Bosnia & Herzegovina Telecommunications Report Q1 2008

Although Bosnia's telecoms regulator and its three mobile network operators, have yet to publish mobile subscriber data for the end of 2006, or for the first few months of 2007, BMI believes that subscriber growth has been accelerating in recent months. For the second quarter of 2007, we believe that the market grew by a much more significant 5.4%, with the total number of mobile subscribers rising to 1.881mn. A number of factors help to explain the much stronger growth in Q207, relative to Q107. These include a swathe of recent announcements by Bosnia's three mobile network operators, of increased investments in the development of their networks and services. They also include the introduction of national mobile roaming, which came into effect on 1 August, 2007. We believe that these developments have helped to stimulate increased competition in the sector, as well as expansion and take-up of mobile services.

One of the most important developments to emerge from Bosnia's telecoms sector in recent months was the news, in September 2007, that the government of the Federation of Bosnia & Herzegovina was preparing the privatisation of the country's biggest state-owned telecoms operator BH Telecom. The privatisation should take place by the end of the year and, according to local media reports, the starting price for 51% of the shares will be EUR1.01bn. The government is reportedly inclined to sell 51% to a strategic partner and then offer another 15% of the company's shares on the Sarajevo Stock Exchange or other foreign markets. The government will retain 26% of the ownership of BH Telecom. Companies which have been mentioned as potential buyers of BH Telecom include Deutsche Telekom and Mobilkom Austria. Deutsche Telekom already has a major presence throughout the former Yugoslav region, in addition to owning Croatian fixed-line operator Hrvatski Telekom, the German incumbent has controlling stakes in T-Mobile Macedonia and Montenegrin mobile operator Monet , which its holds through its Hungarian subsidiary Magyar Telekom . For its part, Mobilkom Austria, which is part of the Telekom Austria group, has controlling interests in Croatia's number two mobile operator, Vipnet, and in Slovenian mobile business Si.Mobile. It also owns Serbia's third mobile operator, Vip Mobile, as well as Macedonian start-up, Nov Operator, which was scheduled to launch a GSM network in July 2007.

Although the provision of domestic voice telephony services in Bosnia was liberalised in 2001 - with international voice telephony being liberalised in January 2006 - the country's three regional incumbent telcos, BH Telecom, Telekom Srpske and HT Mostar, continue to maintain de-facto monopolies within their respective markets. Nevertheless, competition in the country's fixed-line and internet sectors has gradually been growing. In October 2007, it was reported that Slovenian incumbent telco Telekom Slovenije had acquired a 70% stake in Bosnian fixed-line operator, Aneks. Aneks has offered fixed-line telephony services in Bosnia since 2006 and, as a result of the acquisition, Telekom Slovenije has entered the Bosnian market as a provider of fixed-line telephony services. The Aneks acquisition follows Telekom Slovenije's acquisition of Republic of Srpska-based ISP Blic.net. The Slovenian incumbent plans to merge its Bosnian fixed-line and internet service businesses by the start of 2008.