Slovakia: Hot competition in telecoms

By Adam Lincoln

A third player, Telefonica O2, has joined Slovakia’s mobile phone market – and not everyone is happy.

Far from the up-and-coming capital of Bratislava, in the mountains of central Slovakia lies Banská Štiavnica, a Habsburg-era town where renaissance and baroque streetscapes have earned the town Unesco World Heritage status. Here, fusty, spare shops that have changed little since the old socialist days jostle with internet cafés, jam-packed with students who very possibly bought their mobile phones at the super-sleek Orange shop down the road. Local companies are capitalising too. One of them, Bandog Security, offers a mobile-based alarm system that alerts homeowners and businesses via text each time their property is breached.

As with many developing economies, the historical underdevelopment of the fixed line network has helped catapult mobile penetration across Slovakia. Mobile phone penetration is nearly 90%, according to the Economist Intelligence Unit. Slovenské Telekomunikácie's mobile subsidiary, T-Mobile Slovensko, has reported it ended Q4 2006 with 2.2m subscribers, up a solid 8.9% on the same period a year earlier, on quarterly revenues up 13.7%. Orange Slovakia, which boasts the largest mobile subscriber base, had a good year too, with revenue of E177m in the fourth quarter, compared to E149m in Q1. Although the uplift in overall customers was relatively minor across the year, from 2.52m in Q1 to 2.69m in Q4 2006, the launch in August of commercial 3G services saw the number of mobile broadband subscribers leap from 40,000 to 214,000.

Competition is hotting up, too, with the arrival onto the local mobile market in February of Telefonica O2 Slovakia, which was awarded the country’s third mobile network licence in August last year. By the time its mobile services were launched, a clever advertising campaign had convinced more than 600,000 potential customers to pre-register for the new services. Those who wish to capitalise on launch deals still have time to register before the end of March, but Telefonica O2 says it reached 110,000 customers in its first 12 days – not bad going in a country of 4.5m people.

Co-operation – and competition

Telefonica O2’s strategy has involved both opening O2 branded shops while working with other retailers. To start, its services are run over the existing mobile networks of rival operators but the company has started to build its own. Its first GSM network base stations were commissioned on 28 February, meeting internal targets and the conditions of its licence ahead of schedule, and the company aims to complete construction of its network in around two years, using Slovak contractors only. In its first year of operation, Telefonica O2 expects to provide coverage to 12% of the population, rising to 45% in its second year.

So far its range of simple tariffs appears to have gone down well with customers, but Telefonica’s success is not universally popular. Even as the company unfurled its wares, Telekom Austria subsidiary Mobilkom Austria 21 was holding out hope it could snatch the third licence away. Indeed, both Mobilkom and the Czech/Slovakian consortium B Four, have filed appeals with the Slovakian authorities and the EU Commission, claiming they submitted higher bids for the licence than Telefonica (SKK 250m and SKK 400m respectively), and that the decision-making process was not transparent. To date the Slovak Telecommunications Office has rejected Mobilkom's complaint and ruled that the process for awarding the licence, which gave greater weight to impact on market competitiveness over price, was fair. Telefonica O2 paid just SKK 150m (US$5.1m).

Its fixed line revenues may be falling – down 10.5% in 2006, but ST, now majority owned by Deutsche Telekom, is not giving up without a fight either. The company is upgrading its infrastructure and says it wants to increase its share of the revenue from ‘triple play’ technologies to 40% in 2008, up from 15% in 2005. The outlook would appear to be fair: ST’s IP/internet services revenue grew by 28.3% for the year. The company also added 78,000 ADSL customers during 2006, for a total of more than 182,000, and hopes to hit the 300,000 mark by the end of 2007.

By 2005 the mobile segment already accounted for 60% of telecoms revenues in Slovakia; with saturation now nearly complete, the future will belong to those who can win the loyalty of those customers who need a new phone every year. And in fashionable Slovakia, that group is expanding as fast as the country's buoyant economy.

SOURCE: THE ECONOMIST INTELLIGENCE UNIT