IHS Global Insight Perspective | |
Significance | Serbian regulator RATEL has given a decision on the conditions on which Telenor, a recent fixed-line licensee, can access incumbent Telekom Srbija's network, as well as on the interconnection between the two. |
Implications | The regulatory intervention had become necessary after the companies' commercial negotiations failed to bring an agreement. |
Outlook | For Telenor, the regulation is significant as it begins to roll out fixed telephony and broadband services to complement its current mobile-only portfolio. |
Serbian telecoms regulator RATEL says that it has adopted the decision on setting the costs and conditions of Telenor Serbia's access to incumbent Telekom Srbija's infrastructure, as well as of the interconnection traffic between the two operators. The companies will have to comply with the regulation within 30 days from the decision, which was given on 7 June. Furthermore, Telenor and Telekom Srbija are required to notify the RATEL once in three months on the implementation of the new rules. In case the operators agree to implement a different framework than the one stipulated in the decision, they will have to notify the regulator at least 30 days prior to the application of such an agreement.
Outlook and Implications
- Essential Regulation for Telenor's Market Entry: Although the RATEL has not yet made public the specifications of its ruling, the announcement is nonetheless an important development in facilitating Telenor's access to the Serbian fixed telephony and broadband markets. In particular, it regulates on the interconnection between Telenor's and Telekom Srbija's networks, as well as on how the former can access the latter's infra as a wholesale client, which allows the alternate to extend its service coverage beyond its own, initially nascent network. Following its licensing in February, the firms tried to agree on the conditions through mutual negotiations, yet these reached a deadlock rather shortly (see Serbia: 22 February 2010: Telenor Talks on Landline Leasing from Telekom Srbija Reach Deadlock). Subsequently, the Norwegian company also approached the market's largest cable operator, Serbia Broadband (SBB), on the possibility to lease its cable infra, but this plan unfolded also soon afterwards, chiefly because of SBB's capacity constraints (see Serbia: 28 May 2010: SBB Has No Capacity to Lease for Telenor Serbia—Management). Going forward, it is worth noting that the RATEL's regulatory order includes a quarterly briefing from both sides on how the set conditions have been put into practice, which as such is a pragmatic choice, allowing the authority to address possible shortcomings on a relatively short notice.
- Telenor's EBITDA Margin Still High Despite Downturn and Mobile Tax: In the end of May, Telenor announced that it will cut 120 jobs at the Serbian unit because of "forthcoming organisational challenges", as well as the special 10% tax the government has imposed on mobile services, noting that the tax has thus far forced it to write down 220 million euro (US263.4 million) in Telenor Serbia's value. Introduced about a year ago as part of the government's fiscal consolidation, the state has hinted that it might scrap the measure in the course of this year, though as yet nothing concrete has been made (see Serbia: 10 February 2010: Serbia to End Mobile Tax, Introduce MNP in 2011). In the first quarter, Telenor Serbia's revenue amounted to 606 million Norweigan kroner (US$91.3 million), down 15.8% year-on-year (y/y), and adjusted EBITDA of 230 kroner, down 25.8% y/y. At 38%, the EBITDA margin, although down from 43.1% a year earlier, was still quite high, indicating a relative cosiness of the pre-crisis market. We assume that the ongoing restructuring effort is in part related to the deployment of fixed-line services, as the carrier squeezes costs at the existing operations to be able to invest in new ones.