Croatia Telecommunications Report Q3 2008

Croatia is facing the prospect of a slowdown in growth in its rapidly maturing mobile market, while its traditional fixed-line telephony industry suffers a downturn in customer patronage as a result of mobile substitution, even as a handful of successful alternative operators join the fray. As elsewhere in the Central and Eastern European region, it is the broadband sector that holds out the best prospects for growth in the coming years. New data for Croatia's internet sector show that the country had nearly 2mn users of such services at the end of 2007, a little more than we had previously reported. This represented a y-o-y improvement of 18%, and we have therefore elected to increase slightly our average annual growth forecasts for the five-year period ending 2012. Thus, we now expect that the market will have grown to support 2.375mn internet users by the end of the period, representing a penetration rate of 53%. The market will, of course, be driven by the broadband segment, a field that saw subscriber numbers grow by nearly 53% in 2007 as a result of fixed-line replacement with ADSL connections, particularly at incumbent T-Hrvatski Telekom (T-HT), where a nascent IPTV service is growing rapidly.

Liberalisation of the fixed-line market took place in 2003, but it has taken nearly five years for the most successful of the sector's 10 alternative operators to begin to make much of an impact on T-HT's market shares. The situation was helped in 2007 by the regulator's approval of T-HT's amended Reference Interconnection Offer (RIO) and Reference Unbundling Offer (RUO), price catalogues offered to all operators regarding charges levied for access and interconnection to its various network elements. Lower interconnection and access prices have made it more economically viable for competitors to deliver their services to customers using the T-HT network. T-HT has benefited indirectly, seeing the number of unbundled local loops and wholesale customers served grow over the course of 2007. However, a number of newcomers are building their own networks and are able to bypass T-HT's network. In Q108, T-HT reported a reduction in wholesale revenues, a sign of the rate of change in the fixed-line market.

Alternative networks are increasingly being based on broadband technologies, with WiMAX seemingly the preferred choice for new entrants such as Optima Telekom, H1 Telekom and WiMAX Telecom.

However, Optima Telekom, Metronet and cable operator B.net are also deploying fibre-based access networks and are offering ADSL-based services to particular customer segments. For instance, Metronet targets corporate customers, while B.net is targeting its video customers, also offering telephony services for the first time. Meanwhile, T-HT grew its ADSL subscriber base by 50% to 377,340 in the year to March 31 2008, while its IPTV subscribers numbered 56,355 at that time (a 253% y-o-y increase).

Thus, BMI believes that Croatia's broadband market will grow at an average annual rate of 15% over the five years to 2012, starting from 385,000 subscribers and a penetration rate of 8.6% and ending with 770,000 subscribers and a penetration rate of 17.3%.