Romanian telecom market overview

August 2011

IONUŢ PASCU - Project Manager ROLAND BERGER STRATEGY CONSULTANTS S.R.L.

The Romanian telecom market* continued its decrease in 2010 by 6% (compared to 10% in 2009), on the back of a difficult macroeconomic environment (e.g. GDP drop by 1.3%).

The overall market reached a value of EUR 3.7 bn, down from EUR 3.9 bn in 2009, due to the consumption downturn across all client segments (i.e. both business and residential).

Although maintaining a clear leading position, accounting for around 60% of the total market in 2010, the mobile telephony segment continued its decline, driven by the contraction of the mobile customer base and the cost optimization initiatives launched by business clients. In addition, the fixed telephony segment remained on a downward trend. On the other hand, the TV and Internet segments managed to keep a positive development, exhibiting annual average growth rates of over 10%.

In 2011, the market is expected to decrease moderately to reach EUR 3.6 bn.

The local competitive environment is dominated by former incumbents in each market segment: Romtelecom & Cosmote, RCS&RDS, UPC Romania, Orange and Vodafone. Now, these players address both the residential and business customers with an integrated telco approach. On the residential segment, pricing is still a key competitive driver, leading to creative solutions aimed at securing existing customers or luring new users. On the business segment, competition has been driven by the ability to offer all-encompassing, integrated fixed-mobile solutions.

 

Fixed telephony segment

The fixed telephony segment continued its downward trend in 2010 to reach EUR 543 mn, while the user base also contracted, after several fluctuations registered in the past years. The negative trend has been driven mainly by the decrease in voice traffic and the price erosion, especially given the fixed-mobile substitution. As such, the fixed voice service has become mostly a retention tool that is offered as part of a service bundle. The segment is expected to further decrease in 2011, to reach EUR 497 mn.

Competitive landscape

Following the deregulation of the voice market in 2003, Romtelecom, the Romanian telecom incumbent, although still the dominant player in the market, has had to cope with fully-fledged competitive offers (including both post-paid and pre-paid services) from several alternative operators. As a result, Romtelecom’s share has gradually declined, accounting for roughly 59% (2.6 million lines) of the total number of fixed lines in 2010. At the same time, the decrease in overall voice traffic in both residential and business segments has impacted the company’s revenues that have been declining at an average annual rate of 5% in the last five years (EUR 717 mn in 2010).

In an attempt to compensate for the lower voice traffic, Romtelecom redefined its residential voice service portfolio and also developed new VoIP services. In November 2009, Romtelecom launched 5 subscriptions for its retail customers with up to 4,000 free minutes in fixed networks and 400 free minutes in mobile networks and included them in attractive product bundles (dual-play and tripleplay).

In addition, Romtelecom launched a VoIP subscription, named Online Voice, for PC to phone calls. The company also offers VoIP services through its NextGen subsidiary, as part of the cable company’s product bundles.

On the business segment, Romtelecom launched several service bundles at the end of 2009 under the Romtelecom Business Solutions concept. The bundles offer integrated solutions for the incumbent’s business clients, including fixed (both ISDN and VoIP) and mobile voice, Internet and other more advanced features (IT&C services, support and equipment).

In 2010, Romtelecom took another step towards becoming an integrated player on the local market by announcing a partnership with Cosmote, through which both operators’ clients were able to communicate in both networks at the same tariffs as in their provider’s network. The company also launched a set of fixed-mobile bundles on the business segment to ensure communication flexibility for their clients. Romtelecom’s partnership with Cosmote is part of a larger initiative of OTE Group to merge the two companies, which would modify the competitive landscape of the local telecom market. OTE Group has already proposed the merger to the Ministry of Communication and Information Society, after having declined the right to buy the additional 45.99% Romtelecom shares owned by the Ministry. In addition, OTE Group has already approved in May 2011 the appointment of a common CEO for the two companies.

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