DUBLIN, Ireland-The mobile communications market in Eastern Europe offers massive untapped potential for cellular operators and market entrepreneurs. Indeed, some companies have already taken a stake in operators there, expecting exponential subscriber growth like those experienced in countries such as Sweden, Italy and Ireland. In some areas, however, the bigger prize at stake is domination of mobile over fixed line.
In poorer countries, where little investment has been made in traditional communications infrastructure, mobile operators could obtain a market advantage. The cost of building a terrestrial network is substantial and requires serious investment and a long-term financial commitment. Digging holes in the ground, obtaining rights of way, and even buying property all consume vast amounts of money.
While constructing a mobile network could hardly be described as cheap, it is less capital-intensive than building a landline network.
It is clear that where mobile operators can either compete with their fixed-line counterparts on price or where fixed-line services are not a realistic option, there exists a massive opportunity for cellular to take a large share of the market. Eastern Europe offers such an opportunity.
According to U.K. research group EMC’s World Cellular Database, penetration levels for mobile use vary widely within this region. Statistics for Central/Eastern Europe, the Baltics and Commonwealth of Independent States (CIS) show a dramatic range of penetration rates. While more than 20 percent of Estonians own a mobile phone, less than 1 percent of Russians are cellular customers. Not surprisingly, the most affluent states have the highest penetration figures.
A wide range of technologies are employed in the region, although GSM dominates the market with more than 9 million subscribers, or about 85 percent of the user base. NMT 450 (analog) is the next most common technology. In fact, this is the only region where NMT 450 usage is growing. While almost 100,000 new customers signed up for NMT 450 service during the first half of this year in Eastern Europe, more than 150,000 Western Europeans switched from NMT 450 to other systems. Sixty percent of the world’s NMT 450 customers are based in Eastern Europe.
Growth was most notable in Bulgaria, where one-third of all new NMT 450 subscribers signed up, and in Russia, which accounted for a further 30 percent. However, this is completely overshadowed by the 4.67 million new GSM subscribers in the region who signed up since the start of this year, accounting for more than 95 percent of overall growth. An almost equally high percentage are GSM 900 users.
These figures demonstrate some Eastern European countries offer vast potential for future growth, particularly for GSM. Analysts are particularly excited about the potential for Poland, where about 8 percent of the population (around 3 million people) use a mobile phone seven years after the first cellular service was introduced, and annual growth is running at 37 percent.
A number of Western European operators have spotted the potential of Poland, the Czech Republic, Slovakia, Romania, Hungary and other countries in a region that has only 10.5 million cellular subscribers despite covering a huge land mass and boasting a population in the hundreds of millions.
Telenor, the Norwegian state-owned telecommunications company, announced plans to acquire 25 percent of VimpelCom, Russia’s largest mobile operator, last year.
Others tapped into the market even earlier. Bell Atlantic and MediaOne have held a 49-percent stake in Eurotel in the Czech Republic and Slovakia since 1991, when the countries were still united as Czechoslovakia. Rival operator Radiomobil is 49-percent owned by a consortium that includes Germany’s Deutsche Telekom. In Slovakia, France Telecom owns 35 percent of Globtel.
The growth in this market also provides opportunities for equipment manufacturers. For example, Nokia recently signed a deal to supply a complete dual-band GSM 900 system, including equipment and services, to Primatel, Hungary’s new GSM 1800 operator. Matav, another Hungarian mobile operator through its stake in Westel 900 and Westel 450, recently reported an annual increase of 30 percent in mobile revenues. When Primatel launches commercial services, Hungary will join Estonia, Lithuania and Russia as the only countries in the region with dual-band networks.
Slovakia
The Czech Republic and Slovakia are excellent examples of how mobile operators can outperform fixed-line operators. Mobile operators in these countries are signing up customers much more quickly than their fixed-line rivals, which despite considerable reductions, still have massive waiting lists for phone line installations.
The Slovak government has responded by seeking a strategic partner for Slovak Telecom, one of the last wholly state-owned fixed line operators in Europe. But according to a recent Financial Times report, only 29 percent of the population has a phone line, and competition from Globtel and Eurotel will make it tough for any new investor to make their money back.
However, it is not only availability that is turning the Slovakian public toward mobile services. Competition is intense, producing prices that are among the lowest in Europe. Low tariffs have been mainly driven by the second operator, Globtel, a trend that is in contrast to the experience of many Western European countries, where the second operator has had less impact on call costs.
The second operator is also prepared to take chances. Globtel was prohibited from offering international calls via the Internet in violation of the fixed-line operator’s monopoly on such services, and used information services to improve its offering to the end user.
But prospective new mobile entrants could face challenges, particularly in Slovakia, where the difficult physical conditions make it hard to cover the whole country and where the population is widely dispersed. There were no bidders for the last GSM 1800 license.
