Sunday, December 9, 2007

Romania: Multiple Mobile Accounts

Oxford Business Group Latest Briefing

For most industries, 100% penetration marks a rarely achieved finish line. Growth stops, profitability declines and typically the industry slides slowly towards commodification. Luckily for the Romanian mobile industry, which is expected to surpass 100% in SIM (subscriber identity module) card penetration this month, telecommunications has never been a normal industry.

Business accounts, data plans and the increasingly common trend of multiple personal accounts ensures growth well beyond what would typically be called full penetration. Richard Moat, CEO of Orange Romania, said he believes that "growth in the coming years will primary depend on the continued increase in subscriber numbers and use of multiple SIM cards".

This trend was initially started when calling plans targeted at families and friends came to the Romanian market several years ago. These programmes, which were marketed to couples, close friends, families and co-workers, offered free or below-market rate minutes to a defined number of individuals in calling circles.

In some markets, most notably the US, these packages have been successful in attracting customers to switch providers. However, in Romania and much of Europe the main effect of these plans has been to increase the number of subscriptions that each individual has.

"At the moment, it is common practice for individuals to have multiple subscriptions, many times with different operators. The growing use of business accounts and data cards will ultimately mean that many individuals will have three or more accounts in the near future," said Moat.

Data plans are particularly important because the emergence of streaming audio, video and other data services is ensuring that each account will reap higher rates of profitability in the coming years. Orange Romania has already signed up over 500,000 mobile broadband customers, helping the company double its mobile data service revenue in the last six months.

Successes such as these have attracted domestic and international attention. Local players such as Zapp, Vodafone, Orange and Cosmote have been investing heavily in 3G, 3G+ and other new technologies to expand their reach into the data market.

International investors have also been eager to get in on the action. On October 30, Saudi Arabia-based Saudi Oger announced it planned to buy a 45.76% stake in Zapp. Oger promised to invest 100m euros in expanding the company's network and broadband services.

RCS & RDS, a Romania-based telecommunications company, which until recently has primarily served the cable television and internet market, announced it intends to invest heavily in the 3G broadband. The company recently secured 500m euros in loans to pay for its expansion and has stated it plans to secure another 200m euros before the end of next year.

Many analysts have expressed concern that such investments will be difficult to recover, particularly in the case of RCS & RDS. They have said there is no room in the market for a fourth player and worry that further competition will cut already low margins to unhealthy levels.

Despite these concerns many industry insiders are optimistic. "We estimate that the true population penetration rate is around 65% to 70%, so there is still plenty of room for growth," said Liliana Solomon, CEO of Vodafone Romania. "As the industry and the market develop, the demand for high speed data plans increases significantly. As the number of laptop users increases, the adoption rate of these services will also increase. In this context, there is still a very high growth potential in Romania. We expect to see a double-digit rate increase in the next few years."

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