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Poland and Romania are leading the way in 3G rollout in Eastern Europe, accounting for almost half of WCDMA and WCDMA-HSPA (‘3G’) connections in the region in the third quarter. According to the latest Wireless Intelligence data, the two countries accounted for 15 million of the 31 million 3G connections in Eastern Europe in 3Q09. By contrast, the two largest mobile markets in the region – Russia and the Ukraine – are lagging behind; Russia was the third-largest 3G market, but its connections base accounted for less than 2 percent of its total, while 3G rollout has stalled in the Ukraine.

Wireless Intelligence predicts that 3G connections will account for 7 percent of the region’s total connections in 2009, rising to 12 percent next year (see graph below). By this point Eastern Europe will have more proportional 3G connections than Africa, the Americas, the Middle East and Asia-Pacific, but would still trail the global average of 14 percent and Western Europe on 46 percent.
Mobile operators in Poland and Romania represented the seven largest 3G operators by connections in Eastern Europe. Poland’s Play (P4) is the largest on 2.8 million connections. The 3G specialist is still a distant fourth in the Polish market (behind Plus, Orange and Era) in terms of total connections but is growing fast. It reached 1 million customers in January 2008 – 10 months after commercial launch – and is on track to reach 3 million connections by the end of this year. Play is targeting a double-digit market share by 2012, up from around 6 percent in 3Q09 (its 3G market share in Poland is 33 percent). Growth has been spurred by the introduction of mobile number portability (MNP); in May this year, the operator claimed that 65 percent of subscribers churning from other networks moved to Play. Its 3G network currently covers 60 percent of the country but has national GSM roaming agreements in place (with Plus) that expands its total network coverage to 80 percent.

In Romania, 3G is being driven by the two largest mobile networks, Orange and Vodafone, which both launched their 3G networks in June 2006. Fourth-placed operator DigiMobil – the 3G mobile subsidiary of cable and satellite broadcaster RCS&RDS – won a third 3G license in January 2007 and is currently in the process of rolling out its network. According to Wireless Intelligence data, DigiMobil surpassed 2 million connections in 3Q09, giving it a 32 percent share of Romania’s 3G market.

This situation has left Cosmote – Romania’s third-largest mobile operator overall – playing catch-up in 3G and without a license to launch services. This was a key motivation behind its acquisition in July this year of rival Romanian mobile firm Telemobil – better known by its trading name Zapp – in a deal worth EUR207 million. Although Zapp is the smallest of Romania’s five operators, it holds a CDMA license in the 450MHz band and a WCDMA license at 2100MHz, allowing Cosmote to compete in 3G services.

Meanwhile, Russia is the largest market in Eastern Europe and surpassed 200 million mobile connections in the third quarter, according to our data. The country’s three main mobile operators – MTS, VimpelCom and MegaFon – received 3G licenses in April 2007 and began rolling out their new networks last year. Market leader MTS is leading in 3G on 1.7 million connections in the third quarter. It plans to extend its 3G network to 40 cities in Russia in 2009 after rolling out initially in Moscow last summer. Russia added over a million net new 3G connections in the third-quarter, the largest increase in Eastern Europe.

However, in the Ukraine – Eastern Europe’s second largest mobile market – 3G rollout is being hampered by political issues. The Ukrainian regulator had planned to sell a 3G license in an auction this month but the move was vetoed by the Ukrainian president, Viktor Yushchenko, who argued that releasing the new spectrum would jeopardise Ukraine’s national security. The country’s largest mobile operator Kyivstar (part-owned by Norway’s Telenor) and Russia’s VimpelCom had been among the expected bidders. Only one WCDMA license has been issued in the Ukraine to date: to Utel, the mobile unit of state-run fixed-line operator, Ukrtelecom. According to Wireless Intelligence data, Utel had less than 500,000 3G connections by the end of the third-quarter.

Joss Gillet, Senior Analyst, Wireless Intelligence

The Eastern European markets are rapidly following the path of their western neighbours in terms of rising levels of maturity, and are fast approaching user saturation; ARPU has been falling faster in Eastern Europe than in Western Europe over the past 12 months – down 23 percent and 9 percent, respectively. Competition is intense – especially in the dominant prepaid segment – which is hitting both revenue and margins. Regulatory initiatives such as mobile termination rate cuts and mobile number portability have also had an impact. In such a competitive environment, the winners are operators that manage to boost their brand awareness and differentiate through innovative offers. This strategy helped Poland’s Play to both steal market share from incumbent competitors and increase its mobile revenue share to 5.9 percent since launch (forcing Orange Poland’s revenue share to fall from around 35 percent to 30 percent). Meanwhile, in Russia – an unsubsidised and price-sensitive market – operators have been focusing on short-term challenges and we have witnessed a rapid ARPU decline over the past 12 months (by almost 30 percent). For example, MTS reported that between 2008-9 subscriber acquisition costs (SAC) were twice as high as ARPU; dealers’ commissions represented 63 percent of SAC compared to 50 percent a year ago. MTS has also reduced spend on advertising and marketing, which could affect the launch of its new content store. Eastern European networks are today only just recovering from a tough financial time – with revenue and margins badly damaged by currency fluctuations – and urgently need investments to improve WCDMA and WCDMA-HSPA network coverage. 2010 should mark the start of aggressive plans to develop affordable and profitable high-speed services in the region.