Long hot summer for 3G in Romania - last two licences up for bidding

On 21 June Romania's president of the General Inspectorate for Communications and IT (IGCTI), Marius Catalin Marinescu, announced the start of a beauty contest, the competitive process for the last two 3G licences in Romania bringing the number of 3G networks in the country to four).

Taking into account the huge interest in what are the last two 3G licences in the region and indeed in Europe , a long hot 3G summer is set to come in Romania . The bidding process is now underway, with a three-week public consultation on the bidding documents up until 12 July. Publication of the documents will be on 17 July. They will be for sale until 1 August, with questions accepted up until 7 August. Deadline for receipt of bids is 4 September, contenders will be announced on 11 September and the winner will be declared on 15 October.

The licences...

Each licence has 15 years validity, and each successful candidate has to pay US$35 million in six instalments. The first payment, of US$10.5 million, must be made within 120 days of the licence issue, while the remaining five instalments of US$4.9 million each have to be paid on an annual basis from 2007. Each licence winner has to pay a yearly fee for frequency spectrum usage.

...and the competitors

Competitors (companies or consortia) should be a Romanian company having telecommunications as its main activity and a share capital higher than ?12 million. They must pay a participation guarantee and a fee for bidding documents. In addition, contenders should prove, beside financial capacity, their technical and commercial skills. The new 3G licence holders must provide 45% population coverage by 2011, but with the potential to cover 55% as part of their submission.

Potential contenders

Cosmote Romania , the GSM1800 mobile operator, and Telemobil, the CDMA operator, have already announced their intention to compete for a 3G licence, while other competitors with a European portfolio are expected to compete for a Romanian 3G licence. After more than two years of hesitation in making its decision, CosmoRom was taken over in mid-2005 by Greece's Cosmote and commercially re-launched on 6 December 2005 under a new brand Cosmote Romania (70% owned by Cosmote of Greece and 30% by RomTelecom). During the first quarter after re-launch, Cosmote Romania attracted 226,587 net new users to make a total of 275,521, or a 2% market share into a market of about 14.1 million SIMs. This could be the result of a ?revolutionary? offer: 2,000 minutes of calls per month via the Cosmote network for ?3.

Telemobil already operates a CDMA 2000 1X and CDMA 2000 1X EV-DO network in the 450MHz band, offering mobile voice and Internet services (up to 1.5Mb/s using EV-DO technology). These are known as Zapp Mobile services and were launched on 7 December 2001. Today they have about 0.4 million users within a 14.1 million market, or 3% market share.

A representative of RCS&RDS attended the IGCTI press conference on 21 June, showing interest in a 3G licence. RCS&RDS operates cable TV networks (via around 4,000 km of optical cable and also coaxial cable) in about 100 Romanian cities, providing cable TV services, Internet and telephony services to about 0.9 million clients.

Present in Romania , Slovakia and Hungary , RCS&RDS is one of the most important cable TV operators in Central Europe . In late May 2006 RCS&RDS had over 1.5 million aggregated users in Romania , Hungary and Slovakia : 900,000 CATV subscribers, 450,000 telephony users (RDS.Tel), 300,000 Internet users (RDS.Link), and 250,000 DigiTV users. The company estimates it has a 25% market share in Romanian cable TV, 20% in the local Internet access market and 10% in fixed telephony. RCS&RDS also has 80% of the market in the digital TV via satellite market, competing with three operators.

Last year shareholders merged the two entities (RCS, dealing with cable TV, and RDS, dealing with Internet, data transmission etc) into RCS&RDS, paving the way for a sale. There were rumours of Deutsche Telekom being interested in acquiring RCS&RDS, but no deal was concluded because the price of US$1 billion was too high.

A 3G licence within the company?s business portfolio could well make RCS&RDS more attractive for a potential buyer, as well as a very powerful competitor if it can rapidly roll-out its 3G network.

Another potential competitor is Radiocom, the main provider of radio-communications services and distributor for the national radio and TV channels, fixed telephony, as well as, intercontinental transmissions via the earth station Cheia. Among others, Radiocom operates a 2,500km SDH radio-relay network, a 2,900km national broadband ATM network based on a PMP 3.5GHz and 26 GHz band licence, and a4,600km national ATM?MPLS backbone using SDH and PDH radio-relay network, as well as a satellite communications centre, Cheia, and an IP telephony network. Radiocom is a state company, which recently started privatisation process, Ca`IB being announced as a financial consultant in privatisation process. One could expect privatisation process to end up in late 2006 or early 2007 by attracting a strategic partner, while a 3G license in its portfolio would make the offer much more attractive and will change the profile of competitors for strategic partner position.

Other competitors could be interested in acquiring one of the last two 3G licenses in Europe : Deutsche Telekom, which repeatedly declared its interest in Romanian market, Tele2, very active in region (bidder for a 3G license in Bulgaria , Hungary ), Telefonica, very active in Europe , 3 (Hutchison Whampoa), etc. 

Existing 3G operators Vodafone Romania, Orange Romania and CosmOTE Romania already operate networks under 2G licenses, so a new entrant (Telemobil which operates a CDMA network, Radiocom, RCS&RDS, etc.) winning a 3G license in Romania needs a 2G license for cost minimizing and a fair competition.

?In the chart, we show the number of SIMs sold by the million. Vodafone Romania launched the first 3G services in Romania in late April 2005 using UMTS technology, while by the end of 1Q06 it already had 135,249 users in a 3G network covering 22 cities. On 6 June 2006 Orange Romania launched 3G services in Bucharest and Timisoara using UMTS technology. Orange plans to expand its 3G coverage to Brasov and Cluj-Napoca by July, as well as to another 16 cities by the end of this year. Orange's target is 250,000 (EDGE + 3G) users, following investment worth about ?22 million.

Outlook and implications

According to the 2005 Guide to Romanian Telecommunications (http://www.inatelecom.org/2005Guidetoromaniantelecommunications/tabid/442/Default.aspx) Romanian mobile telephony turnover could grow by 60% to ?2.8 billion in 2009 over 2005, Romania being one of the few countries in Europe which still has organic growth potential. A 3G licence could be the opportunity for ?junior operators? (Cosmote and Telemobil) to stay in business, while without a 3G licence it is difficult to think about their long-term future. If it obtains a 3G licence, Cosmote Romania will very probably use European technology - UMTS (W-CDMA), while Telemobil could probably continue using CDMA technology, primarily because of the existing CDMA network and necessary investments. And yet, according to 2005 Guide to Romanian Telecommunications there is a risk that the company will remain a niche player, as long as CDMA is an ?island? within Europe. Switching to the European technology that is UMTS could be a prerequisite for business revival, but it needs a new business model and money, much more money...

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