Czech Republic Telecommunications Report Q2 2008

Results for Q307 show that the Czech mobile phone market grew by 1.6% q-o-q, or by 7.2% y-o-y. While Q3 growth was an improvement on the 1.1% rise seen in Q207, the annual rate of growth is smaller than the 7.3% witnessed in the period Q305 to Q306. These data are therefore taken by BMI to confirm that the mobile market is slowing down. The fourth quarter of each year usually brings in the highest numbers of new customers, but we still consider that overall growth for 2007 will amount to no more than 5%.

Greatly improved performances by T-Mobile and Telefonica O2 meant that both of these operators recovered some of the ground they had lost in H107 to rival Vodafone, and as the latter company only managed a marginal improvement in Q307 this meant only a small change in market shares. T-Mobile maintains its dominance of the market, accounting for 40.8% of the total subscriber base of 12.756mn.

Telefonica O2 is close behind with 38.9% of the market. Each company lost 0.1% of the market to Vodafone in Q307. Nevertheless, Vodafone is doing better business in the prepaid segment than its rivals; its prepaid customers grew by 40,000 in Q307, while the others reported decreases in their prepaid customer bases. O2 also reported lacklustre growth in its 3G and mobile data offerings in the last two quarters, and this may have negative implications for the 3G market if such poor growth continues. TMobile offers a 3G service, but does not disclose operating data, while Vodafone seems increasingly unlikely to launch a 3G service of its own due to the costs involved in building infrastructure.

The broadband sector had attracted 1.39mn customers by Q307, with 60% of the market served by Telefonica O2 and cable TV operator UPC. The broadband market continues to be driven by O2's retail offering, which grew to 545,000 connections by the end of Q3. There was a small decline in the number of wholesale broadband connections served by O2, suggesting that alternative operators are increasingly relying on their own infrastructure to offer services. By the end of 2006, five local loop unbundling (LLU) agreements had been signed between O2 and rival operators. The broadband market should be boosted by the recent mergers of Volny and eTel, and of UPC and Karneval, as well as the Q407 acquisition of the GTS group by private equity investors keen to develop their presence in the region.

Based on Q3 results for the mobile, broadband and fixed-line sectors, BMI has maintained its previous forecasts for the end of 2007 and extended its forecast range to 2012. Here, we see the mobile phone market growing to serve 13.748mn customers by 2012, or 135.5% of the population. Of that number, 8.279mn will be 3G customers, assuming interest in such services reaches critical mass within the next 24 months. New entrant U:fon may provide some forward momentum in this area. For broadband, we envisage growth of 126% between the end of 2007 and 2012, when there will be 3.305mn subscribers (32.6% penetration). Meanwhile, despite the rising number of active fixed-line operators, we continue to expect that the number of fixed lines will fall by around 1% per annum. By 2012, BMI believes that there will be 2.752mn lines still in service, despite the growing trend for the substitution of fixed lines for mobiles.