2014 heralds legal changes, potential new telecom market order

The allocation of licenses for Romania’s transition to digital terrestrial television is one of the keystone events around the corner. A further cut in termination rates, the implementation of a new infrastructure law and some more radio spectrum for sale complete the line-up. However, the balance of power between the major telecom players may change in the event of a Romtelecom-Cosmote merger, which would create the largest telecom operator in the country by revenues.

Romania will switch off the analog signal and switch to digital terrestrial television on June 17, 2015.

The country’s telecom watchdog is in charge of allocating five national digital multiplexes in the DVB-T2 standard: four in the UHF (ultra-high frequency) band and one in the VHF (very-high frequency) band.

All the multiplexes will be awarded for a ten-year period. The licenses will be valid from June 17, 2015.

The first UHF multiplex comes with a few conditions attached: the winner must broadcast ’free to air’, in transparent, fair and non-discriminatory conditions, the public and private TV stations currently being broadcast in the terrestrial analog system.

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The multiplex must cover 90 percent of the population and 80 percent of the territory with fixed reception until December 31, 2016. This is the only multiplex, out of the five available, that comes with such coverage obligations, according to ANCOM’s president, Catalin Marinescu.

With the other four, the operators must set up at least 36 functional transmitters for the network corresponding to each multiplex, before May 1, 2017.

The authority held a period of public consultation, which ran until January 8, on the draft and the task book. “ANCOM proposes the five multiplexes for digital television be awarded via a competitive selection procedure,” said Marinescu.

According to the competitive selection process, each applicant submits an initial offer that specifies the number of desired multiplexes. If the demand is higher than the number of available multiplexes, there will be primary auction rounds until the demand no longer exceeds the supply. If some multiplexes remain, having not been awarded to any applicant after the end of the primary auction rounds, ANCOM may decide to hold an additional round, explained Marinescu.

The starting price for each multiplex represents the minimum license tax, which will be set by the government based on advice from ANCOM.

According to the calendar announced by the authority last year, the selection procedures should be launched in January, and by the end of April, the procedure awarding the multiplexes should be completed. As far as the radio spectrum goes, some remains to be awarded. The telecom watchdog will draft the documents and organize the selection process for awarding spectrum in the 3400 MHz-3800 MHz frequency. The authority will also draw up a strategy to award spectrum in the 410 MHz and 450 MHz bands.

The telecom watchdog is also in charge of the task of awarding radio spectrum in the frequencies of 800 MHz and 2600 MHz that was not allocated during the 2012 telecom tender.

Another measure with significant impact on the industry this year will be the implementation of a new cut in mobile and fixed termination rates.

Termination rates are charged only for off-net calls, representing the price charged by one operator to take calls from another within its own network. This sum can be found in the monthly bills paid by users. The cut in termination rates is meant to stimulate competition on the market. ANCOM data show that even though the smartphone penetration rate in Romania is comparable to that in France or Germany, over 70 percent of local users limit their mobile national calls owing to cost consciousness.

Following the new threshold announced by ANCOM at the end of last year, fixed termination rates will be cut from 0.67 eurocents/minute to 0.14 eurocents, while mobile termination rates will be reduced from 3.07 eurocents/minute to 0.96 eurocents.

The new rates will come into force after compulsory European consultations. The authority is currently awaiting observations on this issue.

The measure is not expected to go down smoothly with telecom operators, who have repeatedly complained that these cuts will deprive them of a significant chunk of their revenue, thereby limiting their investments in 4G services.

However, the trend in Europe points towards the creation of a unified market. This year, there will be new debates on the European Commission project, The Connected Continent, the purpose of which is to create a single, integrated and inter-connected market that comprises telecom, energy and transportation.

Another development that will continue to have an impact on the telecom market this year is the implementation of a new infrastructure law, which affects all providers of telecom networks, public authorities, owners of buildings and infrastructure.

“The authority will start making steps towards the creation of a national inventory of public communication networks and related infrastructure elements, which will span a number of years. At the same time, we will continue the campaign to raise awareness of the stipulations of the infrastructure law,” said Marinescu.

The ANCOM official warned telecom operators to expect thorough controls that will establish whether they have included the minimum clauses in the contracts they sign with end users.

“The authority is planning to make available to end users instruments to help them make informed decisions when choosing their provider or the best tariff. One such example is the Veritel.ro application,” said Marinescu. Veritel is an interactive application that helps consumers compare offers from various telecom offers and choose the one that best fits their communication needs and budget.

A change in the market hierarchy?

Last year, telecom providers Cosmote Romania, Orange Romania, RCS&RDS, Vodafone and 2K Telecom came into the possession of the licenses that allow them to use spectrum in the frequencies of 800 MHz, 900 MHz, 1800 MHz and 2600 MHz between April 6, 2014, and April 5 2029.

“From April 2014, the winners of the tender organized by ANCOM in 2012 will be able to use all the spectrum resources they have won, including in the frequencies of 800 MHz and 2600 MHz,” said Marinescu.

“We can therefore estimate that from April, operators will grow their 4G coverage. Using the LTE/4G technology on the mobile communications market will bring new growth perspectives in future years on a stable and mature market such as the Romanian one,” he added.

A potential merger between mobile operator Cosmote and TV, internet and fixed telephony operator Romtelecom would shake up the hierarchy of telecom players in Romania, creating the largest telco on the market, from the revenue point of view, ahead of Orange Romania and Vodafone Romania.

At the moment, the Romanian state still has a 45.99 percent stake in Romtelecom, while Greek group OTE owns the major share package of 54.01 percent. German group Deutsche Telekom also has some control of Romtelecom as it directly or indirectly owns 40 percent of the OTE shares.

At the end of last year, the Romanian state selected the consultant to act on its behalf during the Romtelecom privatization process. The consultant will be a consortium made up of SSIF Swiss Capital SA, UBS Limited, Musat și Asociații SPARL and BT Securities SA.

Law firm Bulboaca si Asociatii was chosen by the state as legal consultant in the privatization process.
Dan Nica, the Romanian minister of communications, said last year that his main option for Romtelecom’s privatization was to list the operator on the stock exchange.

“We may have a dual listing, Bucharest-London and Bucharest-Frankfurt,” said the minister during a media event.

This year, the cumulated investment of Romtelecom and Cosmote Romania on the local market will reach EUR 170 million, which will be invested in both the fixed and mobile network.

Romtelecom’s main competitor, RCS&RDS, may also have a stronger word to say on the mobile market as it comes into the possession of its telecom license in the 900 MHz frequency.

The operator announced it would step up its efforts on the mobile data front. “Once we obtain the 900 MHz license in 2014, we will re-launch the mobile data and voice service. Of course 4G is the next step but we believe the potential of 3G has not been sufficiently exploited,” said Valentin Popoviciu, business development manager of the company, at a media event.

After previously stating that Vodafone would be investing around EUR 100 million this year on the Romanian market, representatives subsequently announced the operator will in fact be supplementing this sum with an additional EUR 54 million, to be used from 2014-2016 for the development of 4G, the store network and the fiber optic backbone. This added investment comes as a result of Vodafone’s sale of its 45 percent stake in Verizon Wireless.

Meanwhile, Orange Romania announced that its investment budget would be around the same sum as last year, between EUR 100 and 120 million, to be used for 4G and the upgrading of the company’s network equipment in urban areas.

Otilia Haraga