BosniaHerzegovina Infrastructure Report Q4 2008

As none of Bosnias telecommunications operators disclose operating data on a quarterly basis, BMI has estimated growth in the mobile services market for the first quarter of 2008. Based on trends witnessed in the latter part of 2007, we believe that the total number of mobile telephony subscribers may have reached 2.593mn by the end of March 2008. This assumes that BH Telecom, HT Mobilne Komunikacije and m:tel have continued aggressively marketing services outside their traditional concession areas, a practice they have only been allowed to exercise for less than a year, so far. BH Telecom and m:tel have certainly been active in expanding and enhancing their mobile networks, as well as launching new price promotions and valueadded content offerings in a bid to keep up their forward momentum.

This growth is being achieved by focusing on adding new prepaid subscribers at the expense of signing up new postpaid customers. Approximately 90% of all mobile subscribers currently take prepaid services in Bosnia; thus, the operators are currently seeing only minimal returns on their investment. This may be a cycle that cannot be broken in the immediate future as the use of prepaid services is vital to the operators efforts to penetrate each others previously closed operating areas. It may also count against the launch of commercial 3G services in Bosnia for some time, though we do still expect to see the arrival of 3G services next year.

This does depend on there being progress in privatising the three incumbent operators, however. Telekom Srbija successfully bought into Telekom Srpske last year and the very positive results recorded by the company suggest that Telekom Srbija would welcome any opportunity to increase its ownership in the operator. Meanwhile, Deutsche Telekoms Croatian subsidiary, THrvatski, continues to wait on the governments decision to proceed with the privatisation of Mostarbased HT Telekom; THrvatski owns a minority stake in HT and hopes to increase this to a controlling stake as soon as possible.

The privatisation of the countrys largest operator, BH Telecom, continues to be talked up in the media and at the government level, so we believe the sale process could still get underway before the end of the year. However, the companys two main suitors Telekom Slovenije and Telekom Austria are also looking at other potential acquisitions in the Central and Eastern European (CEE) region and may lose interest if they are kept waiting too long.