ECONOMY

OTE fails to see trend

First quarter subscriber figures released by Greece’s four GSM operators surprised on the upside with new net additions in excess of 400,000, dispelling concerns of saturation in the Greek mobile market. This development shows that local cellular operators can still look to subscriber growth for revenues but also highlights the shortcomings of OTE’s international expansion strategy. Vodafone-Panafon announced on Thursday it had added 164,048 new subscribers in the first quarter of 2003, beating market forecasts of 74,000 to 117,500 and bringing its total subscriber base to 3.38 million. CosmOTE, OTE’s mobile subsidiary and the country’s biggest operator in terms of customers, had 135,000 of net new additions, raising the total to 3,641 million versus Vodafone’s 3.38 million. Stet Hellas, a subsidiary of Telecom Italia Mobile and Greece’s third largest operator, added 67,687 new clients for a total of 2.58 million while Q-Telecom, which made its debut last summer, added about 68,000 raising its client base to 144,182. All in all, some 9.7 million Greeks out of 10.8 million, the country’s population based on the most recent census figures, appeared to have a mobile phone at the end of the first quarter, bringing the penetration rate to about 90 percent. Although this rate is quite high, many analysts and officials from the cellular operators caution that the actual penetration rate is much lower, perhaps around 70 percent, suggesting there is more scope for subscriber and revenue growth. They argue that a number of subscribers who are inactive, that is, they do not make or receive phone calls for a long period of time, are usually enticed by new commercial packages and get new numbers. According to the same analysts, it takes companies 18 months to take inactive subscribers off their subscriber base, therefore artificially augmenting the numbers. Immigrants behind growth? In addition to the above explanation, there appears to be a more «radical» one. This says that Greece’s expanding immigrant community accounts for a large proportion of new net additions growth. Its proponents say Greece’s population is much higher than 10.8 million because there are many illegal immigrants, perhaps up to a million, who live and work here but are not officially recorded. These people face difficulties in getting a fixed telephone line and usually buy prepaid mobile services in order to be able to communicate. If the proponents of this explanation are right, then Greece’s population should exceed 11.4 million people. This means the mobile penetration rate, apparent or actual, is much lower than estimated, which in turn implies that the Greek cellular market has yet to reach its saturation point. In addition to subscriber growth, the local mobile operators can still look to data for long-term growth, mainly counting on the introduction of 3G services a few years from now and relying on higher usage to deliver strong sales and earnings growth to their shareholders. Indeed, people use their cell phones more often to place calls nowadays, taking advantage of lower contract and prepaid charges in a converge course with fixed-line charges. Moreover, the convergence of Greek and Western European life styles have also contributed to increased usage. OTE’s mistaken priorities Nevertheless, the growth of mobile telephony in Greece has come somewhat at the expense of fixed-line telephony and this trend is expected to last for many more years as charges converge and an increasing number of Greeks regard their cellular phone as their primary mode of communication. This so called fixed-to-mobile cannibalization has a victim, though, and this is the local telecommunications incumbent OTE. Judging from its moves so far, one has to conclude that OTE apparently failed to grasp the extent of the threat posed by the potential migration of many of its customers to mobile. According to analysts and other commentators who support this view, OTE should have moved to increase its equity stake in CosmOTE by buying the 18 percent stake Norway’s Telenor wanted to sell, instead of paying more attention and committing precious money to enhance its stake in Romanian telecoms operator Romtelecom in a move interpreted by some as benefiting primarily Romtelecom’s equipment suppliers. Realizing that fixed-to-mobile cannibalization was even more evident in Romania where CosmoRom, its Romanian mobile arm, was losing money and market share, OTE’s top management told analysts in late February it was exploring all opportunities in order to enhance its exposure in the promising Romanian mobile telephony market. Its chief executive officer, Lefteris Antonakopoulos, even told analysts that OTE could invest up to 500 million euros to expand into the Romanian mobile market, prompting speculation that the Greek company was seeking to buy a majority stake in MobilRom, Orange’s Romanian mobile business. Analysts, however, put the acquisition cost of a majority stake between 700 million and 1 billion euro, that is, much higher than the amount mentioned by OTE. This prompted another round selloff, sending OTE shares to new all time lows. It is not accidental that OTE shares recovered somewhat after a relatively recent presentation in London where management clarified it would either close down CosmoRom or merge it with another player, therefore committing no fresh capital. There is no doubt that the local mobile market is one of the most interesting European markets and one of Greece’s most attractive investment cases. Even if subscriber growth slows down, there are other drivers to ensure satisfactory growth rates over the next few years, even without 3G services, such as increased usage and ongoing fixed-to-mobile substitution. If there is one clear loser however it is OTE, the country’s incumbent operator. Its focus on acquiring a majority stake in the Romanian fixed-line mobile operator, deprived it of money that could have been used to increase its stake in CosmOTE and seek control of a mobile operator in Romania.

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