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?

CDMA-alive-and-well Watch: good news from India?

For the last month or so, media, analysts and bloggers have offered comment about the news that India has overtaken China to become the world's largest CDMA market. This was announced last month by the CDMA Development Group (CDG), the trade association whose role is to foster the worldwide development, implementation and use of CDMA2000 technologies.

According to the CDG, "there are now more than 100 million CDMA subscribers in India". This figure, however, is some distance from the number provided by the Informa Telecoms & Media World Cellular Information Service, according to which there were 77.1 million Indian CDMA subs by the end of March. According to WCIS figure, this rose from 72.6 million as of December 2008 and 66.6 million as of September 2008 - fairly consistent growth of about 5 million subs per quarter. If the WCIS figure are accurate, it's hard to imagine a sudden leap to 100 million subs by late May.

As well as impressive-sounding subcription numbers, the CDG press release also featured warmly supportive quotes from India's two leading CDMA operators:

"CDMA is a technology that allows a rich telecom experience, especially on the data side, and we are confident that in the years to come that experience will only get better, especially as 3G arrives and we are able to unleash the full potential of applications and services," said Mr. Anil Sardana, Managing Director of Tata Teleservices.

"We remain committed to further grow and serve our ever-increasing CDMA customer base through innovative applications, superior network quality and service and attractive value-propositions," said Mr. S.P. Shukla, President, Wireless of Reliance Communications.

The latter quote is interesting in light of an assertion by Informa Telecoms & Media that "India’s Reliance has also been looking to sideline CDMA for GSM/WCDMA" - a comment made in the analyst firm's Asia Pacific Mobile Market Analysis and Forecasts report, which was released this month.

That phenomenon of CDMA operators favouring the W-CDMA/HSPA flavour of mobile broadband over the CDMA family EV-DO route is, of course, not unique. The Informa report asserts that South Korea's "CDMA stalwarts" SK Telecom and KT "are vigorously pursuing HSDPA." The report contends that this will further the degree to which CDMA operators face disadvantages when competing with GSM/W-CDMA rivals, stating that "as Asia Pacific operators jump on the HSDPA bandwagon, handset pricing will continue to fall, meaning that EV-DOrA operators will struggle to compete on handset price. The same argument applies to EV-DOrA network prices."

Whichever set of numbers you choose to work with, then, (the CDG's 100 million vs. Informa's 77 million), it will be interesting to observe for how much longer India's CDMA subs growth continues and is cited as evidence for CDMA technology being in rude health.

CDMA-alive-and-well Watch: good news from India?

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?