The mobile phone market is booming throughout central and eastern Europe.
The government of Yugoslavia, usually strapped for cash, has agreed to
purchase 29 percent of Telekom Srbija, of which it already owns 51
percent. It will pay the seller, Italia International, close to $200
million. The Greek telecom, OTE, owns the rest
On Friday, the Serb privatization minister, Aleksandar Vlahovic,
continued to spar in public with a Milosevic-era oligarch, Blagoljub
Karic, over his share of Mobtel, Serbia's largest cellular phone
operator. The company, announced the minister, will be privatized by
tender and Karic's share will be diluted to 30 percent.
Such clashes signal rich pickings.
The mobile phone market is booming throughout central and eastern
Europe. According to Baskerville's Global Mobile industry newsletter,
annual subscriber growth in countries as rich as Russia and as
impoverished as Albania exceeds 100 percent. Belarus is off the charts
with 232 percent. Macedonia (82 percent), Ukraine (79 percent), Moldova
(86 percent), Lithuania (84 percent) and Bulgaria (79 percent) are not
far behind.
Growth rates are positively correlated with the level of penetration.
More than four fifths of Slovenes and Czechs have access to a
cellphone. Hence the lackadaisical annual increases of 14 and 37
percent respectively. But even these are impressive numbers by west
European standards. Annual subscriber growth there is a meager 7
percent.
Penetration, in turn, is a function of the population's purchasing
power and the state of the - often decrepit - fixed phone network.
Thus, in Serbia, smarting from a decade of war and destitution, both
the penetration and the growth rates are dismal, at c. 20 percent.
Russia alone accounts for one of every five subscribers in the region
and one third of the overall market growth. According to the Jason
& Partners consultancy, the number of mobile phone subscribers in
Russia has more than doubled in 2002 to 17.8 million users. AC&M,
another telecommunications consulting outfit, pegs the growth at
117-124 percent.
Mobile TeleSystems (MTS) services one third of all users, Vimpelcom
more than one quarter and MegaFon about one sixth. But there is a host
of much smaller companies nibbling at their heels. Advanced cellular
networks - such as under the 2.5G protocol - are expected to take off.
Usage in Russia is still largely confined to metropolitan areas. While
the country-wide penetration is c. 12 percent (more than double the
2001 figure) - Moscow's is an impressive 48 percent. St. Petersburg,
Russia's second most important metropolis, is not far behind with 33
percent.
Still, as urban markets mature, the regions and provinces represent
untapped opportunities. Vimpelcom, backed by Norway's Telenor, paid
last month $26.5 million for Vostok-Zapad Telecom, a company whose sole
assets are licenses covering the Urals. This was the operator's third
such purchase this year. Earlier, it purchased Extel which covers the
Baltic exclave of Kaliningrad and Orensot, another Urals licensee.
Vimpelcom is up against Uralsvyazinform, a Perm-based fixed-line and
mobile-phone telecommunications operator in the Urals Federal District.
According to Radio Free Europe/Radio Liberty and Prime-TASS, the former
has increased its capacity last year by some 265,000 cellular-phone
numbers.
But Vimpelcom is undeterred. According to Gazeta.ru, it has announced
its expansion to Siberia (Karsnoyarski Krai) to compete head on with
two indigenous incumbents, EniseiTelecom and SibChallenge. Vimpelcom's
competitors are pursuing a similar strategy: MTS has recently purchased
Kuban GSM, the country's fourth largest operator, mainly in its south.
Local initiatives have emerged where cellular phone services failed to
transpire. RIA-Novosti recounted how 11 pensioners, the residents of a
village in Novgorod Oblast have teamed up to invest in a community
mobile phone to be kept by the medic. The fixed line network extended
only to the nearest village.
The industry is bound to consolidate as new technologies, developing
user expectations and exiting foreign investors - mainly Scandinavian,
American and German telecoms - increase the pressure on profit margins.
One of the major problems is collecting on consumer credit.
Vedomosti, the Russian business weekly, reported that Vimpelcom was
forced to write off $16 million in non-performing credit last year.
Close to 2 percent of its clients are more than 60 days in arrears.
Vremya Novosti, another Russian paper, puts the accounts receivable at
15 percent of revenues in Vimpelcom, though only 5 percent at MTS.
The cellular phone market throughout central and eastern Europe is at least as exciting as it is in Russia.
As of Jan 1, Romania's fixed line telecommunications system,
Romtelecom, majority owned by the Greek OTE, has lost its monopoly
status. In the wake of this long awaited liberalization, more than 700
applications for operating licences have been filed with the Romanian
authorities, many of them for both fixed and mobile numbers. Fixed line
density is so low, mobile penetration, at 20 percent, so dismal, prices
so inflated and service so inefficient - that new operators are bound
to make a killing on their investment.
Past liberalizations in central European markets - Poland, the Czech
Republic and Hungary - have not been auspicious. Prices rose, the
erstwhile monopoly largely retained its position and competition
remained muted. But Romania is different. Its liberalization is neither
partial, nor hesitant. The process is not encumbered by red tape and
political obstruction. Even so, mobile phones are likely to be the big
winners as the fixed line infrastructure recovers glacially from
decades of neglect.
Bulgaria's GSM operator, MobiTel is on the block, though a deal
concluded with an Austrian consortium last year fell through. It is
considering an initial public offering next year. Another GSM licensee,
GloBul, attracted 330,000 subscribers in its first year of operation
and covers 65 percent of the population. The country's first cellphone
company, Mobikom, intends to branch into GSM and CDMA, following a
recent reallocation of national radio frequencies.
Macedonia's second mobile operator, MTS, owned by the Greek OTE, was
involved last year in bitter haggling with Mobimak (owned by Makedonski
Telekom), the only incumbent, over its inter-connection price. The
telecommunications administration threatened to cut off Mobimak but,
finding itself on murky legal ground, refrained from doing so.
The British cellular phone company, Vodafone, has expressed interest in the past in Promonte, Montenegro's mobile outfit.
Mobile phone companies are going multinational. Russia's MTS owns a -
much disputed - second license in Belarus. It has pledged, last
November, to plough $60 million into a brand new network. MTS also
acquired a majority stake in Ukrainian Mobile Communications (UMC), the
country's second largest operator. The Russian behemoth is eyeing
Bulgaria and Moldova as well.
Wireless telephony is a prime example of technological leapfrogging.
Faced with crumbling fixed line networks, years on waiting lists,
frequent interruptions of service and a venal bureaucracy, subscribers
opt to go cellular. Last year, the aggregate duration of mobile phone
calls in Croatia leapt by 50 percent. It nudged up by a mere 0.5
percent on wired lines.
New services, such as short messages (SMS) and textual information
pages are booming. Romania's operator, Orange, has launched multimedia
messaging. Macedonia introduced WAP, a protocol allowing cellphones to
receive electronic data including e-mail messages and Web pages. The
revenues from such value added offerings will shortly outweigh voice
communications in the west. The east is attentive to such lessons.
