Strong Signal
The deregulation of the telecom market in Central and Eastern Europe (CEE) has created a challenging playing field for former industry monopolies. What strategies spell success in the region? What are the key differences to Western Europe?
Industry experts from Roland Berger Strategy Consultants and UniCredit CAIB AG addressed these core questions during the presentation of the first edition of the "CEE Weather Report – Telecom" in Vienna on Thursday. With fixed network penetration in the region at just 40%, the success rate of mobile phone subsidiaries was crucial, the authors said. The strong growth of mobile networks was, however, having an adverse effect on the fixed network broadband segment and impeding the spread of innovative fixed network products, the experts noted. In terms of individual corporate behavior in the market, the report highlights that some incumbents have been able to tap the knowledge and financial power of strong strategic investors, which had strengthened their overall positioning. This model had allowed companies to respond to new competitive pressures more flexibly, keeping them ahead of the game."Throughout Europe, incumbents are thinking about how they can position their existing fixed network infrastructure profitably against mobile phones. In Central and Eastern Europe, this question is even more urgent, as low levels of fixed network penetration, poor network quality and relatively low numbers of computers are driving customers into the arms of mobile phone companies even faster," said Paul Drazdil, one of the study authors and a telecom expert at UniCredit CAIB AG's M&A Department. In response, all incumbents in the region have set up or acquired their own mobile phone subsidiaries to offer the market attractive combination products. But only those who were already involved in the mobile sector prior to 2001 have really succeeded. Latecomers such as Vivatel in Bulgaria, UralSvyazInform mobile in Russia and Utel, Ukrtelecom's subsidiary, had all reached less than 10% market share in their efforts to compete with established players.
Want success? Involve the West
How successful companies are depends not only on a favorable regulatory environment, but also on who their strategic investors are. Telefónica O2 in the Czech Republic, Telekomunikacja Polska (France Telecom), Romtelecom (OTE) and Magyar Telecom (Deutsche Telekom) are backed by industry giants from Western Europe. "In these countries, restructuring measures were launched as soon as they were sold. New owners could draw on their parent companies' experience. As a result, the products and services they marketed in CEE were those which had already proven successful in Western Europe," says Dr. Julian Pötzl, one of the study's authors and Principal at Roland Berger's Vienna Office. The degree of their success varies from one country to another, though: "By far the furthest ahead in terms of sales growth and EBITDA margins is Telekom Srbija, but it's still a monopoly, so it doesn't have to compete yet. The leaders also include Telefónica O2 in the Czech Republic and Telekomunikacja Polska. Romtelecom and Magyar Telecom are in the middle of the field, and the stragglers are BTC of Bulgaria and Ukrtelecom. Both their mobile phone providers are doing poorly in terms of market share, as is UralSvyazInform of Russia, which is pursuing the largely unsuccessful strategy of a full-service operator," Pötzl notes.
Industry experts from Roland Berger Strategy Consultants and UniCredit CAIB AG addressed these core questions during the presentation of the first edition of the "CEE Weather Report – Telecom" in Vienna on Thursday. With fixed network penetration in the region at just 40%, the success rate of mobile phone subsidiaries was crucial, the authors said. The strong growth of mobile networks was, however, having an adverse effect on the fixed network broadband segment and impeding the spread of innovative fixed network products, the experts noted. In terms of individual corporate behavior in the market, the report highlights that some incumbents have been able to tap the knowledge and financial power of strong strategic investors, which had strengthened their overall positioning. This model had allowed companies to respond to new competitive pressures more flexibly, keeping them ahead of the game."Throughout Europe, incumbents are thinking about how they can position their existing fixed network infrastructure profitably against mobile phones. In Central and Eastern Europe, this question is even more urgent, as low levels of fixed network penetration, poor network quality and relatively low numbers of computers are driving customers into the arms of mobile phone companies even faster," said Paul Drazdil, one of the study authors and a telecom expert at UniCredit CAIB AG's M&A Department. In response, all incumbents in the region have set up or acquired their own mobile phone subsidiaries to offer the market attractive combination products. But only those who were already involved in the mobile sector prior to 2001 have really succeeded. Latecomers such as Vivatel in Bulgaria, UralSvyazInform mobile in Russia and Utel, Ukrtelecom's subsidiary, had all reached less than 10% market share in their efforts to compete with established players.
