2012 could be a bitter pill to swallow for telecom companies in Romania as the auction for GSM licenses, introduction of 4G technology, a likely merger between Romtelecom and Cosmote and a possible takeover of UPC should reach completion. The coup de theatre could come from any one of these four major events which have, at least in theory, the potential to shake the telecom market to its core.
An uncertain outcome – this is the term that many commentators are using when attempting to define the likely evolution of the telecommunication market this year. Against a background of sliding revenues, the main challengers in this ecosystem may witness, or be themselves, the agents of major change.
“The telecom market in Romania is at a point where operators’ revenues have declined significantly and I believe this trend will continue. Profitability targets remain their main concern and the events that will make the headlines will be in relation to the way they grow this indicator. In this sense, we may see the main operators take over smaller companies, and launch new services or technologies, most likely 4G,” says Adrian Ciobanu, managing director of Reimens Group.
After it became clear that Greek company OTE (with a major 54.01 percent participation) would not be buying from the Romanian state the remaining 45.99 percent stake in Romtelecom, a merger between Romtelecom and Cosmote (also part of the Greek group OTE) and listing on the stock exchange became a possibility.
One of the implications of the merger would be “a change in the hierarchy of the operators on the market,” says Gabi Mustea, Director, Advisory, PwC Romania, which is representing the state in the evaluation of the possible benefits of the merger and listing.
“If Romtelecom and Cosmote merge, the new operator would become market leader and could come up with an attractive offer both insofar as the structure of the packages, which may include four-play bundles, and the commercial offer,” says Mustea.
Their cumulated turnover would land the new entity in first place by revenues, ahead of Orange and Vodafone, which are currently the top two on the market.
“The marketing strategy will most likely be channeled towards the acquisition of new clients, with a complete service portfolio and a market approach which includes an integrated IT-telecom offer, since it is already a known fact that Romtelecom has been successfully positioning itself as an integrator,” adds Ciobanu.
The year started with bad news for Romtelecom’s main competitor, RCS&RDS, which operates on external markets in Hungary, the Czech Republic, Slovakia, Croatia, Serbia, Spain and Italy. The firm lost the race for a telecom license it coveted in Hungary, after the telecom authority in the country rejected its offer on the grounds it had some unpaid debts. “RCS&RDS can reconsider its options and a strategy to acquire another operator in Hungary, one that already owns a license, is not out of the question, expensive as it may be,” says Ciobanu.
Back in Romania, the operator has other important issues to figure out. “One problem that RCS&RDS has is the repayment of loans, and the company’s liquidities are channeled in this direction. I think the RCS&RDS strategy on the Romanian market definitely targets acquiring new clients and to a lesser extent keeping the existing ones loyal,” says Ciobanu. “The launch of new TV services such as IPTV or, who knows, maybe 3D TV, is also possible from RCS&RDS.”
In fact, as has already been rumored on the market and in the media, the operator may be trying to kill two birds with one stone: the acquisition of UPC would facilitate acquiring new clients and also providing new services such as 3D TV, which UPC already has in its portfolio. In addition, RCS&RDS would have more pull on the market since this transaction would have a big impact on the segments of landline telephony, fixed internet and TV.
“From the information that I have, RCS&RDS has missed this train, possibly due to the way in which negotiations were carried out. If this acquisition had gone ahead, RCS&RDS would have had a sufficiently high market share to constitute a monopoly – an example in this sense is the situation created with GSP and Antena 2 (ed. note: RCS&RDS failed to include these channels into the must-carry basic TV program package). Perhaps the market should be better regulated and in the future such situations should be avoided, so that clients are protected,” says Ciobanu.
But, even if the takeover does not work out, RCS&RDS is a strong competitor on the market, which has yet to valorize all its assets. Ciobanu gives a tip: “The low penetration of broadband internet in Romania and the high capacity of the RCS&RDS backbone represents an opportunity for the operator and I expect this to be exploited more efficiently.”
Fighting tooth-and-nail over licenses
After consultations with the industry, independent specialists and the European Commission, ANCOM decided to put up for auction in 2012 “the largest amount of spectrum that has ever been allocated in one single session in Romania and to organize, for the first time, a competitive selection, namely an auction,” says Catalin Marinescu, president of telecom regulator ANCOM.
What is up for grabs? The authority is putting on the market the radio spectrum in the bandwidth of 900 MHz and 1800 MHz, currently being used by Orange, Vodafone and Cosmote.
The licenses being used by Orange and Vodafone expired at the end of last year but, in order to ensure continuity, ANCOM decided to prolong them until December 31, 2012. The new licenses, obtained after the auction, will come into force on January 1, 2013.
In the case of Cosmote, the new license obtained after the auction will enter into force on April 6, 2014.
“The amount of spectrum that must be cleared will depend on the result of the auction. The actual price of the licenses will also be established after that,” says Marinescu.
The allocation of the GSM licenses, an issue that should be solved in mid-2012, is like a thorn in the side to Orange, Vodafone and Cosmote. The reasons are serious. At least in theory, these operators may stand to lose. “I am convinced that current players will do everything in their power to hold onto their licenses, but surprises can happen anytime. If any of the big operators lost the license, that would dramatically reconfigure the mobile telephony market,” says Mustea.
This auction opens the path to new competitors entering the Romanian market. In Marinescu’s words, “the auction will be open to any operator showing interest in it, from Romania and abroad, and the spectrum that is put up for auction will allow more operators than exist on the market right now to supply mobile communication services. ANCOM encourages new operators to participate in the bidding and enter the market.”
But some pundits doubt the risks for the three operators are so serious. “It is highly unlikely that Vodafone, Orange or Cosmote will lose their licenses and I don’t think anyone is making plans for this scenario,” says Ciobanu.
However, he adds, “It would not come as a big surprise to hear of the takeover of Vodafone Romania or Orange Romania by another large European operator. Such rumors were flying about last year as well, but so far it seems the interested parties have not taken the plunge.”
Also going under the hammer at the same date will be spectrum in the frequencies 800 MHz and 2600 MHz that the winners can use for 4G services. “The 4G wireless communication frequencies for LTE or WiMAX technologies have not yet been allocated,” says Marinescu. The reason is that they are being used by the Ministry of National Defense (MAPN), which has stated that it needs EUR 234 million in order to clear the bandwidth. “We have reason to believe that in the first months of the year the necessary legal framework will be in place for MAPN to make the spectrum available,” adds Marinescu.
The launch of 4G services in Romania this year is “very likely” and “can only be good news,” says Ciobanu. The reason is that “this would make a difference in the portfolio of any telecom operator and competition on this segment is very high since the potential is significant,” he says. “From the viewpoint of the sales evolution, mobile data services will most likely top the list with a very good growth rate. Competition is tight also in this segment, but there are significant differences among operators. I am referring here to the quality and the 3G+ coverage of the service. The launch of 4G can only be good news,” he concludes.
Other pundits agree. “There is definitely demand on the market for 4G mobile internet technology. The access to internet speeds of up to 100 Mbps is a very important chance for the development of the local market. Meanwhile, companies will continue investments in 3G networks but also in wireless internet coverage,” predicts Mustea.
TELECOM MARKET IN FIGURES
(ANCOM data for the first half of 2011)
- Value of the telecom market in H1, 2011: RON 7.29 billion
- Mobile telephony penetration rate: 110 percent
- Fixed telephony penetration rate: 23 percent
- Fixed broadband internet penetration rate: 14.6 percent
- Mobile internet penetration rate: 28 percent