Despite a range of uncertainties Georgia’s telecom sector features strong growth 16 May 2013
As it confronts a series of major challenges, Georgia is continuing to build itself into a modern economy. One of the biggest problems is the troubled times it has been having with its neighbour Russia. The country has also had to cope with the severe setback suffered in 2009 following the onset of the Global Financial Crisis. With the overall economy progressively becoming healthier again, it is not surprising that so too has the country’s telecom sector. At the same time, rising telecom revenues have seen a corresponding and significant increase in investment in infrastructure. Despite some recent positive news for the telecom sector, there remains much to be done.
The year 2003 proved to be both a political and economic turning point for Georgia with the so-called Rose Revolution seeing a reforming administration take control of government; at the same time, the influence of the telecom sector on the potential development of the country’s other economic sectors was starting to increase dramatically. Since 2003, telecommunications has become one of the fastest growing sectors in the Georgian economy. The share of telecommunications in the country’s GDP has reached around 7%, a significant increase over levels achieved in the not too distant past.
The mobile segment of the market in particular has been booming. Coming into 2013, mobile penetration had reached 130%, subscriber penetration having increased tenfold in nine ears (13%%%since 2003. MagtiCom was awarded Georgia’s first 3G licence in 2005, followed by a further two licences 3G in 2006. Mobile communication systems have become increasingly important for Georgia since the fixed-line networks in many parts of the country remained outdated (particularly in rural and remote areas) and the mobile network represented the only means of communication, especially as mobile coverage has now been provided for virtually the whole of Georgia.
An encouraging feature of the telecom market in Georgia is the high level of internet usage; there was an estimated user penetration of around 35% into 2012. However, internet subscriptions have been lagging somewhat behind the user numbers in relative terms. Nevertheless the gap is being bridged quickly, with fixed broadband internet having achieved considerable market presence in the last few years. Broadband now comprises some 80% of all fixed internet subscriptions.
Even before the Rose Revolution in 2003 and the reforms that took place following that, positive regulatory developments had already commenced. These reforms included the establishment of an independent telecom regulator, the Georgian National Communications Commission (GNCC) in 2000. Although the privatisation of fixed-line operators Sakartvelos Telekomi and Sakartvelos Elektrokavshiri was commenced in 2001, the process suffered multiple delays. Sakartvelos Elektrokavshiri was finally privatised in 2006, having changed its name to United Telecom. Sakartvelos Telekomi was also eventually privatised changing its name to Georgia Telecom. Competition had arrived for all segments of the telecoms market, including for fixed-line voice services. Georgia has more than 320 licensed and operational service providers and network operators.
In the meantime Georgia’s ongoing tension with Russia continues to provide a level of uncertainty for the country and the future direction of its social and economic development. Despite this the economic outlook continues to be positive. In a telling report considering the timing, the World Bank ranked Georgia in 2009 as the 15th easiest economy in the world in which to do business (up from 21st in 2008). By 2012 the country had improved even further, holding 9th place in that year’s World Bank survey.
- By early 2012 mobile penetration in Georgia had reached 130%, subscriber penetration having increased tenfold over the previous nine years;
- Despite signs of a faltering economy, the mobile market has continued to grow, although the annual rate of growth has been more unpredictable;
- Georgia’s telecom regulator having awarded three 3G mobile licences, there has been a strong uptake of new generation subscriptions; 3G subscribers had claimed an estimated 40% of the total mobile subscriber base by early 2013;
- The introduction by the regulator of mobile number portability in 2010 has seen a significant movement of subscribers in the market place in the first two years of operation;
- Despite a somewhat erratic growth pattern, the fixed-line network in Georgia has seen solid overall growth with fixed teledensity reaching almost 35% in early 2013;
- Although the interest in internet in Georgia is clearly high, subscription numbers remain modest;
- With internet user penetration running at around 45% by end-2012, fixed internet subscriber penetration was a relatively low 10%;
- In the meantime, mobile broadband has been offering a cheap effective means of accessing the internet. By 2012 broadband constituted about half of all internet access subscriptions.
In the fixed-voice and broadband markets Optus manages the only significant fixed infrastructure competition to Telstra. Yet its HFC broadband subscriber base has shown stagnant growth for many years, stubbornly hovering at around 430,000. This represents only a fraction of Telstra’s broadband subscriber base, while Optus’s share of broadband revenue has declined steadily in recent years, now being about 12% compared to 45% for Telstra.
