The consequences of the result will be revealed in the course of time. Perhaps they will herald a revolution in Romanian telecommunications? RCS&RDS surprised people by the manner in which they won, while Cosmote Romania also surprised people - by the manner in which they lost.
Cosmote Romania, the big favourite during the contest, lost the 3G licence, which now puts a question mark over its future! And yet the big winners are GSM900 operators - Orange Romania and Vodafone Romania - in the long term. The losers of the 3G licences are those companies in which Romania had interests. In fact, one could say that corporate interest has again prevailed over national interest.
Those surprise winners: RCS&RDS and Telemobil
According to the evaluation criteria (see the table) RCS&RDS and Telemobil (CDMA) are the winners of the last two 3G licences. Cosmote is the surprise big loser.
As if that was not enough, there is another surprise. According to the IGCTI President, the investment which the competitors said is needed to build a 3G network in Romania totals US$200 million. Telemobil and Cosmote, which both have networks covering 90% of population, can invest US$200 million to keep pace with the GSM900 celcos (any of these latter invests US$200 million per year just to upgrade its network!). This is not the case with Radiocomunicatii and RCS&RDS which, in order to compete, have to build a 3G network covering 90% of the population (GSM900 celcos have 95% coverage). RCS&RDS, which won based on coverage, would have to find much greater investments. In fact, it is difficult to cover Romania with 3G for US$200 million, when the GSM900 operators have invested US$1 billion each!
Who is wrong, the IGCTI President or RCS&RDS?
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Valuation criteria
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Cosmote
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Radio-comunicatii
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RCS&RDS
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Telemobil
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Coverage: territory/ population
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22.47
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19.69
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53.50
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43.51
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Technical aspects feasibility
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21.99
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21.37
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22.62
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16.58
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Financial capacity
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5.65
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2.89
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5.96
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6.05
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Commercial Feasibility
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4.62
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2.30
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5.00
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1.57
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Specia
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5.00
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3.33
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3.33
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5.00
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Total points
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59.74
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49.58
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90.41
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72.71
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The results reflect how every competitor understood and approached the first hurdle in the 3G business: those who realised that they had problems understanding the 3G business hired consultants. The winners were those who understood that network coverage is key to success in winning the licence contest, in 3G as in any other similar business.
Once again, RDS&RCS has proved its ability to understand and deal with businesses.
What is curious is the fact that Cosmote did not learn the coverage lesson from CosmoRom. Cosmote Romania lost its 3G licence despite the fact that it had all the prerequisites for a successful 3G business: a 2G network covering 90% of population, being part of a regional group such as OTE, and others. Probably Cosmote considered itself to have won the contest even before the contest took place. That is how many people, including this author, see the situation.
The Radiocomunicatii team did not understand too much about the 3G business, and so the Romanian government lost the chance of a successful privatisation with a 3G licence within the company's portfolio.
Long term impactIf the results of the 3G contest do not change, Vodafone and Orange will have a very comfortable market position. If Telemobil continues to stay on its 'technological island' of CDMA (for which it does have a 3G licence) it will not be able to tackle problems, as it has a low market share.
If Cosmote does not switch in the medium term to an alternative technology (WiMax, G4, etc) it will not be able to stay in the mobile business in the long term due to 2G technology's depreciation, i.e., its being replaced by 3G, 4G, etc, despite the fact that voice will continue to be the most important service medium term.
In the medium term, one can predict somewhat weak positions for the junior celcos Telemobil, Cosmote, RCS&RDS, and so the big winners of the contest for the last two Romanian 3G licences are Vodafone Romania and Orange Romania.
What is to do be done?RCS&RDS must invest for the medium term as the GSM900 celcos have done since their own launch, and not US$200 million. Half of the amount must be invested in the first two years in order to rapidly build a 3G network with good coverage - 90%. On its own, RCS&RDS is not able to support such investments and has no mobile telephony expertise, and so needs a strategic partner able to successfully compete with Vodafone and Orange. Deutsche Telekom, Telefonica, Telecom Italia, or investment funds like Apax Partners come to mind.
Cosmote could try to acquire the 3G licence from the winner. If RCS&RDS shareholders do not agree to sell the 3G licence, then Cosmote or OTE could try to buy the RCS&RDS group in order to get a 3G licence.
Corporate interest prevails over national interest
Taking into account the possible medium term strengthening of GSM900's position and the competition weakening, as well as the fact that the losers of the 3G licenses are companies in which Romania has interests, one could say that once more corporate interest has prevailed over the national interest. Let us also remember the ANRC decision on RomTelecom interconnection tariffs and the planned ANRC decision to strictly monitor RomTelecom tariffs. Both of these will decrease their company's market value in the BSE listing planned for early 2007. This is in addition to the all too frequently postponed decreases in GSM900 operator interconnection tariffs.
