Price Wars Looming

Economic News

22 Jul 2010
Text size +-
Recommend
While the legal wrangling has still not been completely sorted out, the Supreme Administrative Court (SAC) decision this week to allow the Bulgarian Telecommunications Company (BTC) to resume anticipatory network implementation has revived hopes that a third GSM company may yet be launched by April next year. In its wake, a period of fierce competition between Bulgaria's existing GSM operators over pricing now looks inevitable.



The much-publicised third GSM saga began back in June after the two existing mobile operators launched a legal battle to get BTC's third GSM licence re-tendered or repriced. This move came after the Vienna-based Viva Ventures Holding GmbH, a unit of US-British equity fund Advent International, had paid 27m euros for the third GSM licence. The second GSM licence, which was issued to GloBul after an open tender, fetched $135m. This implicit discount, some observers claim, was part of the BTC privatisation deal - Viva Ventures having paid 280m euros for 65% of BTC after winning the sell-off tender.



Despite five months of consultations and a plethora of GSM licence revaluations reports, both the antitrust commission and the SAC seemed to have become locked in a political and legal stalemate. Appropriate GSM price assessments have meanwhile varied from $5.6m-140m, with many of these looking decidedly partisan.



A break through finally came on November 11, when the antitrust commission panel produced a narrow majority vote of 4-3 in favour of Viva's claim on the third GSM licence, arguing that the way the licence was issued did not represent a form of state aid.



Although the state commission decision is final, BTC still has to clear the SAC hurdle before it can breathe a sigh of relief. Yet experts argue that the SAC's proceedings are now just a formality following the favourable decision by the antitrust commission.



Now, with the latest decision by a five-member SAC to repeal a previous ban on preliminary network implementation efforts, introduced by a three-member panel of the same court, BTC's victory looks to be assured. In any event, experts say a resolution should be reached by the end of this year.



Consumers and observers alike are therefore eagerly awaiting the arrival of the third GSM operator, which - based on BTC's promise to offer prices 20% below the current rates - is expected to spark a full-blown price war.



This may go down well with many consumers. A recent poll conducted by Alpha Research for Capital Weekly showed that 73% of readers thought that the current prices for mobile services were too high.



However, not everyone agrees. "The Bulgarian telecoms market is very competitive," Atanas Dobrev, chief financial officer of existing GSM operator GloBul, told the OBG on November 16. "We have not seen any robust data proving that prices in Bulgaria are much higher than in other countries in this region."



Moreover, Dobrev explained that "only this year GloBul has cut prices by 25% for pre-paid users and between 10-20% for contract holders." GloBul's price cut was matched by its rival and market leader, M-Tel. Both operators have recently introduced post-paid tariffs and bonus schemes to lure customers who use regular subscription plans.



Yet contract subscribers account for around one-third of both operators' customer bases and growth comes mainly from new pre-paid customers. The latest figures show that M-Tel has 1m contract subscribers - 33% of its 3m customers. The percentage figure for GloBul's contract subscribers is slightly higher, with 36% of 1.3m clients.



However, experts argue that the latest price adjustments and improved value offerings are part of the two mobile operators' efforts to improve their competitive positions before the arrival of the third GSM operator.



Meanwhile, BTC's recent discounts on fixed-line services, which were meant to match the tariff plans offered by the country's two GSM operators, were interpreted as clear signs that BTC is prepared to fling down the gauntlet and meet its promise of enhancing competition.



Yet while it is certain that BTC's GSM company will benefit mobile phone consumers, landline users are eager to see if it will be equally ambitious in its terrestrial activities. Many alternative telecom companies are keen to chip away at BTC's market dominance, making full use of a recently liberalised telecoms market. Emerging competitors, such as Cabletel, have invested in their own national backbone, hoping to be completely independent of BTC.



For its part, BTC has launched a restructuring programme aiming to downscale its loss-making activities, while also launching the country's largest internet provider and establishing new call centres to improve its services.



For now, full competition is still hampered by the absence of working interconnections with BTC, which means BTC customers cannot call customers of alternative companies. Although some interconnection agreements have been signed and are being tested, full competition is not expected to kick off until next year.



Yet while fierce competition among mobile and fixed-line operators is likely to slim profit margins and drive down revenues for incumbent players, consumers will likely emerge as the winners from what looks to become a landmark year for Bulgarian telecoms.

Read Next:

In Bulgaria

Counting Down

Approval of Bulgaria's handling of its economic reform programme this week by the International Monetary Fund (IMF) was welcome news for the country's leaders, as they square up for next month's...

Latest

La Côte d’Ivoire renforce sa production énergétique en exploitant des...

Le lancement d’une nouvelle série d’octroi de licences pétrolières offshore en Côte d’Ivoire constitue une étape supplémentaire du développement du secteur de l’énergie dans le pays.