Croatia Telecommunications Report Q3 2007

Recent figures released by Croatia's wireless operators show that the number of mobile subscribers grew by just 2.4% in the first quarter of 2007 making Q107 the slowest quarter for mobile growth sector yet seen. These figures suggest that growth in the number of new mobile subscribers may be starting to slow down. Croatia's mobile penetration is already at 104%, and despite there being a significant number of inactive users within the reported subscriber totals of the operators - as well as evidence of a trend towards multiple SIM ownership - BMI believes that a significant slowdown in subscriber growth should be expected in the coming months. We predict that subscriber growth in 2007 will be at a much reduced rate of 9.5%, compared with 19.9% in 2006 and 28% in 2005.

Croatia's mobile operators are responding to the slowdown in new subscriber additions in a number of ways. Firstly, they are exploring new markets to tap into, including, for example, the previously underexploited seniors market. More importantly however, the operators are placing greater priority on the migration of prepaid customers (which currently constitute 88% of the total number of Croatian mobile users) onto more lucrative postpaid tariffs. Thirdly, in the case of the sector's two largest operators, T-Mobile and Vipnet, the investment in advanced 3G data services and multimedia content is already well under way. Finally, both T-Mobile, through its partnership with parent fixed-line incumbent T-Hrvatski Telekom (T-HT), and Vipnet, which holds a licence to offer fixed-line, broadband and data services, appear to recognise the benefits to be reaped from developing an integrated portfolio of fixed and mobile communications services. Diversification of strategy will be key to their future success. Meanwhile, the parent company of Croatia's third mobile operator, Tele2 of Sweden, has recently sold a number of its other European operations and, despite reporting positive revenue figures for its Croatian business unit, remains well behind the country's two market leaders - both in terms of network coverage and range of services provided.

Other major developments in the past few weeks include the government's announced plans to sell 20% of the equity in fixed-line incumbent TH-T - an IPO is scheduled for this autumn. The move has been welcomed by those in the industry who were critical about continued government involvement in the sector (the government holds a 42% stake in TH-T, making it the largest shareholder after parent company Deutsche Telekom of Germany). Meanwhile, following widespread criticism that the Croatian telecoms regulator, the CTA, was not doing enough to challenge the monopoly hold which TH-T continues to have over the country's fixed-line sector, recent months have seen the issuance of additional WiMAX licences in a bid to promote further broadband competition. Finally, following its acquisition by Austrian energy suppler Bewag, in April 2007, Croatia's largest cable TV operator Digital City Media

(DCM) announced plans to add fixed voice services to its cable TV and broadband internet services, confirming BMI's predictions about its move into Croatia's embryonic triple play market.