So Optus does not present serious competition in this market. Having been burned by Telstra some years ago in its ambitions to become an infrastructure-based competitor – when its investment in cable was overlayed by Telstra street-by-street – the company decided that it would make no further investment in its HFC network (though this network has at least been upgraded with DOCSIS 3.0). To reinforce this decision, Optus is aware that its HFC network will be replaced by the NBN’s FttP infrastructure, though the timetable for this migration would depend on whether or not the Coalition gets to form a government later in 2013. Optus is not alone with its HFC conundrum, of course: Telstra also has put minimal effort in developing its HFC subscriber base or infrastructure.
So Optus is largely limited to playing the mobile card. Here it is also at a disadvantage. In the recent spectrum auction Telstra managed to secure twice as much spectrum in the 700MHz and 2.5GHz bands as did Optus. This will place further distance between the operators in their ability to develop and extend mobile data services (the only real area of growth in the sector). The likelihood is that Telstra will attract more customers (new ones as well as those churning from Optus and Vodafone, which did not bid at the auction), and so be in a stronger position to develop its mobile business.
Optus’s recent performance is indicative of the brewing trouble. It reported a 4.6% fall in revenue for the year to March 2013, and a 7.5% fall in net profit. Revenue from the mobile business fell 5.9% year-on-year. The 1.1% growth in the mobile subscriber base (with the postpaid sector slightly offsetting prepaid losses) is largely immaterial, given that mobile services provide few opportunities to develop ARPU: indeed the 6.9% fall in blended ARPU in the period is indicative of how difficult it is for operators to squeeze much out of customers, given price competition among the players and the popular adoption by customers of off-net messaging and voice services.
Optus seems to be resigned to keeping up rather than challenging. The operator has effectively stopped hustling for new customers as it had done in the past, preferring instead to retain its existing customer base. Telstra, by contrast, added 607,000 new customers in the second half of 2012 alone. This is a reflection of customers wanting to tap into Telstra’s offerings delivered via its 4G network, which is fast approaching two-thirds population coverage. To compound these heady advantages, Telstra has placed considerable emphasis on customer services during the last three years. While customer complaints against Telstra fell again in 2012, those against Optus increased 47%, mainly related to faults, disputed charges and complaint handling.
These are difficult times for Optus. With no clear strategy for its HFC network, and with a passive role for its position in the mobile market, the outlook for the rest of 2013 may be ‘more of the same’.
Whoever wins the upcoming federal election will have to articulate why Australian as a nation needs an NBN. And they will need to clearly convey why the government needs to be involved in this. At the moment there is no clarity on the subject and this leaves room for the confusion that is exploited by politicians and some parts of the media.
The NBN is an investment that extends for the next 30 years, so we also need a vision that looks beyond the current term of government, and at present that vision – linked to clear policies – is still missing.
In BuddeComm’s opinion the reason the government should be involved in national broadband infrastructure is because of:
- national economic policy – to create digital productivity;
- social policy reasons – in order to be better-placed to address some of the enormous challenges that our society is facing (sustainability, environment, energy, healthcare, education and so on).
None of these challenges can be solved by broadband alone – but, equally, none of them can be solved without a first-class broadband infrastructure. Governments should supply the vision and the policies that will guide our society and our economy in that direction. This will give a clear direction for all those involved, in all sectors, to then develop the best possible infrastructure/ICT solutions.
The current political debate – in particular from the Coalition’s perspective – is still mainly focused on the plumbing. If that continues we will end up with a flawed plan for the future. Equally, the present government will have to quite dramatically change the financial foundations of NBN Co and put a far greater focus on the value of the transformative nature of the NBN, and better recognise the social and economic benefits it will bring to the nation.
Once the politicians involved (infrastructure, healthcare, energy, education, business, etc), together with their experts, have made an holistic national assessment they will need to develop trans-sector policies aimed at achieving horizontal social and economic benefits – let us say over a 10 to 20 year period (sector and industry transformations take a long time). Only then will it be possible to provide a brief to the ICT industry to come up with technical solutions.
Exhibit 1 - NBN policy focus beyond the election
- Policy focus should be on national social and economic benefits: smart cities, healthcare, smart grids, education, digital productivity, etc.
