The Slovakian Supreme Court has overruled an appeal from Slovak Telekom, determining that the telecoms operator must allow wholesale access to its copper and fibre optic lines for its competitors. Slovak Telekom was appealing an earlier ruling by the telecoms regulator TU SR, which identified the incumbent as an operator with significant market power (SMP) in Slovakia. BMI believes this is good news for alternative operators which have struggled to compete with Slovak Telekom. However, the growing reliance on mobile phones in favour of fixed connections means that we continue to forecast decline in the market.
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Slovak Telekom is the incumbent former monopoly telecoms operator in Slovakia, now majority-owned (51%) by Deutsche Telekom and the remaining 49% by the Slovak government through various state agencies and funds. Despite liberalisation of the market over 10 years ago, Slovak Telekom maintains a virtual monopoly over the fixed and broadband markets, as regulation has largely failed to boost the level of competition and alternative operators have had very little impact on market dynamics. Slovak Telekom has delayed interconnection agreements as much as possible, frequently appealing the decisions of the regulator and charging high interconnection prices to its rivals.
In 2005, seven alternative operators signed interconnection agreements with Slovak Telekom, after the incumbent reduced its interconnection rates to a more reasonable level. However, the market has continued to post net fixed access declines every year since. TU SR reports that the number of fixed lines at the end of 2005 totalled 1.12mn, and this had dropped to 869,000 by the end of June 2013. Residential and business lines have fallen at similar rates, with the former still accounting for 75.8% of lines at the end of H113, compared to 76.7% in 2005. Slovak Telekom reports that it had 932,000 lines in service in Q213, which differs from the data provided by the regulator. The disparity likely relates to the exclusion of ISDN subscription data from the regulator's figure for total fixed-line subscriptions while Slovak Telekom may also be including payphone lines in its totals. Furthermore, the regulator also reports significant decline in the number of calls being made using fixed telephones, with a decrease in the overall number of minutes also. Aside from the lack of competition to Slovak Telekom, the fixed market is suffering in Slovakia as the fixed-to-mobile substitution trend is playing out.
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Slovak Telekom has also posted overall declines in subscribers, in line with the declining demand in the market for fixed lines. However, Slovak Telekom reports that its wholesale unbundled access lines increased from 45,000 to 70,000 over the course of 2013. The main fixed line competition comes from Orange and UPC ( Liberty Global), both of which are growing, albeit at a slow pace. Orange offers fixed-line telephony services over its FTTH network, and we therefore believe that most of its wireline growth comes from its broadband internet offering; it served 105,000 broadband subscribers at the end of 2013. UPC gives a clearer picture of the market, reporting 62,600 fixed telephony subscribers, a small increase from the 59,200 it reported in 2012.
While the decision by the Supreme Court is ultimately good news for the fixed line market, we do not believe it will have a significant impact on the number of fixed line subscribers over our forecast period. BMI continues to forecast a decline in fixed lines to 2018, as the demand for the service is not there. We maintain that the market will decline from 875,000 lines in 2013 to 832,000 in 2018, although we note that the growth of VoIP subscribers provides some upside risk, as does the strategy of operators to bundle fixed lines into triple-play packages in order to stem the tide of decline.