Want success? Involve the West
How successful companies are depends not only on a favorable regulatory environment, but also on who their strategic investors are. Telefónica O2 in the Czech Republic, Telekomunikacja Polska (France Telecom), Romtelecom (OTE) and Magyar Telecom (Deutsche Telekom) are backed by industry giants from Western Europe. "In these countries, restructuring measures were launched as soon as they were sold. New owners could draw on their parent companies' experience. As a result, the products and services they marketed in CEE were those which had already proven successful in Western Europe," says Dr. Julian Pötzl, one of the study's authors and Principal at Roland Berger's Vienna Office. The degree of their success varies from one country to another, though: "By far the furthest ahead in terms of sales growth and EBITDA margins is Telekom Srbija, but it's still a monopoly, so it doesn't have to compete yet. The leaders also include Telefónica O2 in the Czech Republic and Telekomunikacja Polska. Romtelecom and Magyar Telecom are in the middle of the field, and the stragglers are BTC of Bulgaria and Ukrtelecom. Both their mobile phone providers are doing poorly in terms of market share, as is UralSvyazInform of Russia, which is pursuing the largely unsuccessful strategy of a full-service operator," Pötzl notes.
New products and services could ensure long-term growth
Growth in the telecom markets in Central and Eastern Europe may level off in the next few years, not least because mobile phone penetration is already high; But experts believe the investment will pay for itself in the medium term. New products and services, such as broadband including IP-TV and IT services, will play a particularly important role here. "You can use these products to set yourself apart from your competitors, attract new customers and, above all, make the fixed network more attractive. But they have had little impact on business trends to date," says Drazdil. Nor are topics such as next generation (NGN) mobile phones or cross-border services on the agenda as of yet.
CEE markets still highly competitive
Aside from offering innovative products and services, though, companies cannot afford to be idle on the operational level, the authors argue. "These countries still have highly labor-intensive organizational structures and cumbersome bureaucracies, so they're not very efficient. And there's still room for improvement, mostly in marketing," Pötzl believes. Many players have yet to address topics like segmenting customers and addressing specific target groups. "They need to act here, because business in CEE will definitely not be getting any easier in future. Saturated mobile phone markets, extremely tough competition, low margins and high barriers to entry for IT services mean all suppliers face major challenges," Pötzl predicts.
If you have questions or comments regarding this or any other story, please do not hesitate to contact us:
Growth in the telecom markets in Central and Eastern Europe may level off in the next few years, not least because mobile phone penetration is already high; But experts believe the investment will pay for itself in the medium term. New products and services, such as broadband including IP-TV and IT services, will play a particularly important role here. "You can use these products to set yourself apart from your competitors, attract new customers and, above all, make the fixed network more attractive. But they have had little impact on business trends to date," says Drazdil. Nor are topics such as next generation (NGN) mobile phones or cross-border services on the agenda as of yet.
CEE markets still highly competitive
Aside from offering innovative products and services, though, companies cannot afford to be idle on the operational level, the authors argue. "These countries still have highly labor-intensive organizational structures and cumbersome bureaucracies, so they're not very efficient. And there's still room for improvement, mostly in marketing," Pötzl believes. Many players have yet to address topics like segmenting customers and addressing specific target groups. "They need to act here, because business in CEE will definitely not be getting any easier in future. Saturated mobile phone markets, extremely tough competition, low margins and high barriers to entry for IT services mean all suppliers face major challenges," Pötzl predicts.
If you have questions or comments regarding this or any other story, please do not hesitate to contact us:
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