BMIs Q312 update to the Czech Republic Telecommunications market report contains analysis of the recent trends and developments affecting the market, in addition to BMIs forecasts for the mobile, ARPU, fixed-line and internet sectors through to the end of 2016. Our analysis and forecasts are based on market data for 2011 reported by fixed-line incumbent and mobile operator Telefónica O2, Deutsche Telekom-owned T-Mobile Czech Republic, Vodafone Czech Republic and cable operator UPC Czech Republic. We also incorporate latest data from the ITU for the fixed-line and internet markets relating to the end of December 2010.
One of the main developments set to hit the Czech market in 2012 is the July 2012 cut to mobile termination rates (MTR) enacted by the regulator, the CTU. In March 2012 the CTU announced it planned to cut MTRs in July 2012, with MTRs dropping to CZK0.55. It opened consultations with national operators Telefónica O2, Vodafone and T-Mobile. At the time of writing a final decision has not been reached. However, there is pressure from the European Commission and domestic political actors, which we expect to support the implementation of MTR cuts. BMI expects MTR cuts to lead to declines in ARPU that will incentivise operators to raise investment in wireless data services to compensate for the loss of voice revenue.
In light of declining voice revenue, the announcement from the CTU in January 2012 that the preparation of frequency auctions, particularly for high-speed 4G LTE mobile broadband, will be one of its key priorities in 2012. BMI believes this is a positive development that offers operators the opportunity to grow wireless data revenue, while rural areas will also benefit from increased coverage of broadband services. The CTU plans to issue coverage requirements, with the 4G licences to achieve its aim of 90% population coverage of 4G services within three years.
However, we are less positive about the prospect of the auction attracting a new entrant to the market.
The regulator stated that the additional frequencies may allow the entry of a fourth operator, boosting competition. The Czech mobile market is dominated by major international players Telefónica O2, TMobile and Vodafone. The mobile market is highly developed, with penetration of over 130%, limiting growth prospects, and the presence of established international operators make the traditional voice and SMS market unattractive for a new entrant. With this in mind, BMI argues that the CTU is more likely to attract a new entrant either by enabling it to piggyback on other operators network infrastructure as it phases infrastructure roll-out or by waiving a portion of the licence fee in exchange for meeting coverage conditions.
LTE services have the potential to build on the emerging 3G market, which although starting late on a regional comparison, has been developing rapidly. Operator investments have been accelerated in H211 and Q112, with all three operators extending coverage and capacity. Q112has seen the launch of commercial HSPA+ 42Mbps services, which should boost subscriber growth and which has, until now, been limited relative to other markets in the region. With this operator investment, we expect one of the major trends across the Czech Republics telecoms markets to be the drive by operator to upgrade customers to higher value services as well as developing VAS revenue. With the saturation of the mobile voice segment, BMI expects operators to increase their focus on mobile broadband services and postpaid subscriptions to drive revenue growth. We expect such higher value services to have a positive effect on operators ARPU.
Meanwhile, BMI has a less positive outlook for the wireline sector. LTE services, set to launch following a frequency auction in 2012, will create a larger threat from high-speed mobile broadband. However, for the time being fixed broadband growth has remained robust, with growth rates of 6.4% and 5.9% y-o-y respectively for Telefónica and UPC to Q411. This is the result of network investment on the part of operators. In April 2011, UPC established its first datacentre in telehouse TTC Telekomunikace in Prague. The new facility has a capacity of 350m2, which can be extended further and uses a node with n x 10GB capacity to connect to the optical backbone route. Customers can choose from a wide variety of services provided at the datacentre, including server hosting, web hosting, managed servers, rack housing, cloud services, virtual servers and others. To counter the strong growth of UPC, the Telefónica O2 backed incumbent launched its VDSL network to offer high-speed broadband services earlier in 2011. These investments have boosted average connection speeds in the Czech Republic to the extent that they are now among the highest in the region, benefiting consumers and the economy as a whole.
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