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Lack of competition for fixed line monopoly Telekom Srbija has left Serbs complaining of a poor quality service, which is partly analogue, partly digital, with many households still sharing lines, so that only one can use the phone at the same time. According to the regulator’s figures, landline penetration was around 38 percent in 2007, while GSM penetration was almost 112 percent, a discrepancy explained by long waiting times for landlines to be installed.

Presently, only the mobile sector in Serbia is fully liberalised , earning an estimated €1.8 billion in turnover. Norway’s Telenor (OTCPK:TELNY) bought local operator Mobi 63 in 2006 for €1.5 billion euros & currently services approximately 39% (3 million users) of the market, while Mobilkom, the mobile telephony arm of Telekom Austria (OTCPK:TKAGY), paid €320 million to acquire the third mobile licence bringing an approximate market share of 5% . The remainder is controlled by Telekom Srbjia’s mobile arm MTS which claims more than 5.6 million subscribers, as of November 2008, Telekom is a joint venture 80% owned by the government, with the remainder held by Greco-German OTE Net (OTE) (Deutsche Telecom (DT) recently acquired a 25% in the Greek carrier for €3.2 billion).

Serbia made the first moves towards opening the telecom market in 2005, by establishing an independent regulatory body, but the process has been stalled by political turmoil caused by frequent elections and long periods without a government. The projected opening of the landline market in 2009 will come a year before the government launches an expected initial public offering for Telekom Srbija. With the IPO having been postponed postponed to 2010 due to the global financial turmoil, Telekom Srbija raised prices in November, in an all too familiar bid to attempt to expand its network before competition arrives. Telekom, who are being advised by Morgan Stanley on the offering, is currently estimated to be worth €2 billion, based on 2006 accounts. On completion, the new Telekom will be dual listed on the Belgrade & London Stock Exchanges.

Minister of Telecom Jasna Matic has said to local press that she expects ’several’ companies to participate in the tender for the second fixed line telephony licence, scheduled for the summer. In a statement Matic said that the introduction of competition to the fixed line telephony scene would lead to ‘expedient improvement’ of the market. She added that a tender for fixed wireless telephony concessions covering rural areas was also in the pipeline. At present no companies have expressly come forward to state participation, however a roll of contenders is not difficult to imagine.

Deutsche Telecom has a track record of buying into Balkan operators, with branded operations already running in Hungary, Croatia, Montenegro, Macedonia & Greece (via OTE). Greek operator Cosmote has also been making inroads, having picked up licences in Romania & Bulgaria, however they may be put off by the level of capital expenditure required to compete effectively. Telekom Austria are also a likely competitor for a fixed line licence, as they are already active in country via Mobilkom & have ongoing operations in Slovenia, Croatia, Macedonia & Bulgaria. More interesting to me is the opportunity to roll out fixed wireless broadband services in to rural areas, something that has been ongoing in recent EU entrants such as Slovakia, Croatia & Slovenia, independent telcos such as Swiss based WiMAX Telecom, which operates rural infrastructure in Austria as well as the aforementioned, could form part of a larger bid with Telekom Austria. As ever, a watching brief.

Disclosure: Author has no interest in any of these companies.

Source: Serbia Seeks to Liberalize Fixed Line Telecom