Cosmote Romania - a difficult way forward?

Cosmote Romania is 70% owned by Cosmote and RomTelecom (a breakdown of the mobile sector is presented in our graphic Market shares in Romanian mobile telephony). Applying a flat and simple tariff policy similar to Bulgaria's VivaTel re-launched one month previously, Cosmote Romania started its commercial operations by offering customers the lowest possible monthly and airtime charges, as well as attractive promotions.

 Recently, on May 23, Cosmote Romania presented its first results after the re-launch. During 1Q06 Cosmote Romania attracted 226,587 net new users to a total of 275,521 users, or a 2% market share of about 14 million users. This could be the result of a 'revolutionary' offer made: 2,000 minutes per month of calls in the Cosmote network for $3. The traffic was so high, the company had to interrupt the offer. According to company's officials blended ARPU reached $8 per month, mainly due to an important weight of prepaid users - 83%.

 While, prior to the re-launch, distribution was a problem, Cosmote Romania now seems to have one of the most extensive distribution networks. In April 2006 the company enhanced its sales distribution network nationwide (currently over 400 shops) through its partnership with Internity, the retail chain of the French group Avenir Telecom, which added 64 exclusive shops to its network and renounced its partnership with Orange Romania. 

A second step was taken in mid May 2006, when mother-company Cosmote announced its acquisition of a 42% stake in Germanos, a Greek retail chain with 537 shops in Greece, Bulgaria, Romania and FYROM for a net cost of $1.3 billion. In Romania, Germanos was and still is a dealer for Vodafone Romania: this acquisition could help Cosmote Romania to gain significant benefits in its efforts to attract new customers.

These two recent deals, then, Internity and Germanos, are helping Cosmote Romania improve its distribution network to the detriment of its main competitors, Orange Romania and Vodafone Romania, which altogether accounts for about 95% of SIMs sold. 

 Ote dropped its interest in Serbia 

Up until May 2006, OTE (the majority owner of Cosmote) had been very interested in strengthening its position in Serbian telecommunications, either by increasing its stake in Serbia Telecom or by buying a mobile operator. But in mid-May OTE actually gave up bidding for Serbia's second mobile operator Mobtel (auctioned by the Serbian government for a starting price of $800 million) to buy Germanos for more than $1 billion. Such an acquisition seems to be peculiar in European telecommunications, at a period when strong competition in saturated markets is forcing companies to simplify their business model (the 'low cost'model), by externalising their non-core activities.

Nicolae Oacã is Develping Telecoms' Central and Eastern Europe Analyst.