic partner
with experience in mobile telephony and competitive markets, able to
rise funds in international markets. A recent declaration from Athens
announced the intention to shut down CosmoRom. This could be the
first failure in the European mobile GSM market!
In 2002 mobile telephony was the performer of Romanian
telecommunications due to a 33.3 percent increase in the subscriber
base to 5 million mobile users or 23 percent penetration.
Furthermore, the growth rate in mobile subscribers — 900 percent
in 1997, 220 percent in 1998, 110 percent in 1999, 80 percent in
2000, and 54 percent in 2001 — seems to be among the highest in
Europe.
Cable TV Operators: Preparing for Telecommunications Liberalization
With over 3.2 million subscribers (45 percent penetration of
households), Romania is ranked sixth in Europe mainly due to low
monthly rates (US$4) not in line with European tariffs. In the last
years, the turnover of industry has increased continuously to some
US$130 million in 2002.
Services offered include TV channels, data transmission, and
Internet access. The modernized networks (optical fiber in a trunk
network) work in 720 or 860 MHz band to permit bundled services: 100
TV channels, Internet, data, and telephony. The cable industry is
profitable, but net profit is too small to support network
modernization, so raising funds is the main problem for the time
being. Concentration is a characteristic of the last years, raising
the market value of a cable company from US$15–20/subscriber in
1991 to US$80–120/subscriber, three groups now holding 55
percent of the market.
Among investors one can find Romanian and foreign cable operators
and investment funds. Romania Cable Systems (RCS) has over 0.7
million subscribers in Romania, Slovakia, and Hungary, and a
22–24 percent market share in Romania, its shareholders
structure being two investment funds, Austria's EPIC and U.S.
Quadrant, each owning a 30 percent stake. Astral Telecom had some
0.65 million subscribers and a 20 percent market share, 25 percent
owned by AIG New Europe Fund, negotiating a US$10 million loan with
EBRD. UPC, majority owned by cable operator UPC of Holland, has a 10
percent market share.
The market liberalization planned for January 1, 2003, triggered a
race. The main players have already started the restructuring
process, replacing coaxial cable with optical fiber and targeting
smaller players. Last year, market leaders had pilot projects aiming
to field trial telephony or data (Internet included) transmissions.
On the Horizon: Limited Mobility by DECT
On July 1, 2003, Atlas Romania, a company 51 percent owned by U.S.
Atlas Telecom, specializing in deregulated markets, launched in
Oradea a pilot project on a DECT network. This is the first DECT
metropolitan network in the world, aiming to offer low-cost local and
international dialing services. Atlas has spent US$8 million to
develop the new network using Alcatel Romania's equipment, and
intending to expand the project to 19 new cities, including
Bucharest, Constanta, Timisoara, Cluj, and Brasov, all early next
year. The total planned investment, US$100 million over an eight-year
timeframe, will be covered by the company's resources (40 percent),
banking loans, and investment funds. They plan to have 30,000 clients
by mid-2004 and 1 million over the next three years. The new
telephony service, allowing limited mobility within a covered area,
is planned to be commercially launched early in August 2003. The DECT
solution seems to fit the city's layout: rows of blocks of flats, a
high density over a relatively limited area, one antenna reaching
three or four buildings. This approach could also work in former
socialist countries that used to employ the same pattern of urban
planning.
Atlas's gamble is to make money from volume of calls, arguing that
their cost structure will allow them to turn a profit on a lower ARPU
than that existing in today's Romania. Atlas announced it would offer
unlimited calls over the network for a monthly flat fee in an
American style attempt to make local calls a commodity. When the
network expands into other cities, the same tariff scheme may blur
the line between intercounty and local calls, which may result in
further damage for RomTelecom. DECT phones are fancier, thinner, and
more fashionable than traditional handsets. Last but not least, DECT
phones cost less than GSM handsets: for a batch of 1 million devices
the price tag is about E50 per item compared to an average of E100
for mid-market GSM phones. The only problem is that the residential
market segment Atlas wants to target is conservative and less
inclined to accept new things.
