Czech Republic Telecommunications Report Q1 2008

The number of Czech mobile subscribers grew by just 1.1% in Q207; this was just slightly higher than the 0.8% growth rate seen in the previous quarter. Overall subscriber growth for the first half of 2007 amounted to 1.9%, which is quite a bit lower than the 2.8% growth which was seen in the first half of 2006. These trends appear to confirm our general belief that growth in the sector is finally slowing down.

Despite this, BMI still expects to see faster growth in the third and fourth quarters, as has tended to be the norm in the Czech mobile sector. We continue to be optimistic that our anticipated 5% growth rate for 2007 will be met. In the second quarter of 2007, Vodafone continued to gain vis--vis its market rivals, acquiring another 50,000 subscribers, 29,000 of which were postpaid; Vodafone's share of the market consequently increased to 20.1%. In contrast, Telefnica O2's market share remained unchanged at 39% while T-Mobile's share dropped to 40.9%. Meanwhile, in Q207, O2 reported a meagre 1% increase in 3G subscribers, although the operator did announce that it had crossed the 100,000 3G subscriber mark. O2's postpaid ARPU remained constant in the second quarter, at EUR32.2, while the other two operators reported an increase in postpaid service ARPU which amounted to at least 3%. At this stage, it is uncertain whether this Q207 marks the start of a new trend in postpaid ARPU (possibly reflecting the impact of increased data service usage) or whether it is simply a temporary adjustment.

In this latest update on the Czech telecoms sector, we have made some revisions to our forecast for the development of the country's broadband sector. Based on the most recent data available, we believe that the sector had around 1.087mn broadband connections at the end of 2006, and a penetration rate of 10.7%. BMI estimates that, by mid-year 2007, Czech broadband subscribers numbered 1.276mn. The Czech broadband sector has become ever more competitive in recent months, with a growing number of providers entering the market and offering both ADSL services and fixed wireless access (FWA).

Although the number of Telefnica O2 wholesale ADSL access lines decreased in the second quarter of 2007, it appears that this decline is related to the growing use of local loop unbundling as the preferred means by which alternative operators deliver ADSL services. Although it has not disclosed actual figures Telefnica O2 suggests that the number of ADSL access lines provided by other operators using LLU is growing. BMI's most recent predictions for the growth of the Czech broadband sector envisage a growth rate of 34.8% for 2007. We anticipate the number of subscribers rising to 1.465mn by the end of the year; this will result in the country having a broadband penetration rate of 14.4%.

In other news, the Czech telecoms sector saw the arrival of yet another new operator in Q207, following the announcement that Telekom Austria subsidiaries, eTel and Voln would merge to form a new company, Telekom Austria Czech Republic. As separate companies, both eTel and Voln have evolved over the past few months into powerful challengers to Telefnica O2's market dominance. The consolidation of their service portfolios under the leadership and brand of their parent company suggests a new intensification of Telekom Austria's own competitive strategy within the Czech Republic.