Romanian Telecom Market Overview

Septembrie 2008

IONUŢ PASCU - Project Manager ROLAND BERGER STRATEGY CONSULTANTS

The Romanian telecom market1 saw a robust increase in 2007, reaching a value of EUR 3.91 bn (USD 5.36 bn) from EUR 3.36 bn (USD 4.19 bn) in 2006, based on an upsurge in consumption which is expected to continue in the following years.

Mobile telephony has witnessed strong growth, accounting for around 68% of the total market up from 63% in 2006, whilst Internet and data transmission services have also shown a significant development.

The Romanian telecom market has steadily increased over the last six years with mobile telephony playing the leading role

In a telecommunications market approaching maturity, traditional voice services are starting to experience sustained pressure on revenues due to stronger 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 decrease 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 as of 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 71% of the total number of fixed lines, its portfolio has shrunk by more than 1 mn since 2005 to reach 3 mn lines by June 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.

Initial steps have already been taken both in terms of the voice and data network capabilities, with approximately 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 local exchange 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.

The transformation and development program that Romtelecom has been undergoing ever since 2003 is to alleviate the challenges posed by the competitors active in a converging telecom market, i.e. mobile operators, fixed alternative operators and ISPs. Aside from the offensive in the data and Internet market segment, the company launched its DTH-based (Direct to Home) TV services in December 2006. The service, marketed under the brand “Dolce”, rounds off Romtelecom’s portfolio of fixed voice, Internet and data services, and thanks to an aggressive pricing policy coupled with intensive promotion it has already managed to build up a customer portfolio that surpassed the 500,000 threshold in June 2008. Building on the NGN, Romtelecom will be able to provide IPTV services, complementing the DTH offer. The next envisaged step in the transformation program will be the adding of mobile services to the current portfolio (in conjunction with the sister-company, Cosmote), enabling the company to provide quadruple play services: fixed telephony, mobile telephony, Internet and TV. As of December 2007, the two companies are giving both residential and business customers a foretaste of a full-blown portfolio through a combined package of Internet services provided by Romtelecom (ClickNet) and mobile telephony services provided by Cosmote, available at a 10% discount (from the tariffs charged if the two services are acquired individually).

1

2

3

4

5

6

The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...