Romanian Telecom Market Overview
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ROLAND BERGER STRATEGY CONSULTANTS S.R.L. |
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www.rolandberger.com
IONUŢ PASCU
Project Manager
ROLAND BERGER STRATEGY CONSULTANTS S.R.L.
The Romanian telecom market1 saw a healthy increase in 2008, in spite of the increasingly difficult market conditions, reaching a value of EUR 4.26 bn (USD 6.23 bn) from EUR 3.91 bn (USD 5.36 bn) in 2007, based on an upsurge in consumption which is expected to continue in thefollowing years.
Mobile telephony has grown slower than the market, accounting for around 64% of the total market, whilst Internet and data transmission services have shown a significant development.
- The Romanian telecom market has steadily increased over the last six years with mobile telephony playing the leading role
*Including fixed telephony services, mobile services, Internet, data transmission and leased lines; excluding internal telecom services on own infrastructure of Teletrans and Telecomunicatii CFR
In a telecommunications market reaching maturity, traditional voice services are experiencing sustained pressure on revenues due to very strong competition, continued price erosion as well as the emergence of alternative services (VoIP). In this context, non-voice offers as well as value-added services are becoming increasingly important so as to alleviate the strong decreases in voice ARPU.
Fixed telephony market
The deregulation of the voice market in 2003, which did not bring about significant changes in the initial period after its enforcement, started to generate the first visible effects in 2005. As such, even if Romtelecom is still the dominant player in the market, it has to cope with fully-fledged competitive offers (including both post-paid and pre-paid services) from a number of alternative operators.
Although Romtelecom controls most of the local access market, accounting for roughly 59% of the total number of fixed lines, its portfolio was shrunk by more than 1 million since 2005 to reach 2.97 million lines by December 2008. As far as its backbone capacity is concerned, the incumbent operator has gradually extended its fiber optical network, which spreads over 32,000 km.
Romtelecom follows in the footsteps of other major European incumbent telcos (such as Deutsche Telekom, Telecom Italia), which have initiated the deployment of next generation networks (NGNs) allowing for integrated telecom service offers (covering voice, data and VPN, Internet as well as video services). In this respect, Romtelecom pledged to invest EUR 500 mn in a next generation network, provided the evolution of the regulatory framework will allow a reasonable return on investment.
Initial steps have already been taken both in terms of the voice and data network capabilities, with approx. EUR 300 mn poured into the infrastructure during the last three years. Thus, in order to fully capitalize on its nationwide fiber optic network, Romtelecom launched its ADSL (Asynchronous Digital Subscriber Line) service for residential customers in May 2005, allowing for higher transfer rates as compared to ISDN (Integrated Services Digital Network) technology using the traditional copper wire network. With regard to the telephony infrastructure, in 2007 Romtelecom managed to achieve country-wide digitalization of its network. In addition, as of July 2005, Romtelecom has started using a centralized billing system named Geneva, which allows the incumbent operator to provide much more flexible subscription options for its customers.
Initial steps have already been taken both in terms of the voice and data network capabilities, with approx. EUR 300 mn poured into the infrastructure during the last three years. Thus, in order to fully capitalize on its nationwide fiber optic network, Romtelecom launched its ADSL (Asynchronous Digital Subscriber Line) service for residential customers in May 2005, allowing for higher transfer rates as compared to ISDN (Integrated Services Digital Network) technology using the traditional copper wire network. With regard to the telephony infrastructure, in 2007 Romtelecom managed to achieve country-wide digitalization of its network. In addition, as of July 2005, Romtelecom has started using a centralized billing system named Geneva, which allows the incumbent operator to provide much more flexible subscription options for its customers.
Additionally, following the incumbents success in securing a mobile CDMA license, as of June 2009 the company started to offer its own mobile subscription services, complementing its fixed offer.
Romtelecom's non-voice services are slowly starting to offset the decline in revenues from the core business (fixed telephony), combined with a relative containment of subscriber churn for fixed subscriber lines and retail traffic (both domestic and international calls). Thus, the company's revenues in 2008 amounted to EUR 869.8 mn, keeping the same level as in 2007, while the company posted an operational loss of EUR 36.2 mn as compared to the EUR 8.1 mn profit registered in 2007. In 2009 the first quarter revenues decreased by 8.1% compared to the same period 2008, to EUR 201.4 mn, with the company recording an operating profit of EUR 13.7 mn. This negative operational result provides an indication that the growth in non-voice services comes with a certain investment cost. In an attempt to compensate for the lower retail traffic, the operator implemented its latest round of tariff rebalancing in August 2006, diminishing tariffs for local, long-distance and fixed-to-mobile calls, while enforcing higher subscription fees. Building on this initiative, as of June 2007 the incumbent offers an option with higher subscription fee but unlimited free calls within its network and reduced tariffs for fixed-to-mobile calls. Additionally, as of 2009, the company started to offer bundled triple-play packages for a lower total price than the sum of its components.
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