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Moldova telecom sector2011


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  • 1. Spotlight Telecommunication sector in Moldova - A look into the future - Trends, Drivers, OpportunitiesAuthor: IAMBLA - 2011 -
  • 2. Country Overview Moldova is situated in South Eastern Europe, north of the Balkans, at the crossroads of commercial routes that join Western Europe and the CIS countries. It stretches 350 km from North to South and 150 km from East to West, and has a total area of 33,846 (about 12,600 sq.mi.). Booming remittances, FDI, and banking sector have propelled the local economy over the last decade. GDP growth is projected to continue its strong pace in the future, supported mainly by the projected recovery in external demand from the major trading partners Russia and Ukraine, by the expanding commercial balance with EU, accelerated remittances and by the ongoing liberalization and deregulation of the economy.
  • 3. Market Overview The Fixed Telephony segment in Moldova remains to be controlled by the Moldova‘s incumbent operator, Moldtelecom. Even though the market entered into liberalization phase in 2004, at the end of 2010 the incumbent still retains about 99% market share. The Mobile Telephony has been the main driver for the local telecom sector during the recent years, with a CAGR of 21% over 2005 - 2010 period, increasing its market share in the sector from 39.7% at the end of 2005 to 56.2% by the end of 2010. The market is divided between three players: two GSM operators (Orange, with 73% market share, and Moldcell, with 24.2% market share) and one CDMA operator (Unite, with about 3% market share). Concerning the development pace, Internet Access Services and Transmission Data (IAS) segment has recorded the second highest CAGR over 2005 - 2010 period, 32.7%. This dynamics has allowed to expand the segments market share to 8.6% by the end of 2010, from 4.5% in 2005. In terms of market players, IAS segment is the most populated telecom segment in Moldova, however it is still dominated by low competition, particularly in rural area. Broadband technologies have taken supremacy on the Moldovas IAS segment. Large scale deployed investments over the last 5 years have increased the share of broadband subscribers from 26% in 2006 to 99.7% in 2010. Moldtelecom is leading the fixed broadband segment, with 65.7% market share at the end of Q1 2011. Its supremacy has been supported by steady infrastructure investments across the country and its still monopoly position over fixed-line telephony outside Chisinau.
  • 4. Market Overview ADSL is the most popular desktop broadband access platform, with about 60% market share, by the end of Q1 2011. This leading position, even though declining, is supported by the fact that ADSL technology is provided by Moldtelecom. FTTX/LAN technology platform is currently the fastest developing Internet Access Solution. Until recently this platform had been deployed only in Chisinau. Still there are a lot of opportunities for this technology to expand, including outside Chisinau. This solution is provided by Moldtelecom as well, however the incumbent is less active in expanding this offer than its competitors, being more focused to exploit with ADSL offers its monopoly position outside Chisinau. Wi-Fi is also experiencing visible growth, still its market share is less than 1%. Similar to FTTX, Wi-Fi technology had been deployed almost entirely in Chisinau. However, during the last couple of years it is receiving increasing acceptance in other regional towns as well. Concerning WiMAX penetration, it is still in the project phase. Leading internet providers have not yet performed any sustainable actions to develop this technology in Moldova. Broadcast and retransmission services generated only 24,2 million USD of revenues in 2010, which stands for 4.8% share of Moldavian telecom market. However, in terms of revenue growth, this segment recorded the fastest pace over 2005 — 2010 period, with a CAGR of 37.4%.
  • 5. SWOTStrengths  Sustainable development during the past years and promising prospects for future growth  Increasing political support for ICT market development  Fast penetration of mobile and broadband technology platforms  Steady growth of the local outsourcing market  Increasing number of ICT providers with the ability to bundle different services  E-Government and E-Governance initiatives  Future reforms in the sector, as a result of European integration, which are expected to put greater emphasis on quality services
  • 6. SWOTWeaknesses ● Inadequate financial resources ● Still monopoly situation in fixed telephony market ● Lack of competition for broadband internet access solutions in rural areas ● Difficult to develop niche products in a small country ● Limited competition on computer hardware and telecom devices retail markets ● Insufficient technical and professional level personnel ● Low computer literacy among people older than 40 years ● Political instability
  • 7. SWOTOpportunities ● Fast growing demand for broadband and mobile internet access platforms ● Expanding demand for dedicated solutions due to increasing acceptance of digital technologies ● Growing interest from foreign investors to acquire local players or to start projects from scratch with focus on outsourcing services ● Sustainable economic growth should accelerate demand for ICT business solutions (ERP, BI, in-house developed solutions, telecom equipment) ● Increasing prices, internet penetration and demand for convenience should accelerate the development of online shopping business ● Expanding demand for portable computers, difficult and expensive deployment of FTTX/LAN platform in rural areas should increase demand for Wi-Fi and mobile internet access solutions in these regions ● Upcoming large infrastructure projects in the public sector should open many opportunities for ICT services providers as well as for resellers
  • 8. SWOTThreats ● High investment costs ● Decrease of average revenue per customer (ARPU) ● Difficult access to commercial debt ● Permanent emigration of Moldova citizens in EU countries and Russia is expected to accelerate once fears and suspicions of another crisis in these regions will vanish, as well as when Moldova will get visa-free regime with EU countries ● In terms of demographic factors, Moldova is expected to experience a negative natural growth balance over the next decade
  • 9. Market Outlook The Fixed Telephony segment will remain almost entirely controlled by the local incumbent operator even though it will raise subscription costs or charges for voice services. This segment will continue to decline, being strongly influenced by the fixed-mobile substitution and internet penetration. Even though the segment will be increasingly populated, mainly through bundled services, revenues of Moldtelecoms competitors in this segment will remain marginal. The ongoing declines in the average per-minute price for voice calls provided by mobile operators offer limited opportunities for new players to expand their businesses in Fixed Telephony. The Mobile Telephony segment will maintain its leading position as telecoms largest business line. The segment will remain populated only by three players: Orange, Moldcell, and Moldtelecoms mobile telephony branch – Unite. Theoretically new operators could access the market by deploying own infrastructure from scratch or through MVNO approach.● To develop a profitable business using first option will be highly difficult to achieve, as it requires large investments. In addition, penetration in Moldavian mobile telephony market is close to saturation. Eventis, which operated on the market since December 2007 and went into bankruptcy in 2010, is a worth mentioning case.
