Local telecom: regional performance but big challenges ahead

Telecom services in Romania have been posting the second best performance rate in Central and Eastern Europe, after Russia, according to an IDC survey. However, players complain that it is hard to develop new technologies such as 4G and increase mobile data traffic when confronted with decreasing termination rates, constrained public purchasing power and the second lowest rates per minute in Europe.

By Otilia Haraga

Romania has been posting the second highest growth rate for telecom services in the CEE region, after Russia, and the fourth highest in the whole of Europe, John Gole, program director for telecommunications at IDC UK, said during the Business Review event Focus on Telecom, which took place last week.

“Romania is one of the most competitive markets where I have worked so far, even more competitive than Germany. It has the second lowest per minute rate in Europe. While in Romania, the rate per minute is 0.2 cents, in Germany it is 0.8 eurocents,” said Markus Lause, chief commercial officer, enterprise business unit, at Vodafone Romania.

The telecom industry is under pressure from regulatory measures, the state of the economy, falling prices, devaluation of voice and messaging, the level of required investments, OTT players and changing consumer behavior, according to IDC UK.

“Voice is currently financing the big investments in the 4G networks. It is still the most significant revenue source for telecom operators. In Romania, mobile tariffs are four times cheaper than in Germany. I don’t know when the switch between voice and data will happen, so we really need to see a balanced approach on termination rates,” said Florin Popa, business to business director at Orange Romania.

At the moment, every operator includes data in its offer. “A small bundle of data is included in every entry-level tariff plan, and can be used for browsing the web and social media. “I don’t think we will be able to provide unlimited data in entry tariff plans, given the investments we must make in 4G,” said Popa.

On the other hand, in Romania the average net monthly income is below EUR 400 while in Germany it is EUR 1,800, said Lause.

The slash in termination rates that ANCOM intends to implement next year is a hot topic for operators, since they stand to lose a significant share of their revenues.

According to Florin Petolea, country senior officer at Alcatel-Lucent Romania, the local telecom market will stabilize this year at EUR 3.5 billion, marking a decline on previous years.

However, the market stands to shrink even more if the termination cuts are applied, said Petolea. “The new modification to the fiscal code may also have an effect on the market next year,” he commented.

“Currently, there is a race in the broadband speeds being made available to consumers. Operators are already offering 200 Mbps (editor’s note: UPC Romania) and one operator is already offering subscriptions for 500 Mbps speeds (editor’s note: RCS &RDS). Discussions are already ongoing regarding 5G technology,” said Petolea.

According to KPMG calculations, the cut in termination rates will cause a drop in mobile operators’ revenues of more than EUR 206 million and a 17 percent reduction in the investment sums available for developing the networks.

Smartphone adoption is driving forward the data traffic. However, Romania is about two years behind other European countries in smartphone adoption, although it is catching up fast, said Lause. While among Vodafone Romania customers, about 28 percent use smartphones and between 2 and 5 percent use tablets on a mobile network, in Europe smartphone adoption stands at around 50 percent.

3G broadband coverage has reached over nine tenths of Romania, according to Gheorghe Rusen, director of the economic regulation division at ANCOM.

“Third generation broadband coverage extends to 90 percent of the Romanian territory. We also have rather good 4G coverage compared to the European average which is at 26 percent. In Romania, competition is fierce. We have six mobile operators and 900 fixed broadband operators,” said Rusen.

The ANCOM representative said the main challenge was to change consumer behavior, since 64 percent of those who do not have internet say they do not need it while 50 percent say it is too expensive.

Among businesses, internet usage is also rather low. Some 90 percent of firms use the internet only for browsing and e-mail, 40 percent use it for creating websites and e-commerce and only 5 percent are using other services such as M2M and cloud.

Official ANCOM data show that there are around 4 million subscribers to fixed telephony and 25.5 million mobile phone subscriptions. Nearly half of Romanian households have a fixed internet connection and more than 85 percent have TV broadcasting services.

In fact, Romania finds itself in a paradox, given the top place it holds in computer science worldwide and the fact that it is among the top five countries worldwide for internet speeds, said Bogdan Balaci, CEO of cloud computing provider Ymens.

But despite this positive background, only 27 percent of the companies in Romania have presentation websites. Also, 47 percent make no use of software solutions and only 38 percent give priority to IT projects. Furthermore, 8 percent of businesses are using cloud for business and only 4 percent are using online transactions, according to the latest data from the White Chart of SMEs, quoted by Balaci. “The sophistication and level of maturity of the market is quite low,” he commented.

Small companies with fewer than 50 employees use either traditional IT solutions or no solutions at all. They have a small IT budget, if any, and are mainly focused on survival on the market. Their concerns are pricing and security.

Medium companies with fewer than 250 employees use on-premise applications, have a budget but little planning, and their needs are related to competitiveness and costs. Their concerns are about security, functionalities, support and services.

Large companies have dedicated IT solutions and procurement procedures and their needs center on efficiency, control, scalability and flexibility, while their concerns are related to security, SLA (service level agreement) and support services.

Local public institutions use traditional or outdated IT solutions, have procurement procedures, and their needs are in the area of cost reduction, efficiency and quality. Their concerns are related to security, support and costs. “The cloud can have the biggest impact here, because in these institutions there is no money for investments and no IT human resources,” said Balaci.

otilia.haraga@business-review.ro

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