Nicholas Watson in Belgrade -
The Balkans offer some of the last remaining mobile phone markets in Europe that offer much potential for growth and Telekom Srbija has been busy this year buying into these markets in the hope that its ethnic ties will help boost its business there. However, the Serbian state firm's dominant position in its home market is under increasing threat from deep-pocketed foreign players.
One of those major threats is the newly relaunched mobile operator Mobi63, which announced on May 7 that it added 172,000 net new customers in the first three months of this year, bringing its market share 41%. The company posted earnings before interest, tax, depreciation and amortisation (EBITDA) of 31.3m on revenue of 83m.
Year-ago figures weren't made available, because Mobi63 was a very different company then. The mobile operator saw its business suffer over the last few years as it became the centre of a legal wrangle between the Serbian government and the disgraced businessman Bogoljub Karic, who has since fled the country. Eventually, the government managed to retake control of the mobile operator and then sold it on to Telenor in July last year for a hefty 1.5bn.
Telenor, which beat off heavy competition in the tender from Mobilkom Austria and Egypt's Orascom Telecom Holding among others, was willing to pay such a high price over 12 times EBITDA for the growth potential, which is a rare quality in Europe's saturated telecommunications markets.
The market is set to get even more crowded as one of the losing bidders for Mobi63, Telekom Austria's mobile unit Mobilkom, plans to launch its commercial operations in Serbia in June, after it won a tender for the country's third mobile licence at the end of last year.
Analysts say these two players, with their deep pockets and huge experience in offering high-quality customer service and rolling out new products, offer a formidable challenge to Telekom Srbija's mobile unit, MTS, which will almost certainly see its majority share of the market drop as Mobi63 and Mobilkom ramp up their services.
"We can remain a leader only if we are the first to introduce new services, as we did with the 3G network in Serbia," Vladimir Lucic, head of MTS, told SeeNews. "The low prices are not enough by themselves; we need to be faster than our competitors."
While a Belgrade-based analyst says "the main threat for Telekom Srbija comes primarily in the area of the mobile business," the state-controlled firm faces mounting competition in its fixed-line and internet businesses too.
Successive governments and Telekom Srbija have been criticised for dragging their collective feet over opening up the country's telecom market to competition and improving the incumbent's infrastructure to keep pace with advances in modern technology.
The results of this can be seen in the woeful figure of only 18.5% of Serbian households having an internet connection and many of those connections are unreliable and sluggish. To remedy this, Telekom Srbija in March announced it's planning to invest around 5m in its fixed-line and mobile networks in the course of this year. However, at the same time the firm is also reporting an increase in the number of thefts of its optical and other subscriber cables.
Better for customers, argue analysts, would be to fully privatise Telekom Srbija (Greek telecom group OTE owns 20%) and liberalise the market. However, given the unstable state of Serbian politics at the moment and intense lobbying by the management of Telekom Srbija against such reforms, this is unlikely to happen any time soon.
With its hold over its domestic market looking increasingly shaky, Telekom Srbija is making bold moves into the states of the former Yugoslavia.
The biggest of these was its 646m acquisition of a 65% stake in the Bosnian Serb Republic's incumbent operator, confusingly called Telekom Srpske. This was a good move, on the face of it. Bosnia Herzegovina the Croat-Muslim federation and the Serb Republic has one of the lowest mobile penetration rates in the region at 45%, while fixed-line penetration stands at 25%.
"There is plenty of room for further organic growth," says Eva Bakowicz, an analyst with Global Insight.
Telekom Srbija says the thinking behind this acquisition, together with the 16m mobile license it bought in neighbouring Montenegro in March in a consortium with the Dutch company Ogalar, is to target the 1.5m ethnic Serbs in both countries, who through family and business ties to Serbia generate high roaming bills, which the company promises to bring down.
"By operating in the Serb Republic, Montenegro and Serbia, Telekom Srbija will be able to save up to 8m, as it won't need to pay roaming services to different operators," MTS' Lucic claims.
The thinking is sound, say analysts, though as always everything comes down to money.
Telekom Srbija plans to invest 90m in Montenegro over the next seven years to secure a 20% share of the market, while 200m will be spent in Bosnia to gain a 70% share in the Serb part and 25-30% share in the Muslim-Croat part. Much of this will be financed by a 700m syndicated loan Telekom Srbija raised in February from a group of banks led by Citigroup.
However, it's the 646m Telekom Srbija agreed to pay for the stake in Telekom Srpske, which was considerably more than the 467m offered by the only other bidder in the tender Telekom Austria, that led some to suspect the motives behind the acqusition were not entirely business ones.
"I was surprised that our telecom firm could not find a way to invest in Serbia in order to enhance telephony services, but had to go to the Serb Republic and pay way too much for Telekom Srpske," says independent economics expert Milan Kovacevic. "This was a politically motivated acquisition. After this, it also seems that Serbia, which approved this purchase, does not mean to privatize telecom in the near future."
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