The Czech Republic telecoms market is undergoing a transition period with the arrival of MVNOs and the regulator's efforts to attract a fourth operator into the market. These pro-competition measures will add to a market that already contains a number of major international players such as Telefonica O2, T-Mobile and Vodafone in mobile, and Telefonica and UPC in wireline. The market has been under many of the same pressures as in neighbouring countries with market saturation; regulatory factors, such as cuts to mobile termination rates; and the impact of the eurozone crisis on macroeconomic performance acting as drags on performance. However, significant opportunities remain, not least in the booming wireless data market after LTE spectrum was auctioned in November 2013, and VAS opportunities arising from the rapid proliferation of smartphone ownership.
- Mobile ARPU rates were down sharply year-on-year (y-o-y) to Q3 2013 due to MTR cuts and price competition. Operator data indicate IP substitution could mean steep declines continue over the short-tomedium term.
- The latest ITU data show the negative impact of fixed-to-mobile substitution continues to hit operators. Total fixed-line subscriptions were down 8.3% in 2012 to 2.1mn at the end of the year.
- According to the latest data from the OECD and European Commission, the broadband market maintained growth momentum through 2012, particularly for high-speed wireline, however, there was stagnation in growth of dedicated mobile broadband subscriptions.
Key Trends And Developments
The major development in late 2013 was a change in ownership at the incumbent operator. In November 2013 Telefonica announced that it would sell the majority of the stake held in its Czech subsidiary to local investment company PPF Group for EUR2.47bn (US$3.34bn). Telefonica agreed to the sale as it continues to target a reduction in its debt burden at group level, with the Czech Republic considered a non-core market. PPF, which is based in Prague, will pay EUR2.06bn (US$2.78bn) for a 65.9% share in Telefonica Czech Republic AS, which is the country's largest telecom operator by subscribers. PPF will then pay a further EUR404mn (US$547.1mn) for the stake over four years, which will leave Telefonica with a 4.9% stake in the Czech company for now, which it may sell to PPF after the four-year period. BMI believes the acquisition is neutral for the market, with downside from the loss of a major international telecoms group, but a potential injection of capital from PPF could counter this downside.
Meanwhile, the long-awaited auction of LTE spectrum finally took place in November 2013. T-Mobile paid CZK2.802bn for two 2x5MHz blocks of 800MHz spectrum while Telefonica Czech Republic paid CZK2.386bn for two 2x5MHz blocks in this band. Vodafone targeted a third block of spectrum, paying CZK2.664bn for a single block of 2x10MHz frequencies in the 800MHz band. Mobile network operators are expected to invest up to CZK40bn (US$1.99bn) in 4G LTE network roll-out, boosting coverage and capacity of services. BMI highlights the potential for migration to LTE services to positively impact ARPU in the mobile market, but LTE could cannibalise fixed broadband subscriptions, hurting wireline operators.