How far will the merger of Romania's 3rd and 5th-placed cellcos shake up the country's mobile market?

In mid-May, as part of a longer piece about M&A activity potentially changing the competitive landscape in Central and Eastern Europe, I noted that Greek telecoms group Cosmote had reportedly reached an agreement with Oger Telecom regarding the takeover of Romanian CDMA mobile operator Zapp.

According to James Middleton of telecoms.com writing today, this deal now seems to have been concluded, with Cosmote buying Zapp under a share purchase agreement worth EUR 61 million. The Greek firm will also assume Zapp’s debt and other liabilities worth in the region of EUR 146 million.

The country's mobile market, the penetration rate of which currently stands at 135.13% according to WCIS, will therefore be contested by four cellcos once Cosmote's Romanian operation is merged with its new acquisition.

Why was Zapp an attractive purchase for Cosmote? After all, the acquired company has just 242,000 of the country's 28.7 million mobile subs, according to WCIS figures. Further, the CDMA network operator has been experiencing a steady decline in its customer base since June 2007, when its number of subs peaked at around 546,000.

As I said in May, the answer lies in the fact that although Zapp had already got into third generation service provision via the deployment of a existing CDMA EV-DO network, the company decided last year to use UMTS/HSDPA technology for its 2100 Mhz network as opposed to CDMA2000. This solves a pressing problem for Cosmote Romania, which was the lone cellco with no 3G proposition.

"This opens up a new cycle of development and a widening of the customer base for Cosmote in Romania, given that the company is acquiring both a third generation license and infrastructure," Cosmote group CEO Michalis Tsamaz said in a statement issued last week.

Alkman Granitsas, writing for Dow Jones Newswires today, rounds up some analyst responses to to deal. Brokerage HSBC Pantelakis Securities, for example, stated that the company had paid "full price" for the acquisition, paying a multiple of 3.4 times 2008 enterprise value-to-sales.

"The main rationale behind the acquisition was (Zapp's) 3G licence with the network currently covering 23 Romanian cities," said HSBC. "Cosmote Romania was the only mobile operator in the country not owning a 3G licence; hence we believe that OTE had to pay a rather full price to effectively acquire such a licence so as to be able to compete more effectively in this highly competitive market."

Certainly, Cosmote must be hoping that the addition of 3G services to its portfolio will sharpen its competitive edge in a market where the Vodafone and Orange branded cellcos have been much more successful to date, with 33.95% and 35.34% market share respectively. Their Greek-owned rival lags some way behind with 22.90% of mobile subs. Zapp aside, only latecomer RCS&RDS has built a smaller share of the market - just 6.97% when the WCIS folks last crunched the numbers.

Perhaps more serious for Cosmote, and presumably partly attributable to its lack of a 3G offering, is the degree to which is under-performs in terms of ARPU. Monthly ARPU for Vodafone and Orange as of 2Q 2008 was EUR 10.30 and EUR 10.33 respectively, according to the most recent Central & Eastern Europe Mobile Market Analysis and Forecasts report from Informa Telecoms & Media. The same report indicates that Cosmote Romania's ARPU for the same period stood at just EUR 4.9. Cosmote was also doing much worse than its rivals in terms of ARPU decay, it's 2Q 2008 numbers being down a hefty 25.8% vs. the figure recorded a year earlier. While its two main competitors had also seen ARPU decline, this was at nothing like such a rapid rate.

It will be interesting to review the updated figures a year from now and see if the Zapp acquisition has represented good value for money for Cosmote.

How far will the merger of Romania's 3rd and 5th-placed cellcos shake up the country's mobile market?

M&A activity set to change the landscape of SE Europe; Central Asia to follow?

The emerging markets focus of this blog has led me, in the main, to round up and review developments in low teledensity countries of Africa and Asia, with only occasional detours into somewhat more mature markets in Eastern Europe, Central Asia, Latin America and elsewhere.

This time, however, being here in Vienna (dodging the rain and catching up on paperwork right now) has inspired me to look a bit closer to (my) home.

According to a recent TeleGeography article, Greek telecoms group Cosmote has reportedly reached an agreement with Oger Telecom regarding the takeover of Romanian mobile operator Zapp. Cosmote's existing Romanian operation occupies the third position on the market with 22.55% of the 28.55 million subs, according to the World Cellular Information Service. Zapp is a much less significant operation, with 0.96% of subs - and this is down from 1.82% a year ago.

What, then, is the point of this prospective acquisition? Gaining a 3G proposition seems to be the answer - Cosmote Romania is, as the TeleGeography article notes, the only mobile operator in the country without a UMTS concession.

For a long time, Zapp was the Romanian market's lone CDMA operator. Although Zapp had already got into third generation service provision via the deployment of a existing CDMA EV-DO network, the company decided last year to use UMTS/HSDPA technology for its 2100 Mhz network as opposed to CDMA2000. I daresay had Zapp not gone down this route, the company would be a less attractive acquisition target for Cosmote.

Zapp is an extremely small part of the Oger Telecom portfolio, which includes South African cellco Cell C and Turk Telekom, Turkey's dominant wireline operator which has, according to another recent TeleGeography story, formed a joint working group with its parent company to prepare an offer for the Kyrgyz state-owned telecoms operator Kyrgyztelecom. That article states that the privatisation of Kyrgyztelecom "has been on the Government’s agenda since 1998, although little progress has been made" and that "in July 2008 Turk Telekom declared that it was considering bidding for the 77.84% stake in the telco, but two months later was barred from participating after it failed to pay a required security deposit within the deadline." According to this story, these difficulties have not deterred the Turkish operator from coming back for another attempt.

