From Boom to bust: TV services battle hots up

The market of television services is tipped to undergo drastic changes, as some major shifts are on the way. At the moment, the main players providing TV services are RCS&RDS, Romtelecom and UPC Romania, who together have more than a 70 percent market share, the rest being split between smaller operators. Large as they are, these firms, which can offer triple-play services, are negotiating takeovers to help them in the race for new customers.

Otilia Haraga

One of the rumored takeovers on the market materialized last week when Romtelecom officially announced that it had acquired Boom TV. The firm is taking over the station in order to add Boom’s 95,000 subscribers to its customer base.

These were not the first negotiations between the telephone operator and Boom TV. Two years ago the companies also sat round the table but failed to reach a result.

“Romtelecom has signed the contract to take over the assets and customer base of Boom TV with DTH Television Group. The total price of the transaction will be established based on the number of customers who are taken over. Romtelecom has notified the Competition Council of this takeover based on the offer that was submitted,” said the operator in an official statement.

The media reported that the company was willing to pay between EUR 7.3 and EUR 8 million (excluding VAT).

The negotiations took place through Casa de Insolventa Transilvania, which is currently representing DTH Television Group, the company that runs the insolvent Boom TV. At the moment, the TV group has debts of more than EUR 100 million.

When asked by Business Review, Romtelecom representatives said the company was not making any further comment, either on the price or the number of subscribers it has acquired.

The number of Romtelecom’s DTH Dolce television customers surpassed 1 million last year. The firm posted revenues of EUR 716.9 million in 2010, a decrease of 8.4 percent, according to a report by Greek company OTE.

But what led Boom TV down the insolvency path and what was the market context? The initial plan was for Boom TV to target a premium sector of clients who were willing to pay monthly subscriptions of EUR 10 and more, which was far above the average price on the market.

In three years’ time, the portfolio of clients was planned to have reached 300,000 subscribers. By that time, the investments and expenses should have been covered by the shareholders and via external financing, or bank loans.

However, internal and external factors put these goals out of reach and drove the firm to insolvency.

DTH Television shareholders turned off the financing tap in April 2008, when the company’s development plans required a further EUR 25 million of investment plus ensuring current financing. At the beginning of 2009, Boom TV had a portfolio of 232,000 subscribers, which was still below the necessary level to cover its expenses, according to a report by Casa de Insolventa Transilvania.

Many of the company’s customers had overdue bills. When the insolvency procedure started, the value of provisions for uncertain debts was RON 32.23 million, 23 percent more than at the beginning of the year.

In fall of 2008, DTH took out a bank loan of EUR 18.5 million, which helped solve temporary difficulties, but in time plunged the company deeper into debt. Consequently, Boom TV had to close its six working points around the country, which had immediate repercussions for its entire activity.

On top of this, recession-hit consumers were swapping their expensive subscriptions for cheaper ones, but the company failed to adjust to this new market reality. Not only that, but Boom TV was unable to compete with the offers thrown onto the market by its competitors. This put it at a disadvantage both on the low-price market segment due to the prices it charged, but also on the premium market segment as it could not afford to broadcast commensurately high quality programs.

From an elite television supplier Boom TV had become a mass-market provider, but without cutting prices and expenses accordingly.

This led to a customer exodus and made it impossible to attract new viewers, according to Casa de Insolventa Transilvania’s report.

While Romtelecom’s takeover of Boom TV has already become a fact, RCS&RDS is rumored to be in negotiations to buy UPC Romania, part of Liberty Global. The rumor has not so far been confirmed officially by any of the companies involved. It first surfaced last week on the blog of journalist Catalin Tolontan, who wrote: “These days there are discussions abroad regarding a deal through which RCS&RDS would take over UPC Romania. Both RCS and UPC have businesses on various Eastern European markets, so the transaction could mean that UPC gives up Romania in exchange for another region that RCS would give up,” says the blogger.

If the two companies close the deal, and if the transaction is approved by the Competition Council, the new organization that is born would be a giant that would only have Romtelecom as an equal competitor on the TV market. On the internet and telephony segments, it would also compete on an even footing with telecom players such as Orange, Vodafone and Cosmote.

RCS&RDS is mainly controlled by Romanian businessman Zoltan Teszari, who has kept a low profile in the media. The company is run by its president, Alexandru Oprea.RCS RDS posted revenues in excess of USD 700 million last year. It has adopted an aggressive business model based on offering many products and services for free, with a view to attracting as many clients as possible. This, however, means that RCS&RDS has outstanding loans of USD 175 million this year and another USD 375 million due in 2012, according to Moody’s.

UPC Romania’s customer base decreased by 7.4 percent last year. While it had 1.249 million customers in 2009, by the end of 2010 the figure had fallen to 1.15 million. The company has been losing analog cable clients (a 22.8 percent fall to 645,900), while gaining new ones on the digital television segment (up 23 percent to 283,900).

otilia.haraga@business-review.ro

DMCA

PROTECTED