The Slovenia Times

Plugging into European Trends



While observers did not expect serious repercussion for the industry as the result of the government's decision, the stock market traders were not so sanguine. When the news about the suspension of the privatization process broke, the stock price of the Telekom Slovenije group plunged from around EUR 320 in the beginning of March to around EUR 250 three months later. The group is Slovenia's biggest provider of fixed and mobile telephony services as well as broadband internet access, which makes the disappointment of potential investors (and of those who expected to pocket a sizeable takeover premium) quite understandable.

Skipti, a telecommunications services provider from Iceland, and a consortium composed of Bain Capital, Axis Capital and British Telecom both offered EUR 400 a share for the government's 49 percent stake in the group. That was significantly more than what the stock had been worth on the market where it had been trading at around EUR 320. Why exactly the privatization of Telekom Slovenije was suspended is not entirely clear, but judging by the squabbles that erupted between the leading managers after the sale was called off, not everybody thought that the government's privatization strategy was in the best interest of Telekom Slovenije.

Some analysts went even further, saying that there is no need to privatize the telco group as it can easily survive and prosper on its own. As fixed telephony services are bringing in less and less revenue, the telco operators are forced to substitute this loss with faster growth in the mobile and broadband internet segments of the market. Telekom Slovenije has proved that it can rise to the challenge. In 2007, its subsidiary Mobitel, the biggest mobile operator in the country with 1.2 million users and a 65.5 percent market share, increased its profit by seven percent to EUR 50.6 m. At the same time, however, the group as a whole reported a profit of EUR 88.3 m, 15 percent less than the year before, with revenues from fixed-telephony services being the hardest hit.

The results of Mobitel's main competitor Simobil, a subsidiary of world's biggest telco firm Vodafone, show that mobile telecommunications will indeed be a source of growth for some years to come. The company managed to increase its market share by almost three percent last year, to 25.8 percent, while its profit rose to EUR 29.7 m, a whopping three times greater than in 2006. The fears of many observers of the industry that the Slovenian telecommunications market is characterized by the absence of competition proved to be unfounded. Despite the unequivocally dominant position of the state-owned incumbent in all segments of the market, alternative mobile operators are chipping at Mobitel's market share. The latter shrinked by five percent in only a year, meaning that not only Mobitel's biggest competitors were able to assert themselves, but also smaller operators and resellers.

Putting things into a European perspective, one can see that the level of development of the Slovenian telco market and the range of services it offers to the users are comparable to the European Union average. In October last year, mobile penetration rate in the EU was 111.8 percent, meaning that the number of subscribers exceeded the population of the EU by over a tenth. Slovenian telco regulator, Apek, reported that in Slovenia the penetration rate reached 96,4 percent in the last quarter of 2007. While this is significantly lower than the EU average, the Slovenian penetration rate is still higher than it was in the EU less than three years ago. Ample scope for growth thus exists on Slovenian mobile market before it reaches the level of saturation observed in the EU. Although such a view might not be shared by Western Wireless International, an American mobile operator whose Slovenian subsidiary Vega could not get off the ground, new entrants in the market can nevertheless prosper, if they have a viable business model. Tuš mobil, an operator owned by retailing tsar and Slovenia's richest man Mirko Tuš, has been steadily gaining market share, using supermarket outlets as a distribution channel. Innovative strategies that lower costs matter, especially in highly competitive and well-regulated markets.

Price comparisons between Slovenian and other European telecommunications markets dispels a popular myth among more liberal-minded economists that state ownership and dominant market position of the incumbent impede competition and force higher prices on the users of telco services. Taking an OECD-defined medium usage basket as a point of reference, Slovenian mobile operators' offer prices that are either near or below the EU average of EUR 22.90 per month. Another important indicator, interconnection charges for call termination on mobile networks, shows that in Slovenia it is relatively cheaper to call from one mobile network to another than in other EU countries. As interconnection charges were significantly above the EU average only a year ago, the fact that Slovenian mobile operators' charges are now among the lowest in the EU testifies to the effectiveness of the telco regulator. Strict enforcement of competition rules thus allows the users to enjoy the advantages the EU directive on number portability between different networks has brought them - the number of users that decided to change operators has been growing exponentially in recent months.

With fixed-telephony services in decline and the nearly saturated mobile telecommunications market, telecoms are increasingly looking at providing access to broadband internet and services it enables as the market where potential for growth is still largely unexploited. In Slovenia, the broadband penetration rate is 17.3 percent, below the EU average of 20 percent. However, among the countries that joined the EU in 2004 or later, only Estonia has a higher broadband penetration rate. Some blame these rather uninspiring numbers on the usual suspect, the Telekom Slovenije group, which is the biggest provider of broadband access with a 49.8 percent market share. However, in Netherlands and Ireland, both staunch defenders of liberal markets, the market share of the incumbent is greater still. T-2, the leading alternative provider of broadband access in Slovenia, managed to increase its market share seven-fold to 14.2 percent over the past two years, while Telekom's share dwindled by 12 percent in the same period.

The redistribution of market shares in mobile and broadband markets between the incumbent and a number of alternative operators and providers proves that the Slovenian telecommunications market is dynamic and competitive. With prices lower than in the rest of the EU, Slovenians can shop around for the latest in telecommunications services such as broadband telephony (VoIP), television (IPTV) and combinations of services such as triple- and quadruple-play. When it comes to the uptake of information and communication technologies, Slovenian companies trail behind their counterparts in 12 member states. Consumers, on the other hand are less hesitant: Slovenia comes third in the EU when the share of population using VoIP and IPTV is taken into account.


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