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Romania: Who Will Benefit From Opening Of Telecom Market?

  • Eugen Tomiuc

As of the beginning of this year, Romania's fixed-line telecommunications system has been liberalized, ending the monopoly of Greek-controlled operator Romtelecom. Officials say the measure is likely to lead to a cut in prices of up to 50 percent and produce better and more diversified services. But analysts say the opening of telecom markets in other countries in the region has not immediately led to an expected overall drop in prices, while benefits for consumers remain few.

Prague, 8 January 2003 (RFE/RL) -- Romania is opening its fixed-line telephone services to competition in a move expected to result in substantial price reductions and a larger number of telephone lines, as well as better services.

The measure breaks the monopoly of national operator Romtelecom, which caters to more than 4 million subscribers -- almost half of the country's households. Romtelecom is partially owned by Greek company OTE, which in 1998 bought a 35 percent stake in the company in return for a five-year monopoly. OTE took control of Romtelecom in November, when it acquired an additional 19 percent stake.

But with a population of 22 million and a third of its surface covered by mountains, Romania has suffered from a low density of fixed phone lines, chiefly in rural regions. Furthermore, Romtelecom's sale failed to bring on modernization and improvement in customer services, and it was repeatedly accused of abusing its position to inflate bills.

As a consequence, the long-awaited 1 January liberalization saw hundreds of Romanian and foreign companies rushing to compete for a slice of the newly opened market.

Romanian Communications Minister Dan Nica said the companies' interest is mainly explained by the fact that, unlike other countries in the region, Romania opted for total liberalization and a simplified application procedure. "Those who want to operate in Romania must only send a notification to [the national communications authority] ANRC, and have money to invest. These new elements allowed us to register requests from more than 700 operators who want to activate in Romania. Only unlawful notifications are being rejected. In our legislation, which is 100 percent compatible with the European [Union] legislation, the only conditions for a broadcast operator are to have funds and to observe quality norms. The opening of the competition is regulated, and those who do not observe the quality norms or the rules of competition will lose their right to operate."

Nica said that among the state and private firms are cable-TV operators and mobile-phone companies, as well as the Romanian postal service, the gas and electricity distributors, and even the railways.

Many analysts agree that the measure, although it comes later than in other former communist countries, could have positive effects. Joan Hoey, a Balkans affairs analyst with The Economist Intelligence Unit (EIU) in London, told RFE/RL: "We expect that it will lead to quite a sharp fall in tariffs, which are very high in Romania, and that [fall] is estimated to be anything between 30 and 50 percent, and finally, it should lead to a rapid increase in telephone-line density, which is very low in Romania, with only about 4 million subscribers at the end of June 2002, which is about 46 percent of households."

Others, however, are more skeptical, pointing to the results the opening of fixed-line markets has had in other countries. In the Czech Republic, the gradual opening of the market began in January 2000, with the last phase still under way, while in Hungary the process, which started in 2001, is also continuing. Poland liberalized the fixed-line sector in the mid-1990s, but the lucrative market for international long-distance calls (ILD) remained under state monopoly until this year.

Dalibor Vavruska, an analyst with ING Financial Markets in London, said that in Central and Eastern Europe, the de-monopolization has so far failed to lead to a substantial loss of market share for the incumbent telecoms. The only exception, he says, was in the ILD market, where competition facilitated by the Internet saw prices dropping by up to 60 percent -- but only for high-usage customers such as companies.

Vavruska told RFE/RL that fixed-line tariffs continued to rise throughout the region. "For example, as part of this re-balancing, which is almost over now, in all the three main countries in Central Europe -- Czech Republic, Hungary, and Poland -- you could see a sustained increase in the monthly fee for the fixed-line service to reflect the fact that providing the fixed-line service is basically about investing. The connection cost is very high for the company, but the cost of providing the service is relatively insignificant." Vavruska said that for individual, low-usage customers, the fixed-line telephone services are now more expensive than five or 10 years ago.

He said the boom of the mobile-phone market in the region, with its cheaper domestic long-distance calls and extreme versatility, has further diminished the growth potential for fixed-line telephone systems. "Mobile revenue [is] in many countries exceeding fixed-line revenue and obviously limiting the space for growth in the fixed-line markets. So, despite the liberalization, you could see limited investment in the alternative segment -- in the fixed-line markets -- and therefore all the desired changes as far as the investment growth and price reduction in the fixed-line market are not as significant as previously thought."

Mobile telephones have also been very successful in Romania, due mainly to the poor fixed-line services. Last year, the number of mobile phone subscribers -- some 4.5 million -- for the first time exceeded those who used fixed lines.

Minister Dan Nica says that mobile operators will also benefit from the market liberalization, since they are no longer obliged to use Romtelecom as the carrier of their services.

Analyst Joan Hoey said that mobile suppliers' supremacy will persist and consolidate in Romania. But Hoey believes that liberalization of the fixed-line telephone system remains very important. "It also has implications for Internet usage, which is very low, for obvious reasons, because of the high fees charged by Romtelecom to the use of its lines. So I think in various respects -- including faster Internet penetration, e-commerce, and so on -- it's an important development."

Internet penetration in Romania remains low, but usage is growing rapidly, at more than 5 percent monthly, despite the high cost. According to recent figures, more than 2 million Romanians, or almost 10 percent of the population, are using the Internet.

Minister Dan Nica said he now expects the big cable-TV operators, which have extensive networks in all cities, to expand their offer to include phone services and Internet access. "I believe that the intention of the big cable-TV operators is to offer a package of services -- not only TV programs, but also data-transmission services, Internet access and, of course, telecommunications services. I think that this is going to be the most interesting part of the liberalization, where every operator will try to come up with new and different technologies and different solutions, which will mean a wider choice of services for the client."

However, analyst Dalibor Vavruska warns that although the market is now officially open, former state monopolies have used legal tricks to hamper the newcomers' linking to their networks -- a process known as interconnection.

But Nica told RFE/RL that Romania has learned from the other countries' experiences. "We watched very carefully [what happened in other countries] in order to avoid the traps and tried to prevent by law those who now dominate the market to abuse their position. This refers directly to the interconnection process, where the dominant operator is Romtelecom." Nica said the government has set a precise timetable that provides for the interconnection process to be completed in three months.