  • 10. Market Outlook Concerning MVNO approach, at this stage it is difficult to be deployed by any local telecom providers. Successful MVNOs are typically well known, well positioned companies, with a good deal of marketing clout, with extensive financial resources. At the moment, it is difficult to mention any non-mobile telecom operators in Moldova with such financial and marketing power. Future development of the local mobile telecom segment will continue to be hampered by the migration of local population, which is expected to continue as world economies are recovering from the recent financial crisis. Estimating the number of Moldovans abroad is a difficult exercise. According to many sources, estimates range between 500,000 and 1,000,000 people. At the end of 2010, Orange had about 2 million customers, Moldcell – slightly more than 1 million customers, and Unite – 131,223 customers. Taking into account the number of local emigrants, we can assume that the penetration rate in the local mobile telephony segment overcomes 100%. By comparison, according to Tariff Consultancy Ltd, by the end of 2010, penetration rate across eight key European countries had reached 125% in this telecom segment. Thus, the potential to further expand “mobile” customer base in Moldova is limited. For the near term, new mobile technologies, like 3G, 4G, LTE or WiMAX are expected to receive limited adoption, except for 3G. These will be maintained in project phase for the near future, the profitability of such investments in Moldova will remain questionable.
  • 11. Market Outlook The major factors that will restrain the penetration will remain cost issues and limited demand for expensive high speed broadband services. Concerning the Internet Access Services segment, in the near future it will be difficult for newcomers to access the fixed broadband market., particularly in Chisinau. As a result of substantial investments needed, mostly well established providers with their extensive infrastructure and customer bases can profitably roll out ADSL and FTTX/LAN technologies platforms. Taking into account that penetration of broadband internet is significantly lower in Moldova comparing to all EU states, 6.3% versus EU27 average of 25.6% at the end of 2010, it is obvious that there is a huge market potential remained to be capitalized. Most of this potential is outside Chisinau, thus, the hot topic for the near term will be the penetration in the regions, particularly in regional towns. At the end of 2010, share of broadband internet subscribers outside Chisinau accounted for only 48.7%. This expansion will be achieved mostly with FTTX/LAN and wireless technologies. However, due to Moldtelecoms monopoly position outside Chisinau, lower computer proficiency and many low populated rural areas, most ISPs are reluctant to expand their presence in the regions. Alongside stand-alone Internet Access offers, current infrastructure allows the development of bundled services (e.g. Internet Access + Fixed Telephony; Internet Access + Television; Internet Access + Fixed Telephony + Television), which are increasingly demanded by population. Thus, the development of new high speed broadband access platforms will hardly be deployed profitably in Moldova over the near to medium term.
  • 12. Market Outlook Because of substantial economies of scale, replication of fibre access lines for high speed services is not economically viable on any widespread basis. Current Internet Access Solutions have the capacity to satisfy almost all internet related issues (e.g. speed, type of connection, access technology) demanded by subscribers. In addition, taking into account that fixed-mobile substitution trend in Moldova is accelerating, and the incumbent fixed operator is unable to expand its presence on the mobile telephony segment (its market share has been hovering below 4% over the last couple of years), Moldtelecom will increasingly focus on its internet division. This focus will consequently raise the possibility that the incumbent could once again increase its market share, reversing the trend towards more competition in the market. For the near term, the Internet Access Services segment will be propelled by the ADSL to FTTX/LAN migration, primarily in Chisinau, and by increasing penetration in regional towns. On the back of these trends, most probably Moldtelecom will continue to lose market share. Increasing penetration of FTTX/LAN and radio technologies will be fueled primarily by cost issues, growing propensity for local networks, greater flexibility provided by new providers and increasing share of portable computers. In addition, once the competition on the Internet Access Services market is growing, users are becoming not only price sensitive, they are increasingly aware of internet connection issues (e.g. speed, stability) as well.
  • 13. Market Outlook Thus, in order to prevent migration local internet providers will have to pay increasing attention to quality parameters, not only to quantitative aspects. From this perspective, Moldtelecom lags behind its major competitors. Broadcasting and retransmission services market will be among the most active in terms of investments and revenue growth. This trend will be supported by the increasing demand for digital and HD television. Currently the market is highly fragmented. This situation opens promising opportunities for future consolidation initiatives between urban and rural based operators. Other promising business for telecom operators will be satellite TV. This service will be demanded mainly in the rural area, as population increasingly demands digital, HD quality TV channels.
  • 14. MDL million Thousands Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
  • 15. MDL million Thousands Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
  • 16. MDL million Thousands Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
  • 17. * Orange entered into this market in December 2008, by acquiring Telemedia Group SA Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
  • 18. * Orange entered into this market in December 2008, by acquiring Telemedia Group SA Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
  • 19. *Data as of Q2, 2010. By the end of Q1, 2011 penetration rate increased to 8.2% in Moldova. Source: Eurostat, ANRCETI
  • 20. Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
  • 21. MDL million Thousands Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova