Swan’s voice on Slovak telecom market could be muted

Swan’s voice on Slovak telecom market could be muted
By Carmen Simion December 3, 2015

Swan is looking to challenge the three existing mobile operators on the Slovak telecom market with the launch of its full services at the beginning of October. However, this has been thrown into doubt by the possibility it could lose the 4G license it won almost two years ago – an announcement on which the Slovak telecommunications regulator will make next week, bne IntelliNews has learnt.

Swan, owned by DanubiaTel, the telecommunications branch of investment company Danubia Invest, has been present on the Slovak market since 2001, offering voice, data and internet services. However, Swan took a big step forward when it obtained in January 2014 two 15-megahertz (MHz) blocks in the 1,800 MHz band, which allowed it to build a high-speed data transfer network and provide full mobile services in Slovakia. The company paid €6.6mn for the LTE license.

Apart from Swan, other LTE licenses were bought by Orange Slovensko, a unit of France’s Orange; Slovak Telekom, the local subsidiary of Deutsche Telekom; and Telefonica Slovakia, which was later rebranded to O2 following the acquisition of the Czech parent company by Petr Kellner’s PPF Group.

Yet Swan’s experience operating on the Slovak market has been anything by smooth. Lacking its own full network, it had to piggyback on the networks of its competitors. But there have been long disputes and negotiations between it and the other three mobile operators over the conditions and pricing for national roaming.

Despite the disagreements, Swan managed to launch its full service operations at the beginning of October, after teaming up with Slovakia's state-owned postal service provider Slovenska Posta. Together, they launched the country’s fourth mobile operator, 4ka.

All this work, though, has been thrown into doubt by a recent decision by the Supreme Court, which has ordered the Regulatory Authority for Electronic Communications and Postal services (RU) to investigate whether Swan fulfilled its obligations stemming from the license agreement.

The Regional Prosecutor's Office in Bratislava, which filed the lawsuit against the RU, claims the regulator did not regulate Swan properly, as the company allegedly did not use the license within six months of the date on which it was issued, according to local media. Prosecutors claim Swan only launched its network, but it was not made available to customers within the prescribed period.

The RU told bne IntelliNews on December 3 that it would make an announcement next week about its recent investigation into Swan, which will centre on whether the “operator has started to use the allocated frequencies for permitted purpose and for designated scope within six months after the final lawful decision”. “Next week we will give further information,“ the RU said.

Swan did not respond to repeated requests for comment on this and other matters.

Noise on the line

Regardless of the decision by the RU, the new mobile operator’s task to gain a decent share of the small and penetrated Slovak market will be a difficult one. 4ka can take advantage of Slovenska Posta’s large retail and disribution network while offering low data tariffs. However, analysts suggest the low pricing policy might not be enough to mount a real challenge to the big three competitors, as there is not much space at the bottom end of the voice and messaging market. 

“Generally new entrants in European markets have focused on low pricing – we’ve seen this with Free in France, Three across Europe, as well as O2 in Slovakia. They have all achieved a reasonable level of success, and their market share has continued to grow even years after they launched,” Roman Orvisky, an analyst at Analysys Mason, tells bne IntelliNews. “But the important point here is that most of these ‘late entrants’ were nearly a decade ago, so the competition has developed more now, and there’s a lot less space at the low end of the market, which 4ka appears to be going for.”

4ka has made a promising start. Targeting mainly young people, it managed to gain around 40,000 customers in its first month of operation in October. The company hopes the number will grow as it develops its own 4G network. So far, it covers more than 40% of the Slovak population in more than 60 towns.

“I assume that the start could be relatively fast in terms of customer acquisition, but much harder it will be in several months or a year. I expect them to change their pricing policy and then it would be the real test of survival, with potentially a scenario of very low number of newcomers and majority of customers with very low prices,” Milan Vanicek, analyst at J&T Banka, says.

In Slovakia, a country of around 5.5mn people, there were 6.4mn mobile phone subscriptions (monthly and pre-paid) at the end of June. The number of prepaid mobile subscriptions, a segment 4ka is targeting, reached 1.79mn at the end of June.

Analysts warn, however, that 4ka’s limited 4G coverage could be an obstacle in gaining market share, amid the lack of a roaming agreement with the other operators. “Venturing outside 4ka’s 4G coverage means subscribers will pay 4 cents per MB at 2G speeds,” Orvisky points out.

The arrival of the new low-cost operator is also expected to force Orange Slovensko, Slovak Telekom and O2 to respond by adjusting their offers. “In the context of the entire market, I believe 4ka will remain a niche operator, but it will be interesting to see how current players respond to 4ka’s data offers if they gain traction, and if the prices are sustained,” Orvisky says.