BR Exclusive. Analysts’ perspective: What the Vodafone-UPC deal means for the local market and the consumers

Ovidiu Posirca 14/05/2018 | 13:17

Analysts say that Vodafone will consolidate its position on the local telecom market through the planned acquisition of UPC Romania, with the potential to convert the fixed-line segment to mobile and enhance competition on the back of new investments. Here are the exclusive opinions of two analysts submitted to Business Review.

Constantin Magdalina, emerging trends&technologies expert

The Romanian telecoms market continues to be dominated by a handful of mobile and wireline players. Despite this take-up of multi-play services such as UPC by Vodafone, the usage of triple/quad/quin-play services remains limited and produces little tangible uplift in the saturated market.

Although Vodafone and Orange continue to roll out their 3G/4G networks, with these two companies sharing network infrastructure as a means of cutting costs, this M&A between UPC and Vodafone represents a stronghold for the British telco provider in the CEE region.

Romania’s fixed-line market has seen volatility in recent years as product bundling helped to counter the negative impact of fixed-to-mobile substitution. By this take-up Vodafone states its intention to compete the RCS&RDS’s offering of fixed telephony as part of broadband and pay-TV packages’ strategy in the local market.

Constantin MagdalinaIn Romania for Vodafone this transaction will certainly help its own services remain popular among subscribers, the take-up rates of UPC services being comparable with the success of cable rival RCD&RDS. Ultimately, this will mean that investment in the fixed-line segment will decline, as demand for this technology fades.

While bundling may provide some support, it is expected the subscription development to fall into a more uniform pattern over the medium term. One believes fixed-to-mobile substitution, lack of investment and heightened price sensitivity will drive down subscriptions. A decline in usage of fixed-lines will also be evident, as consumers switch to mobile.

UPC has been one of the key performers in Romania’s multi-play converged services market and RCS&RDS’ mobile ambitions have been frustrated by the limitations of its network’s footprint. Consolidation in the local market is welcomed, but this means investing in areas where the potential for profitability is slim. However, the mid-term perspective to convert the fixed-line segment to the mobile provides to Vodafone an important strategic advantage.

Nicolae Oaca, PhD, telecom analyst:

Through this acquisition on this market we are entering in a new period of competition – competition in offering the total services package – double triple play (2X3 play): phone, Internet, fixed-TV and mobile.

Today, two operators RCS&RDS and Telekom, own fixed and mobile communication network and can offer the full service package 2X3 play. A third operator, Orange, has the mobile communication network and has an access agreement for the fixed communication network of Telekom. By taking over UPC, Vodafone joins the 2X3 play club, pressuring the current ranking in the market.

Through the acquisition of UPC, Vodafone adds to a very good mobile network a good fixed communication network (3.1 million households), being in position to attack/challenge the market leading position of Orange. Following the merger (the approval of the transaction is announced for mid-2019), we might see a period of investments designed to accelerate the expansion of the optic fiber network of UPC.

Orange is in a delicate situation, being the only operator that doesn’t have its own fixed communication network, even though it has an access agreement with Telekom, so it might be forced to buy the only fixed communication operator, DCS/Akta, which has smaller coverage, so it will be hard to compete with Vodafone&UPC without strong investments.

On the medium term, we will have four competitors able to offer the double triple play package, so an intensification of competition is expected, with the share of fixed-mobile contracts growing, with the retention of customers growing on the back of enhanced services.

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