While keen to improve its proposition in Romania, Cosmote might appear to be in the midst of evaluating how much of the rest of its southeastern Europe footprint it would like to retain. As well in Romania, currently the group has operations in Albania and Bulgaria. Until recently, the Cosmote footprint also extended to Macedonia, a market from which the Greek group exited via the sale of MNO Cosmofon to Telekom Slovenije. On 31st March telecoms.com reported that the Slovenian incumbent had beaten Turkcell to the punch with a successful EUR 190m bid for the Macedonian cellco. That article notes that as well as operating a 3G-HSDPA network, Cosmofon has also acquired six regional WiMAX licenses and launched a nationwide WiMAX network.

Were Cosmote to consider retreating further from the Balkans, one party unlikely to approve would be Deutsche Telekom. A recent MarketWatch article indicates that the giant German telco's purchase of a 20% stake in Cosmote's parent company OTE is motivated by a desire to offset increasing competition from cable and Internet operators on DT's home turf - specifically by expanding its footprint in high-growth markets such as Bulgaria, Romania and Albania.

M&A activity set to change the landscape of SE Europe; Central Asia to follow?

Telcos hit by high licence prices in India and Romania

These days it is proving rather tricky not to make a blog entry without some reference to the global economic downturn. When I was putting some notes together for today's posting I thought I might manage it, but then I spotted the latest post on Dean Bubley's excellent Disruptive Wireless blog. Dean writes about the panel discussion which he will be moderating at Mobile World Congress in Barcelona next week, the theme of which is 'Prospering on a Shoestring', i.e. looking at "various tactics and strategies that can be employed by operators to mitigate the worst impacts of the downturn". In the years before I had the luxury of sharing an office with the in-house analysts at Informa Telecoms & Media, I had to beg, steal (not literally) and borrow information when working out what should be on the agenda of the various industry conferences it was my task to organise. Dean Bubley was always an excellent source of valuable insights and my hunch is that in this Highdeal-organised panel session, he will ask very challenging questions and stimulate lively but civilised disagreement between the participants. I am not sure if Dean rounded up the panellists himself, but whoever is responsible gets ten out of ten for putting together telco operator representatives from varied markets. Telekom Slovenije and Mauritius Telecom on the same panel? I doubt that happens very often.

I won't be there to see Dean stirring up debate. Having made it to two consecutive 3GSM/Mobile World Congresses, this year I will not be in Spain for the annual cellular industry get-together. Instead, I shall be using the next three weeks to prepare for the role I will be taking on in March. In case that sounds like a boringly pragmatic use of what could be a nice bit of free time, I should point out that a good deal of my preparation work will be done within sight of a swimming pool and golf course in south Florida. Much as I'd love to watch cold rain falling on melting snow for the rest of this month, family obligations compel me to turn my back on the dark, short days of northern Europe in favour of milder climes. It's a hard life...

I don't anticipate that this blog will grind to a halt while I am catching some rays in the Sunshine State, although I will have to work out my connectivity options. Cost-conscious in these troubled times, my host in Florida has ditched his PSTN line and broadband service and, when not in his office, is now linked to the wider world only by his AT&T Mobility iPhone. I'll fight him for it...

While enduring a punishing regime of sunshine, warm weather, free babysitting and free room and board, I will continue to keep an eye on what's going on among the telcos active in emerging markets. What caught my eye today was really just a case of picking up from yesterday's musings about the prospects for 3G and WiMAX in India.

Today's Cellular News mailout included a piece on how Vodafone Essar plans to meet the cost of its bids in the country's delayed 3G and WiMAX auctions. As I mentioned yesterday, the latest delay is a result of the country's Finance Ministry weighing in to see if the the reserve price for the 3G auction can be doubled. The Cellular News article provides the numbers: the current reserve price for the 3G auction is US$412 million with the Ministry now hoping for at least US$824 million.

Working to bring 3G services to market in India certainly seems to be a task fraught with difficulties, of which this demand from the holders of the nation's coffers is just the latest. Also sticking a spanner in the works is the country's Defence Ministry, which, according to this article, is set to release just one fifth of the unused defence sector radio spectrum that the Department of Telecommunications had hoped for.

In this challenging context, who can blame Vodafone Essar CEO Asim Ghosh for taking up the option to retire at the end of next month? According to a second Vodafone India-related Cellular News story today, Ghosh, who joined the former Max Touch-branded operator in 1998, is to be replaced by Marten Pieters, a former CEO of Celtel International, the pan-African cellco which is now part of Zain. Pieters is currently a director of Millicom International Cellular, a Luxembourg-headquartered company with mobile operations across Africa, Latin America and Southeast Asia.

While the 3G licence process in India has hit a number of hurdles, I discussed yesterday the belief that once these are overcome, the greater efficiency of the technology vs. 2G networks will turn out to be a key driver of accelerated growth of the country's overall mobile market. I wrote about a proponent of this view arguing that the case for 3G looks very positive and that WiMAX also looks a reasonable bet.

WiMAX fans will be more disappointed by news from Romania, where Telecompaper reports that absolutely nobody fancies either of the two licences in the 3600–3657 MHz and 3700–3757 MHz radio frequency bands for providing broadband wireless access services. Having acquired the tender book, a diverse group of initially interested parties have all come to a negative response to the EUR 7.5 million licence fee. These include two long-established mobile operators - Cosmote's Romanian operation and the country's outpost of the Vodafone empire. Also interested was RCS & RDS, a cable MSO and broadband service provider which launched 3G services in December 2007 and now has a mobile market share of just over 5% according to WCIS. Two more to say no were Asesoft International (an IT solutions provider) and a company called Comcore Management.

That's all for today. Having failed to avoid mentioning the global economic horror story today, I will set myself the challenge of not mentioning the Indian 3G and WiMAX licencing processes tomorrow. That might be tricky with new twists and turns getting coverage every day.

Telcos hit by high licence prices in India and Romania