New Kid on the Block

Economic News

22 Jul 2010
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Bulgaria's mobile phone users recently received some welcome news after the country's latest GSM operator announced it plans to undercut its rivals' prices by 22%.

The announcement from Vivatel, the cellular division of former telecom monopoly BTC, prompted the two current operators, MobilTel and GloBul, to announce their own price cuts.

Vivatel, which is 65% owned by Vienna-based Viva Ventures, will be the country's third GSM operator when it begins services later this year, bringing some welcome extra competition to the sector.

Licensed just one year ago, the firm plans to launch with 90% coverage of Bulgaria before Christmas, having invested around $245m in building its mobile network across the country.

Chief executive Richard Shearer has set out an ambitious plan for his company as it seeks to challenge its competitors for dominance in Bulgaria's rapidly growing mobile telecoms sector.

The company plans to gain a 20-25% share of the market within three years and intends to use an aggressive pricing strategy to lure customers away from its two rivals, MobilTel and GloBul, which currently hold 62% and 38% of the market respectively.

Bulgarian mobile customers pay among the highest prices in Europe for services, particularly when compared to average incomes. While this is not uncommon in markets where there are only two operators, the introduction of a third operator usually triggers a customer-friendly price war.

The entrance of Vivatel into the Bulgarian market will be no exception. GloBul and MobilTel both announced plans to reduce prices for their customers in response to last month's announcement by the new kid on the block. The two incumbents said their new tariffs will slash 25-30% from the monthly bills of their subscribers.

Bulgaria's telecoms sector has shown strong growth in recent years, outpacing the country's overall economic performance. Yet even with the relatively high prices Bulgarians pay for mobile services, this sector has remained the most dynamic component of the country's telecommunications market, witnessing 25% growth in 2004, and continued strong growth through 2005. The number of mobile phone subscribers at the end of 2004 hit 4.73m, and the total revenue collected from subscribers amounted to Lv1.2bn ($740m). Penetration rates therefore remain low at around 65%, leaving plenty of room for considerable growth. Industry executives say that penetration will grow almost 30% this year.

With so much at stake, the three operators have begun aggressive marketing campaigns to woo customers. On September 9, Vivatel signed a sponsorship deal with national football heavyweights CSKA. The company also made a spectacular presentation of their "smiling" logo. It was shown on a large banner at the foot of Mount Moussala, and journalists were flown to the site by helicopter. By launching the network before the holiday season Vivatel hopes to give everybody in Bulgaria the opportunity to have a new Vivatel phone for Christmas, said Shearer.

MobilTel, owned by Telekom Austria, has meanwhile begun a push to court small businesses, while GloBul, owned by Greece's OTE, announced plans to market its services to households with low-cost, two-year contracts for "family subscribers".

MobilTel also hopes to attract new customers with its 3G phones after launching a high-speed third-generation (3G) mobile network last month.

While all the operators will want to provide 3G services, some observers have described this rush to introduce 3G to Bulgaria as window dressing.

Krassimir Ghanchev, general manager of Nokia Bulgaria, told OBG recently that only a very small number of mobile phone users in Bulgaria could afford a 3G handset. Because of this price sensitivity, there is little profit potential in introducing such services to the country, and 3G will therefore likely be confined mostly to Sofia.

While the much predicted price war may see a deepening of service provision to customers, as companies battle for numbers, there is also a concern in such conflicts that the reverse could happen. As prices are shaved down to the minimum - along with profit margins - some analysts wonder if the level of investment in new services might also not suffer.

Nonetheless, for now, Bulgarian GSM users can look forward to a cheaper round of Christmas calls this year.

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