Clash of the telecom titans the battle continues

Last year, we discussed an important event in the telecom market, the spectrum, as well as the beginning of a new phase for the wireless data market. This year, important actions are yet again taking place in the market.


The Romanian telecom market proves to be as exciting as always and developments in the wireless data market provide endless innovative opportunities for consumers. 



We have witnessed the three largest operators take substantial measures, with Orange being the first operator to launch LTE services in October 2012. The company offered download speeds of 75 Mbps and upload speeds of 37.5 Mbps in Bucharest. Taking advantage of its pole position, Orange also offered two-year contracts with no data usage caps for the first six months. In keeping with the trend of appealing to consumers with better service, Vodafone immediately followed Orange in November 2012, offering speeds of up to 75 Mbps in 10 cities and granting three months free services for new subscribers. Furthermore, Cosmote launched LTE in May 2013, covering Bucharest, Otopeni, Ploiesti, Cluj, Iasi, Sinaia, Busteni and Predeal. 



Additionally, this year we have witnessed some action for mobile virtual network operators (MVNOs). Enigma Systems (rebranded Runex Telecom) is the first to express the intention of aiming to provide value-added services and focus on niche markets. Similarly, an interesting move is also expected from UPC, which could extend its already existing packages to offer quad-play services. Another interesting move came from Orange, which plans to enter satellite pay TV services and already took steps in obtaining the approval from State authorities. 



We have seen action and commitment from all major operators, but it is evident that challenges are existent. In a statement, Vodafone Group’s CEO mentioned that “the tough macroeconomic and regulatory environment in much of Europe has made revenue growth in the region increasingly challenging.” As an example in Romania, starting September 2012, The National Authority for Communications Administration and Regulation (ANCOM) decreased the mobile termination rates to EUC 3.07 per minute – a 24% decrease. This aspect will directly impact the operators in terms of investments needed for infrastructure and 4G services. 




As described above, until May 2013 all three major players launched 4G services. Despite low Average revenue per user (ARPU) and price constraints which govern the Romanian telecom industry, Romania still has higher penetration rates: according to BMI, in the first quarter of 2013, total mobile subscriptions amounted to 27.297 million, which translates into a penetration rate of 129%, with a gain of 189,000 subscribers. 




Concerning net subscriber losses, Orange and Cosmote both reported net subscriber losses. On the contrary, Vodafone increased its net subscribers, attracting the lost subscribers from the two competitors. The growth, however, was mainly related to the prepaid segment and is somehow limited. 



Despite Vodafone’s increased subscriptions, no significant changes occurred in the market share split between the major operators, as evident in the chart below. Orange still leads the market in subscriptions. Vodafone, the second largest operator, has attracted new customers in the prepaid segment. 



In terms of ARPUs, which are among the lowest in CEE, Vodafone recorded the highest ARPU in the last quarter of 2012, i.e. EUR 7.0, whilst Orange reported an ARPU of EUR 6.6 and Cosmote an ARPU of EUR 5.1. We hope to see improvements in the ARPUs resulting from better economic conditions, additional services brought to the market and 4G services which could trigger increased revenues.   



A decreasing trend is expected of the fixed line segment and is mainly due to fixed mobile substitution, price constraints and unfavorable Voice over IP (VoIP) offers which attract consumers away from traditional fixed lines. 




Although we may expect to see higher revenues in the area of 4G LTE services, the increased use of smartphones could indicate IP substitutions of voice and SMS services, thus reducing traditional sources of revenue. Revenue cannibalization in the mobile sector has been driven by VoiP, but the appearance of applications such as Viber and WhatsApp has put pressure on SMS as both apps are intensively used by youth smartphone users. Also, in the enterprise market, instant messaging is finding favor as an alternative to email that boosts productivity. 


Ultimately, what does the future evolution of the telecom market look like? The answer depends on the economic environment, the purchase power of consumers, and the impact of regulatory changes. Nevertheless, we can and should remain optimistic, since growth scenarios such as machine to machine and the enterprise market may appear in the horizon, giving reason to be hopeful about the market’s potential.