- Technical focus infrastructure:
- Ubiquitousness, affordability, low latency, high speed and high-capacity
- The inevitable fixed-mobile convergence (FMC)
- Competition focus: maximise competition on top of the infrastructure in all of its forms (similar to the electricity network – I can wire the house to my needs and can buy and use any appliance the way I see fit).
- Universal Service Obligations focus on socially and economically underserved customers. This is not just about internet access. It is about healthcare access, education access, access to energy efficiency, e-commerce, tele-working, etc.
In the end (10 years from now) the basic infrastructure (national FttH/5G mobile networks) will be a national utility. It is extremely unlikely that there will be room for competing FttH networks.
5G will bring mobile towers to every corner of every street – totally integrated with the fixed FttH infrastructure. The costs of this deployment will gravitate towards mobile infrastructure dominance; look how much spectrum Telstra could afford to buy – it will soon be dominant in 4G infrastructure.
Only when the political parties are prepared to develop an holistic social and economic vision for our country – one that will take into account the tremendous technological capabilities that new ICT developments are able to offer our society and our economy – will we be able to reap the full benefits of the national investment in the NBN.
There is still four months until the election and it would be great if, during that time, both Minister Conroy and Shadow Minister Turnbull could direct their NBN campaigns towards the issues mentioned above.
Australia is fortunate in having two of the most well-informed ICT Ministers in the world, and it would be regrettable if their expertise, insight and leadership were not directed in a more positive way towards those all-important national issues. After all, the Coalition has now come very close to the original NBN concept, so there should be much more room for a positive debate aimed at how to shape the NBN after the election.
One of the ten countries which joined the EU in 2004, Slovenia has since lagged behind its peers in privatising state enterprises. This has been particularly true in the telecom sector, where revenue has fallen steadily since the high of 2008. Nevertheless, investment in the sector has risen year-on-year, mostly by operators developing fibre networks and upgrading mobile networks.
A key obstruction to further growth in the sector has been the lack of effective regulation and the political will to enforce it. Telekom Slovenije has strongly resisted competitors, as also the regulator, through the courts, and the majority state ownership of the company has long been viewed as an obstacle to effective regulation.
This is set to change. In the latest of a long line of failed privatisation schemes, the government has again announced plans to sell its remaining 52.5% stake in the operator. It had originally been envisaged that the first stage of privatisation would take place in 2000. This was set back to late 2001 then delayed indefinitely due to unfavourable economic conditions. Renewed efforts in mid-2005 resulted in only a 10% stake being privatised, while another attempt in 2007/8 would have seen the state retain 25%, though the bids proved to be too low and nothing came of it.
Nevertheless, Telekom Slovenije did remain one of the principal government holdings to be privatised, and the process being rekindled now (alongside state interests in a dozen or so other concerns) is perhaps evidence more of economic pressure than a willingness to reduce state control.
For the government, the sale is part of a bid to reduce debt and avoid the bailout which has dogged other countries in the region: as recent examples have shown, the terms of these bailouts can be harsh. The government nevertheless has submitted to an EC reform package, and as this may provide a clean sweep to remove residual excesses which drain its coffers, so too may privatisation of the incumbent provide it with new vigour in an intensely competitive market.
Focus shifts to mobile entertainment in 2013 14 May 2013
The digital entertainment market is now worth billions of dollars in revenue and is currently being driven by the growing uptake of smart phones and touchscreen tablets. From updating social networks, browsing interesting websites, watching online videos, downloading and listening to music, trialling new apps and participating in games and gambling - the online and mobile platforms now offers a myriad of services based on entertainment.
In particular, it is mobile broadband apps which have attracted much attention over the past couple of years. A stream of these new Apps and services are continually being released into the market and the entertainment and leisure sector is often the focus. The key players in this market have emerged over the past couple of years and include both Internet media and mobile industry leaders. Apple App Store and Android are examples of two app store leaders; each offering hundreds of thousands of apps. Following the iPhone phenomenon, the carriers are now trying to jump on board and provide their own AppStores for the devices they support - but it is very doubtful that they will have any chance of success in competition with these large players.
While social networks began as a basic tool to connect with friends; in 2013 these services are now available on both fixed and mobile devices and are used for much more including messaging services, gaming; business networking, e-commerce; accessing breaking news and video/photo sharing. The era of digital social media has certainly caused much disruption to traditional media industries and has also led to many very innovative new applications and services.