For the time being, Atlas runs a voice-only network, but there are
plans for the service range to be enhanced with email, voice mail,
and short message service. Atlas Telecom would buy its fiber optics
capacity from Orange Romania, while Belgacom and Matav are taking
over Atlas' international traffic.
Romanian Telecommunications Industry
Despite the poor economic macro-environment of the last years, the
Romanian telecommunications industry has experienced continuous
growth, mobile telephony being its main driver. Mobile density has
doubled in the last two years.
Now the majority of phones in Romania are connected in mobile
networks, which have continuously increased the subscriber base over
the last years.
Due to postponed tariff rebalancing, most RomTelecom' revenues are
coming from the local market, while for mobile telephony it is
difficult to split revenues between local and long distance. CATV and
Internet service provider (ISP) revenues came, before liberalization,
from non-voice services.
|
|
|
|
Competing Technologies in the Access Network
The Romanian market is one of the most permissive in Europe, open to
almost all technologies; CATV, NMT450, GSM LEMS, CDMA, and DECT have
found here a trial field. Moreover, the Romanian liberalized market
benefited from no entry barriers (no charge for license, numbering,
etc.), so some 1500 companies filed requests to be granted 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; while
very soon, maybe this year, two other technologies could enter the
local market: CATV and DECT. Which will be the successful technology
in a price-sensitive market like the Romanian one? Of course, the
technology able to deliver quality services at the lowest tariffs.
Classical telephony seems no longer to be attractive, since it
requires the highest investment, while RomTelecom is still rather
slow. One year before deregulation they stopped investment.
This is why those best positioned to take advantage of deregulation
are mobile operators. Mobile technologies, addressing individuals
rather than households, have the highest potential market,
theoretically 100 percent of the population, practically 80 percent,
compared to 30–40 percent for technologies addressing families.
Also, GSM operators seem best positioned for fixed-mobile convergence.
GSM900 operators have built a large customer base now benefiting
from economy of scale, while lower investment could enable them to
continue to decrease tariffs. CDMA450 could be a strong competitor in
local access (fixed and mobile), if Telemobil is able to speed up
network rollout to provide service to the majority of the population
(> 90 percent) and eliminate the existing "technological island."
The newest technology, DECT, if successful technologically at the
planned investment level (US$ 100 million for 1 million users), could
lead to the lowest investment per user (US$100!!), permitting the
lowest tariffs in the market. End users already identify mobile
phones as among the most desirable consumer items, and the limited
mobility provided by DECT could benefit from the lifestyle image
mobile telephony has built up through the years.
Last but not least, POSTelecom, the telecom arm of Posta Romana,
could have the advantage of a purely IP network, cheaper to implement
and run.
[1] R. Noll, Telecommunications Reform in Developing Countries, 2000.
[2] N. Oaca, "Mobile Telephony: The Main Driver of Romanian
Telecommunications," IEEE Commun. Mag., GCN, Aug. 2000.
[3] N. Oaca, "What's ZAPPening in Romania," Mobile Europe, Mar. 2002.
[4] N. Oaca, "Fixed Telephony: A Social Service or a Business,"
IEEE Commun. Mag., GCN, Sept. 2003.
|
RomTelecom |
GSM900 |
CDMA450 |
CATV |
DECT |
|
|---|---|---|---|---|---|
| Potential market | Households | Persons | Persons | Households | Persons |
| Investment - US$/line | ~600 | 200–300 | 200–300 | 200–400 | 100 (?) |
| Peak hours tariffs (US$) | 0.03 | 0.10 | 0.02 | ||
| ARPU (US$/year) in 2003 | ~200 | ~220 | 50 (TV) | ||
| Revenues for US$100 invested | ~33 | 70–100 | |||
| Turnover in 2002 (US$m) | 850 | 825 | 15 | 130 | |
| Estimated turnover in 2003 | 820 | 1,000 | 30 | 160 |
