The telecommunication industry is one of the most developed and mature in Romania, thanks to investments made in the past by companies and light-tough regulation in the early years. Today, however, the industry is under rising pressure from legislators, increasing expenses, and a shrinking pool of workers.
By Aurel Dragan
The most important event for the telecom industry worldwide in this period should be the implementation of 5G technology. And it is being researched and tested all around the world; 72 operators tested 5G technology in 2018 and it is expected that, by 2020, around 50 will launch 5G at least in some areas, probably cities. But on the Romanian market, the testing and launch of 5G is being overshadowed by changes in the legislation, the imposition of new taxes, increasing wages and a workforce shortage.
“The challenges that the electronic communications industry has to face are: inflationary pressure (wage increases, energy costs, rents, equipment), devaluation of the national currency, increased competition and acceleration of technological progress,” says Serghei Bulgac, president and general manager of Digi Group RCS & RDS.
5G is coming
The long awaited fifth-generation (5G) networks are due to arrive in scale, providing better connectivity for consumers and enterprises, while opening up new revenue opportunities for telecommunication companies, according to the 18th edition of Deloitte’s Technology, Media & Telecommunications Predictions.
According to recent studies, mobile operators expect to see 5G implementation investment close to current 4G spending, mainly as a result of prior investments in network development. Considering that 72 operators worldwide tested 5G technology in 2018, Deloitte estimates approximately 50 operators will launch 5G by 2020 at least in some areas, typically urban ones. In terms of 5G handsets, Deloitte expects about 20 vendors to launch 5G-ready handsets in 2019 and sell around 1 million units.
Internet-connected speakers with integrated digital voice assistants will see the most rapid expansion of any connected device category at global level in 2019, with more than 164 million smart speakers forecast to be sold worldwide by the end of this year. This growth will bring the total number of units available globally to 250 million, turning this into a USD 7 billion industry.
The study also predicts an increase in the usage of cloud-based artificial intelligence (AI) software and services. In 2019, 70 percent of companies around the globe will have AI capabilities via cloud-based software and 65 percent will create AI applications using cloud-based development services. By 2020, the penetration rate of AI-based enterprise software will reach an estimated 87 percent, while cloud-based AI development services will reach 83 percent.
“This year, artificial intelligence is expected to reach larger scale also in Romania, with more advanced techniques becoming available to more organizations. Some of our clients are working to gain access to the best innovative software features of the AI revolution, which continues to change radically the way we live, do business, work, travel, communicate and even entertain ourselves,” said Dinu Bumbacea, consulting partner-in-charge, Deloitte Romania.
Are we ready?
The government seems to be ready, at least to take the licensing money. The National Authority for Administration and Regulation in Communications (ANCOM) announced a 5G spectrum auction this year, but it decided to change the calculation method. So, instead of EUR/Mhz/inhabitant, ANCOM will use accounting methods. The target is EUR 1 billion for the state budget from 5G licenses, considering Italy recently banked EUR 6.5 billion, although other European countries got a lot less.
“Preparing for the 5G auction brings to the forefront the dialogue with authorities on issues that concern the entire industry: simplifying authorization procedures for network construction and development, non-discriminatory access to public property, more predictability in legislation. The international controversy over the presence of certain suppliers of equipment on the European market can also lead to a price change in the procurement of equipment and technologies in an important context – the leap to a new technology. There is additional pressure on electronic communications operators who will have to make important business model decisions for the upcoming 5G technology – developing their own infrastructure or sharing networks with other operators,” says Bulgac.
Romania expects to collect 2 percent of telecom operators’ revenues. The average will be EUR 250 million per operator, payable in 2020. But the telecom companies must also renew their 3G licenses. Orange Romania and Vodafone Romania will have to renew the 2.1 GHz band for 3G in 2020, and RCS & RDS and Telekom Mobile in 2022. The 3G licenses are estimated to bring EUR 2 billion to the budget in total, an average of EUR 500 million for each telecom operator.
“Assuming that all four operators acquire 5G and 3G licenses and progressively invest in 5G networks (from EUR 50 million in 2020 to EUR 125 million in 2025, a total of EUR 500 million), Orange and Vodafone would have a peak of EUR 800 million in 2020 and a slightly better distributed payload (2020 and 2022) for RCS & RDS and Telekom,” telecommunication specialist Nicolae Oaca wrote on his blog.
The level of indebtedness of each operator has grown with each licensing, meaning 3G and 4G. Data show that, at the end of 2017, Orange and Vodafone had debts worth just under 60 percent of total assets, while for RCS & RDS it was 88 percent and Telekom 140 percent. This means that financing the licenses and 5G investment will not be easy and may require a capital increase from shareholders. And all while they are still trying to recover their investments in 4G technology and are already providing services that can also be achieved with 5G technology.
This is why telecom operators have said that they have not yet decided whether to bid for 5G. They are being hit by increasing power bills due to OUG 114, which also imposed a tax on the revenues of telecom companies.
Wages are on the rise, driven by increases in public sector pay and a shortage of workforce. The absence of the 3 to 4 million Romanians working abroad increases pressure on companies to find qualified employees and also to keep hold of the ones they have. “Regarding the recruitment and retention of employees, the prolongation of the labor market crisis and an increase in labor mobility is predictable. Fortunately, Digi | RCS & RDS has one of the best retention rates and we can meet our human resources needs with internal mobility,” says Bulgac.
Operators have already increased tariffs for customers to find resources to pay the newly-imposed taxes and rising costs. But in order to keep the telecommunication market close to the latest technologies, the government must help the industry. “To preserve the competition, the bidding documentation should provide limitations to spectrum acquisition, especially in bands below 1GHz, so operators who do not buy 5G spectrum this year will be able to do so later. High license fees will affect the development of networks and will shift to retail prices, hampering adoption, at least in the beginning, and digital transformation. The telecom provisions in OUG 114 / 2018 should be abrogated, being profoundly damaging to Romania’s digital transformation process, to the country’s development! And ANCOM should be allowed to determine starting prices based on the EUR / MHz / inhabitant cost in Europe,” argued Oaca.