The popularity of SMS has remained strong on the back of the introduction of capped data changes, smart phones and bundled services. However other forms of messaging beyond text are gaining ground, particularly free messaging services offered by social networks and instant messaging mobile apps. This rise of alternative mobile apps which offer messaging services are becoming a serious threat to the carriers SMS revenue streams and are increasingly being seen as a disruptive trend.
Online gambling is heavily regulated or banned in many parts of the world, with the USA, China and Japan just three examples of large markets which have strict online gambling laws. Despite this barrier - online gambling is still a thriving industry and mobile gambling is beginning to gain popularity. The rise of smart phones and mobile wallets offering a better player interface will assist this growth in the future.
Purchasing and accessing online music has been very popular for a number of years and was one of the key drivers behind the early developments in digital media. However with faster speeds now available, video streaming is finally coming to the forefront over both the fixed and mobile networks. Digital music is still enormously widespread however and in 2013 such services are available to over 100 countries with providers such as iTunes and Spotify continuing to expand globally.
BuddeComm’s new report, Global Digital Media – Online and Mobile Entertainment are Key Drivers, provides important insights into the worldwide digital media industry with a focus on entertainment services. It includes trends, analyses, statistics and case studies. It provides insights into fixed services and the key growth area of mobile broadband digital media. Information at a regional level is provided for North America, Europe, Middle East, Latin America, Africa and Asia Pacific, written by BuddeComm’s Senior Analysts.
Examples of key insights:
- Improved infrastructure is helping to drive both the digital and mobile media markets with high speed broadband and 4G networks continuing to be rolled out around the world.
- A stream of new Apps and services are being released in areas of entertainment, travel and finance and also m-health; m-education; m-social networking; m-gaming and so on and there are now well over a million apps available worldwide.
- Despite its huge success, Facebook has strong competition from local social networks in some countries like China, Japan, South Korea and Russia.
- The purchase of business social network Yammer by Microsoft for $1.2 billion follows a growing interest in the opportunities presented by enterprise social networking.
- In 2013 there are over 7,500 dating websites worldwide and mobile dating is expected to be a significant growth area.
- In early 2013 mobile photo messaging began to receive attention following Facebook’s launch of a mobile app called Poke which is along the lines of an already established mobile app called Snapchat.
- Popular mobile games in 2013 include Angry Birds, Talking Friends, Doodle Jump and Plants vs Zombies.
- In Australia, mobile betting sees revenue, transactions and users increasing.
- In New Zealand Facebook growth is slowing but usage time is increasing.
- Egypt has Africa's largest Facebook community with over 12 million users.
- Free-to-play online games with optional micro-currency and low graphics requirements are prevalent in Latin America.
- Music service to cellular handsets is a development gaining pace in the USA. Music is typically accessed using on-demand streaming or over-the-air download services to mobile phones over the internet via a 3G or WiFi connection.
- The internet plays a significant part in the lives of vast numbers of people across Asia. The young and tech-savvy of the region spend vast amounts of time online in their pursuit of digital media entertainment.
- Mobile is shaping digital media developments in the Middle East.
- In 2013, Argentina’s fastest growing telecom segment is likely to be 3G, both for mobile broadband and for phone-based internet browsing. The country’s smartphone market is expected to outperform all other markets in the region.
- In partnership with Brazil, Argentina is developing the local link of a new submarine cable network, the Atlantic Cable System (ACSea);
- Argentina is the world’s most engaged social networking market in terms of time spent on social media websites. The country’s Facebook user base is the twelfth largest globally, and about 15% of the population use Twitter.
- The bitter fight between Cristina Kirchner and Grupo Clarín continues. The survival of the pay TV and broadband operator remains uncertain. The Audiovisual Law is, in the eyes of Clarín, nothing but an act of revenge on the part of a president unwilling to accept criticism. Kirchner, for her part, accuses Grupo Clarín of using its media outlets to try to topple her administration.
- Having been awarded about 25% of Argentina’s mobile spectrum in September 2012, state-owned Arsat is preparing to provide wholesale mobile services under the brand name Libre.ar, but the project may take some time to implement.
