Aggressive growth rates for cellular in Central and Eastern Europe are predicted in a new report from United Kingdom-based consulting firm Analysys.
During the next five years, according to “European Cellular Market Forecasts: 1998-2003,” compound annual growth rates (CAGR) of 23 percent can be expected in the region. This actually represents a higher growth rate than Western Europe, which has a predicted CAGR of 21 percent.
The starting points are very different, of course. Western Europe currently has more than 50 million cellular subscribers, with an average penetration level of 14 percent. For Central and Eastern Europe, average penetration is below 2 percent, with just greater than 2 million subscribers.
Although growth rates may be similar in the two markets, growth is coming from different sectors. In Central and Eastern Europe, growth will be confined to the business market, argues the Analysys report. Other development opportunities will be severely constrained by the low per-capita GDP in the region.
“The first mobile network in Central and Eastern Europe was launched in Croatia in 1990, with other countries in the region launching services in the next three years,” said Paul Knott, lead author of the report. “In most markets, initial adoption was slow, but subscription rates are now accelerating, offering mobile operators promising growth in connections and revenue over the next five years.”
At the end of those five years, penetration is forecast to approach 5 percent, said the report. The increase will be driven almost exclusively by the business subscriber market. The only exceptions are the Czech Republic, Hungary and Slovenia where their higher GDP per capita and more service-oriented economies could allow cellular to capture a small but affluent community outside the business sector.
The future use of cellular as a primary phone, compensating for the lack of fixed lines, is unlikely. Fixed operators in Eastern Europe are investing in Wireless Local Loop solutions, which are expected to provide non-business users with a more affordable connection than cellular.
Many business users in the region, on the other hand, already use cellular as their primary phone connection, and this is expected to continue. The result is that cellular demand will be relatively inelastic, as anyone who can afford to use cellular is unlikely to be sensitive to small changes in price. Therefore, price falls in Central and Eastern Europe are likely to be negligible.
Licensing and tariff competition, the main market drivers in the West, are relatively rare in the East. Most Eastern European operators have yet to introduce packages that bundle call minutes with monthly fixed fees. They are unlikely to do so. Operators rely on outgoing calls for their principal revenue stream and enjoy the fact that calling volumes are higher than in the West.
In five years, consumers are expected to outnumber business subscribers in the Western European market. Central and Eastern Europe will remain an almost entirely business market, says the report. But with high call volumes and price insensitivity, it is a highly attractive one.
