Europe is now facing the long-awaited mobile data wave. In Central and Eastern Europe (CEE), mobile broadband (accessed either via a USB modem or using a datacard) is widely available and has been rolled out at a pace often exceeding that in Western Europe; there are reasons to believe that the impact of cellular data will be proportionately far greater in this region than in Western Europe.
In key respects, the introduction of mobile data can be compared to the introduction of GSM. Other than mobility, GSM had few inherent advantages: it gave a poorer service, offering limited coverage at a substantially higher price. However, the volume/price equation altered rapidly, and prices converged with fixed. In CEE, the premium for mobility can already be quite low.
Figure 1 shows the development of the mobile voice premium (average additional spend on a mobile minute compared to a fixed minute) in selected Central and Eastern European markets from 2004 to 2007. In many cases, the mobile premium is already below 0%, and it can be as low as –25%. It can reasonably be assumed that it will fall to 0% or less in all CEE markets within 2 years. Once the mobile premium falls below 0%, it makes more economic sense for the average subscriber to switch to using mobile only, rather than to continue to use PSTN, making PSTN sensible only for discrete classes of heavy users of voice.
Figure 1: Mobile voice premiums in selected markets in CEE, 2004 and 2007 [Source: Analysys Mason Research, 2008]
Mobile data in CEE is already showing a similar pattern. The rapid introduction of consumer-oriented mobile data services in CEE, at a time when competition in fixed broadband is generally weaker than in Western Europe, has led to price premiums being low from the outset. Mobile data services that are broadly comparable, in the sense that in practice they are substitutive, are now fairly widespread in CEE, although they are not in place in every EU market in the region. It is impossible to compare fixed and mobile broadband directly: fixed will nearly always win on speed, but mobile services with volume limits adequate for many household consumers are already generally available (in fact, as mobile broadband will not be capable of providing good-quality streamed video, a volume cap of 3–5GB per month looks generous).
Figure 2, taken from the new Analysys Mason report Central and Eastern European fixed telecoms: market sizings and forecasts 2008–2014, compares the cheapest mobile USB modem or datacard service that offers at least 3GB per month with an incumbent unlimited DSL package that offers at least 1Mbit/s.
Figure 2: Fixed and mobile broadband prices in selected markets in CEE, May 2008 [Source: Analysys Mason, 2008]
The strong position occupied by mobile network operators (MNOs) is often compounded by what is, at best, patchy cable network coverage, and by the lack of effective fixed broadband competition at bitstream or local-loop unbundling level. These factors have brought about a heavy reliance on the following small-scale broadband and sub-broadband initiatives.
- Widespread unco-ordinated Wi-Fi networks. These are peculiarly prevalent in the Czech Republic, where there are an estimated 600 000 subscribers, but substantially less common in other markets.
- Widespread unco-ordinated non-fibre LANs. These usually provide a differentiated service for locally stored content and for the public Internet. Commonplace in some of the less-well developed broadband markets in the region (Bulgaria, Romania, Russia and Ukraine), they frequently have poor levels of Internet connectivity.
Lack of additional services, and the inadequacies of backhaul and Internet connectivity, mean that these networks and/or these customers are likely to be acquired by larger operators in the long run, but how they will be divided up among MNOs and fixed-line players remains uncertain.
Factors that may drive many to mobile – or at least not to mainstream fixed – include:
- low numbers of existing residential customers among the major fixed operators and the increasing number of mobile-only homes
- the lack of naked DSL in some markets, and the absence of significant fixed line competition at the network and/or the retail level
- outside the largest cities, the shortage of metro capacity necessary to upgrade residential LAN networks.
Not all is doom and gloom for the fixed player, but a more differentiated approach to fixed broadband will be necessary. Video has to be at the heart of this, for not even LTE will offer the consumer a satisfactory service for streamed video. A more service-driven approach is appropriate, such as that adopted by O2 in the Czech Republic, where TV is available without high-speed Internet. This differentiation ultimately requires next-generation broadband access, whether VDSL or FTTB. For fixed incumbents, this essentially risky investment may be the main pillar of a defensive strategy, but it is interesting to note that at least one Central and Eastern European MNO, Orange Slovakia, sees FTTB as an opportunity.
One cannot escape the conclusion that the cellular networks are in a better position to compete for consumer spend in CEE. Early indications from Western Europe are that about 50% of mobile broadband is substitutive, and there is every reason to believe that in CEE the loss of market share by fixed will be greater. This leads to perhaps the greatest imperative for fixed-line businesses in CEE: cost transformation. It is as much here, if not more than at the more glamorous front-end of next-generation fixed access, that real progress should be measured. It is also here that, with the honourable exceptions of T-Com Slovakia and some Russian regional telcos, progress towards IP transformation and network rationalisation has been painfully slow among incumbents.