TASA’s and Telecom’s fixed-line revenues increase by 12% and 13% respectively; state-owned Arsat is building three new satellites (Arsat-1, Arsat-2, and Arsat-3); Argentina Conectada will require an investment of AR$8 million (about US$1.8 million); more than 30 telecom cooperatives have been awarded pay TV licences; Argentina’s three top mobile operators launch handsets with built-in free-to-air digital terrestrial TV reception; a new decree has been passed to regulate Mobile Virtual Network Operators.
Argentina’s fixed-line, broadband, and mobile statistics – 2011 - 2013
Fixed-lines in service
Total subscribers (million)
Total subscribers (million)
Mobile telephony subscribers
Total subscribers (million)
(Source: BuddeComm based on industry data)
BuddeComm’s yearly update of Argentina - Telecoms, Mobile, Broadband, and Forecasts provides a comprehensive overview of the trends and developments in the telecommunications market of Argentina, including the regulator’s statistics, company data, and other industry indicators to the end of 2012, as well as estimates for 2013 and expected market developments in the coming years.
This report is essential reading for those needing high-level strategic information and objective analysis on the telecom sector in Argentina. It provides further information on:
- Regulatory environment;
- Economic trend and its impact on telecommunications;
- Analyses of Argentina’s telecom sectors;
- Telecoms operators – consolidations, acquisitions, new licences;
- Company performances and ARPU statistics;
- Spectrum auctions and regulatory issues;
- 3G and mobile broadband developments;
- Historical and current subscriber statistics and forecasts.
For detailed information, table of contents and pricing see:
Argentina - Telecoms, Mobile, Broadband and Forecasts
Telecom reform package heralds new wave of investment in Mexico 13 May 2013
Telecom market overview
Mexico’s economy swiftly recovered from the downturn in 2008, with the OECD predicting that GDP would grow 3.8% in 2013, following similar growth since 2010. Growth in the telecoms market has long outpaced broader economic growth, primarily driven by the mobile and broadband sectors, as well as broadcasting. Growth remains strong compared with many other global markets, particularly those in Europe. A telecom aimed at reforming the telecom sector will set up a new regulator with a wider remit and empowered to impose fines, control pricing, and put a break on an appeals process which has hitherto obstructed the effectiveness of its resolutions. The bill would also update the country’s long-standing law limiting foreign investment in national telcos, and would force phone and TV providers to sell assets if they control more than 50% of the national market share.
LTE services have been launched by two of MNOs, following considerable investments in network upgrades. Telcel’s network already covers about 65% of the population. This is complemented by Telefónica’s service, using the 700MHz band. Both operators will also utilise 2.6GHz spectrum which the government plans to auction later in the year. These developments will further encourage the rapid development of the mobile data sector, which is accounting for an increasing share of overall mobile services revenue for operators.
- Telcel’s LTE network covers some 26 major cities, reaching about 65% of the population. The operator is investing US$3.95 billion to 2014 in network upgrades, including at least US$1 billion in equipment for LTE alone.
- The electricity regulator CRE is looking to modernise the country’s existing grid with smart grids, thereby reducing the high power loss in transmission. The smart grid plan should be completed by late 2013, and will spearhead the multi-billion dollar investment in smart grid infrastructure required.
- Telmex retains a dominant market share of fixed lines, given that the vast majority of communities are unprofitable for other operators to build competing networks. The regulator has encouraged competition where viable, in 2013 fining the company MXN657 million for failing to provide interconnection services on inter-city routes.
- The government’s long-standing law limiting foreign investment in national companies is being addressed by the telecom reform package, which will allow foreign investors to own more than 49% of telcos’ shares.
- The telco Alestra is investing MXN1.2 billion in a fibre network to meet consumer demand for converged services. More than half of the funding is being spent on infrastructure projects. The fibre-optic network will be extended to about 17,000km across the country, covering some 50 cities.
- In late 2012 the Ministry of Communications and Transport contracted HNS to deliver an 11,000-site solar-powered broadband satellite network providing national coverage and aimed at areas underserved by existing fixed-line and mobile networks. The network, completed in early 2013, is centered on anchor site such as schools, hospitals, government offices, community centres across all 32 states.
BuddeComm’s annual publication, Mexico - Telecoms, IP Networks, Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecommunications and digital media sectors of one of Latin America’s largest markets. The report includes the regulator’s market data to February 2013, telcos’ financial and operating data to Q1 2013 and market developments to May 2013.