For a consecutive year mobile operators in Bulgaria reported a drastic reduction in revenue with ever smaller profits and reallocation of positions. Market oversaturation and tougher European regulations pushed roaming and mobile Internet prices almost to the bottom. Realistically, the electronic communications sector in Bulgaria said goodbye to a quarter of a billion levs for last year alone, and its total revenue fell to 2.54 billion levs. Which is the largest decline (8.4 percent) since the formation of the industry in 1990s. It is mostly due to the collapse in revenues from mobile telephony services, which were 17.9 percent less than in 2012 and reached 1.251 billion levs. While the number of customers has not decreased significantly – active SIM cards at 31 December 2013 were 10.486 million, or only 2.7 per cent less than at the end of 2012.
Without doubt the most important contributors to the poor performance is administrative cheapening of the roaming. Long conversations abroad were real cornucopia for the telecoms not only at home but also in Europe. Efforts of digital policy EU Commissioner Neelie Kroes to create a single European market, however, are on their way to completely eliminate this source of easy profits. The European Parliament recently adopted package of measures under which roaming should be completely removed as tariff at the end of 2015. Estimates of Bulgarian mobile operators show that up to now these measures have discarded from their income 200 million levs. Certainly, these companies are not to be sorry for after in recent years they were continuously „robbing“ their customers. Today, things are changing and the good thing is that courting of consumers will increase.
Otherwise, the market leader is still Mobiltel EAD, which is part of Telekom Austria. The news is that
competitors are close behind
and more tangibly so. The first Bulgarian GSM operator holds 40.7 percent of the subscribers of the market (4,268,137 SIM cards), but on an annual basis its share continues to decline – this time by 2.6 percent. Company formed also 42.3 percent of total revenues from mobile voice services, or just over 529 million levs. But in this case there is also a decrease – by 2.3 percentage points. The options for Mobiltel to stabilize its performance are not optimistic. In recent report of the Telekom Austria mobile market in the country is described as „a very difficult and challenging.“ The annual results of the Austrian group show the Bulgarian subsidiary as one among the main factors for shrinking profits. Less than a month Telekom Austria even reduced the value of Mobiltel in their balance sheets by nearly 400 million euros.
„Nearly half of the total write-off was due to changes in the weighted average cost of capital of Mobiltel and the macroeconomic environment in Bulgaria. It is used as a criterion for evaluation of projects and as a lower limit of return on investment in and in May 2014 it grew by nearly 20 percent over the previous year. Only the Bulgarian unit in the group showed an increase in this indicator, which requires to make write-offs under the international financial reporting standards,“ commented representatives of the Austrian company.
The other main reason for the value reassessment of Mobiltel is the revised forecast of the macroeconomic environment and the potential risks of Bulgaria as a country in this area, including the impact that a crisis in Ukraine can have. Austrians point out that in June the rating agency Standard & Poor’s cut Bulgaria’s credit rating from BBB to BBB-, with an expected moderate economic growth unless it takes serious political and structural reforms.
At the other extreme is Vivakom.
Due to the aggressive policy of combining fixed, mobile telephony, internet and TV bundled with offering smartphones, tablets and gaming consoles at very attractive prices, this company has managed to increase in 2013 the number of subscribers by 1.7 percent and already occupies 22.1 percent of the market (2,317,588 SIM cards). Growth in revenues has also been achieved – they jumped 2 percent and amounted to 266.4 million levs (21.3 percent of revenue from mobile voice services).
It will be interesting to see whether this growth will continue this year – having in mind the financial commitment of the telecom with the defunct Corporate Commercial Bank. The first signs of „cooling“ have already come. Just days ago, Standard & Poor’s reported that they change their assessment of Vivakom to a negative outlook in. This means that its ratings will be reduced by one increment in the next six months. The same will be true if the company’s management pursues an aggressive financial policy, such as it has at this moment, as this move will increase its debt
„We think it unlikely that there will be a refinancing of the loan of 150 million euros against equity participation and that Vivakom holding will perhaps refinance it with a new loan before its maturity in May 2015. We are not sure if such refinancing will be successful and it is unclear when it might happen in the current macroeconomic situation in Bulgaria. If the expected debt refinancing fails to take shape, we see a risk for Vivakom to eventually enter it as a loss, which will be more expensive to finance because it is to weaken its revenues and its ability to serve the interest rates compared to our previous forecast,“ the rating agency said. They make a rather curious suggestion – if the company reaches to an inability to service the bridge loan, this will cause a change of the control stake in Vivakom.
„In addition, the macroeconomic prospects for Bulgaria are weak and competition remains fierce, which continues to undermine opportunities for profits for the group. Consequently, we believe that its credit performance is unlikely to improve – as we expected earlier – and will probably worsen in the next 12 months,“ concludes Standard & Poor’s.
Against this background,
the behaviour of Globul remains most conservative.
In 2013 the company slightly moved up, and was able to seize a new 0.8 percent of active users of GSM-services and increase its market share to 37.2 percent (3,901,098 SIM cards). A minimal increase of 0.3 points was generated in the revenue side, which went up to 455.3 million levs (36.4 percent of total telecom revenues).
Also in the case of Globul it will be interesting to see what happens after the change of its owner. The necessary approval of the national and European regulatory authorities of the transaction in which the Norwegian Telenor bought the mobile operator together with the chain stores Germanos from the Greek OTE against 717 million euros was actually completed seven months ago, so it is still to expect changes. Executive Vice President and Director for Europe of Telenor Kyel-Morten Johnsen has already sent a short but clear messages that certainly put an end to the calm of Mobiltel and Vivakom.
The first of them was that Telenor is a strategic investor and comes with the intention of staying for a long time. „So far we have had very modest presence in Bulgaria in the field of satellite services. But the country fits perfectly in our goals. We are market leaders in GSM services in Serbia and Montenegro, and have a share of 31 percent in Hungary. We want to become key player here,“ said Johnsen. He also explained that „having established control of the management of the company, we will concentrate on the further development and modernization of the network. Upon penetration of mobile services on the Bulgarian market of over 150 percent, we obviously cannot expect much greater increases, so we have nothing else to rely on except to satisfy current customers and keep them, as well as attract new ones from other operators.“
Theoretically Telenor is able to shake the mobile market status quo from the ground up. It is enough to have a glance at the Norwegian operator – the ninth largest in the world with 147 million customers, ahead of such big companies as China Telecom, Deutsche Telekom and France Telecom. Telenor holds a 33-percent stake in the seventh largest Vympel com, which in turn has 204 million subscribers. The problem is: will the Norwegian group be allowed to work in the country on a purely economic basis? All governments have so far clearly showed that they insist on strictly controlling the activities of supposedly independent regulatory authorities, which are generally obliged to take impartial decisions for the market they oversee.
Ultimately though it actually seems a period for big changes in the telecommunications sector has begun. The Commission for Communications Regulation the expectations for the development of the telecom market are very unfavorable. They projected a sustained decline under the pressure of competition from services such as Skype, Viber and WhatsApp, offering software for data transfer and videoconferencing, developed by Google, Microsoft, and Yahoo… So it would be very important who and how will manage to adapt to the new conditions.
The BANKER
