The broadband challenge
Poor landline penetration and comparatively high costs for the consumer are delaying the triumphal march of broadband in Central and Eastern Europe (CEE). Little more than a quarter of all households in this region have broadband access and only seven percent surf mobile. This low level of fixed line penetration means that comparatively high growth rates can be expected here in the field of mobile broadband access in the coming years. But, rapidly growing customer numbers and the constantly increasing demand for bigger bandwidths are proving to be a technical challenge for mobile telephony providers. The second edition of the "CEE Weather Report – Telecom" by Roland Berger Strategy Consultants and UniCredit CAIB shows how these challenges can be met.
Around 60% of all households in Western Europe have broadband and 50% use mobile broadband. This compares to only 27.2% of households in CEE with fixed line broadband and a mere 7% that go online with mobile broadband. "In the field of conventional telephone networks, the growth potential in this region is limited by the lack of infrastructure. High growth rates are more likely to be attainable with mobile broadband and in urban regions," explains Dr. Florian Potyka, telecommunications expert in the M&A unit of UniCredit CAIB in Vienna.
The leaders in the field of fixed line broadband in Central and Eastern Europe are the Czech Republic (42.6%) followed by Hungary (39.1%) and Turkey (37.4%). At the other end of the spectrum we find Ukraine with 7.1%. Romania leads the mobile market (13.8%) ahead of Poland (10.6%) and Hungary (7.4%). There are virtually no mobile broadband connections in Ukraine (0.04%).Broadband more expensive in CEE
In addition to the limited landline penetration, the much higher prices for broadband in Eastern Europe are the main reasons why broadband hasn't spread. While a DSL landline package with a flat rate and a bandwidth of 6-8 Mbps costs an average of EUR 23.3 in Western Europe, the CEE subscriber pays EUR 28.8 for the same service. One mobile GB with a long-term contract and a bandwidth of 3.6 Mbps costs an average of EUR 3.7 in CEE, compared with only EUR 2.9 in Austria. "Seen in connection with the consumer's buying power, broadband costs around four times as much in Central and Eastern Europe as it does in Western Europe," says Dr. Julian Pötzl, telecom specialist in Roland Berger's Vienna office. Nonetheless, the consultant assumes that a broadband penetration of 100% will be achieved by around the year 2012 in both Western and Eastern Europe. "But there is a big difference between the two regions. In Western Europe, mobile broadband is seen as an addition to conventional lines, whereas in Central and Eastern Europe mobile services will partially replace landlines," Pötzl says.
Bigger bandwidth is a challenge for providers
In all regions, the constantly rising demand for bigger bandwidth is facing telecommunications providers with new challenges. "The drivers of this trend are mainly multimedia applications, videos and online games. Here, the technical challenges are considerable for mobile telephony operators," says Potyka. Experts see three options for enlarging bandwidths in the next two to three years: reducing the cell size to a coverage with femtocells, upgrading from UMTS to LTE (Long Term Evolution, 3.9G) and changing to WiMAX. "Lower costs and fewer technical problems are the main reasons that speak in favor of an upgrade as against converting to a new technology," says Potyka. But WiMAX 802.16e is also seen as a revolutionary alternative, and it is anticipated to be available by mid 2009. The Russian provider Comstar aims to go into test operation with WiMAX 802.16e by the second quarter of 2009. A large-scale rollout of LTE, however, cannot be expected in CEE before 2011. Nonetheless, the update is thought to have a good chance of succeeding UMTS. Some providers, such as Turkcell, have postponed their plans for launching WiMAX and are instead now going with LTE.
CEE as a region of the future
Of course, CEE will continue to remain an important growth market for European telecommunications providers in the years to come. "Development will still be concentrated mainly in urban areas. What is more, we also expect to see growth in the number of landlines in CEE – unlike in Western Europe," Pötzl adds. Broadband penetration in Russia, for example, is forecast to increase from its current 14.6% up to 34.3%, in Turkey from 37.4% to 53.8% and in Bulgaria from 16.6% to 31.5%. On the whole, however, the fixed broadband market will grow by around 10% in both Western and Eastern Europe.
Around 60% of all households in Western Europe have broadband and 50% use mobile broadband. This compares to only 27.2% of households in CEE with fixed line broadband and a mere 7% that go online with mobile broadband. "In the field of conventional telephone networks, the growth potential in this region is limited by the lack of infrastructure. High growth rates are more likely to be attainable with mobile broadband and in urban regions," explains Dr. Florian Potyka, telecommunications expert in the M&A unit of UniCredit CAIB in Vienna.
The leaders in the field of fixed line broadband in Central and Eastern Europe are the Czech Republic (42.6%) followed by Hungary (39.1%) and Turkey (37.4%). At the other end of the spectrum we find Ukraine with 7.1%. Romania leads the mobile market (13.8%) ahead of Poland (10.6%) and Hungary (7.4%). There are virtually no mobile broadband connections in Ukraine (0.04%).Broadband more expensive in CEE
In addition to the limited landline penetration, the much higher prices for broadband in Eastern Europe are the main reasons why broadband hasn't spread. While a DSL landline package with a flat rate and a bandwidth of 6-8 Mbps costs an average of EUR 23.3 in Western Europe, the CEE subscriber pays EUR 28.8 for the same service. One mobile GB with a long-term contract and a bandwidth of 3.6 Mbps costs an average of EUR 3.7 in CEE, compared with only EUR 2.9 in Austria. "Seen in connection with the consumer's buying power, broadband costs around four times as much in Central and Eastern Europe as it does in Western Europe," says Dr. Julian Pötzl, telecom specialist in Roland Berger's Vienna office. Nonetheless, the consultant assumes that a broadband penetration of 100% will be achieved by around the year 2012 in both Western and Eastern Europe. "But there is a big difference between the two regions. In Western Europe, mobile broadband is seen as an addition to conventional lines, whereas in Central and Eastern Europe mobile services will partially replace landlines," Pötzl says.
Bigger bandwidth is a challenge for providers
In all regions, the constantly rising demand for bigger bandwidth is facing telecommunications providers with new challenges. "The drivers of this trend are mainly multimedia applications, videos and online games. Here, the technical challenges are considerable for mobile telephony operators," says Potyka. Experts see three options for enlarging bandwidths in the next two to three years: reducing the cell size to a coverage with femtocells, upgrading from UMTS to LTE (Long Term Evolution, 3.9G) and changing to WiMAX. "Lower costs and fewer technical problems are the main reasons that speak in favor of an upgrade as against converting to a new technology," says Potyka. But WiMAX 802.16e is also seen as a revolutionary alternative, and it is anticipated to be available by mid 2009. The Russian provider Comstar aims to go into test operation with WiMAX 802.16e by the second quarter of 2009. A large-scale rollout of LTE, however, cannot be expected in CEE before 2011. Nonetheless, the update is thought to have a good chance of succeeding UMTS. Some providers, such as Turkcell, have postponed their plans for launching WiMAX and are instead now going with LTE.
CEE as a region of the future
Of course, CEE will continue to remain an important growth market for European telecommunications providers in the years to come. "Development will still be concentrated mainly in urban areas. What is more, we also expect to see growth in the number of landlines in CEE – unlike in Western Europe," Pötzl adds. Broadband penetration in Russia, for example, is forecast to increase from its current 14.6% up to 34.3%, in Turkey from 37.4% to 53.8% and in Bulgaria from 16.6% to 31.5%. On the whole, however, the fixed broadband market will grow by around 10% in both Western and Eastern Europe.
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