Norway - Q1 2013
As a result of the implementation of BMI's new Risk/Reward Ratings methodology, Norway moved up five positions in the Q113 update. Norway's overall score improved from 63.1 to 65.1 on the back of an upgrade to its industry rewards score. An additional factor was a relative improvement in its country risks score due to the positive real private consumption growth outlook and its more limited exposure to the eurozone compared to many of its peers. Norway now scores above the regional average in all four categories surveyed. Norway sits behind Switzerland and above Sweden and Germany.
Norway's industry rewards score improved significantly under the new methodology. Norway has always scored highly in the category as a result of the high ARPUs in the market, derived from the high income levels in the country. However, it has been limited somewhat by the small size of the market relative to large European countries. The improvement in Norway's score is derived from BMI's greater emphasis on both wireline and wireless data subscription growth - an area of the market in which Norway is a regional leader with strong competition in high-end wireline broadband provision, as well as competition in commercial 4G LTE services. It should be remembered that improved capacity services also open up new opportunities in value-added service provision such as OTT, mobile TV and VOD.
Norway had previously held the highest score in Western Europe in the country rewards category until BMI's Q411 Risk/Reward Ratings. This had been positively influenced by several factors including the country's GDP per capita and the proportion of the country's GDP that is spent on education. Along with Denmark and Sweden, Norway spends one of the highest proportions of GDP on education, a phenomenon that ensures a highly literate population that is generally receptive to new technologies. However, the Q411 change to our methodology placed greater emphasis on demographics and other population data, reducing Norway's score. From a telecoms perspective, a fast population growth rate is seen as positive because it ensures a growing market for new communications services. Without it, and in the face of existing saturation, we had to mark down Norway's country rewards scores quite considerably in Q411. There were no new data for analysis at the time of writing; therefore, no further changes have been implemented this quarter.
Norway, like a number of Western European countries, shares the highest score in the Industry Risks category, reflecting the positive work of Norway's telecoms regulator, the NPT, which has done much to encourage the promotion of competition in the country's telecoms market. The regulator's achievements have come in spite of the continued market dominance of incumbent operator Telenor in a number of sectors. Recent initiatives by the regulator include efforts to encourage greater use of spare radio spectrum by new and existing entrants. Meanwhile, the introduction of new, reduced MTRs have brought down high call rates, but this has had a negative impact on operators' ARPUs. The NPT has underlined its reputation as a forward-looking regulator, as it considers longer term spectrum licensing of up to 25 years in 2012, a critical issue in some applications of machine-to-machine communications where deployment horizons are considerably longer than in conventional mobile services. We consider the NPT to have struck a good balance between promoting the short-term interests of consumers through price competition, as well as helping to drive forward innovation with appropriate regulations.
Norway has the highest country risks score in the region even as its score declined considerably under the new methodology. BMI placed greater emphasis on our in-house private real final consumption forecasts, which led to reduced scores across Western Europe. However, Norway fared relatively well, with real private final consumption growth expected to average 1.1% per annum over the next five years. As a result Norway maintained the highest position in the country risks category for Q113.However, there are a number of significant downside risks on the horizon.
The primary risk to Norway's country risks outlook is an escalation of the eurozone crisis. The eurozone crisis could, if allowed to spiral out of control, seriously undermine demand for Norwegian manufacturing exports. Meanwhile, failure to tackle structural reforms in areas such as pensions will ultimately slow the pace of economic growth. We also identify risks in the financial sector. Norwegian banks, heavily exposed to household debt, could run into serious funding difficulties if the property market collapses, in turn undermining the supply of credit to other areas of the economy.