‘Political’ expansion costs Serb Telekom

BELGRADE – Bold expansion moves by Serbia’s landline monopoly Telekom Srbija make business sense, but political motives behind its purchases could mean it is paying a high price for becoming a Balkan leader, analysts say. State-owned Telekom was the only bidder last week for the third mobile license in neighboring Montenegro. Its $16 million offer was almost three times the minimum price. It was its second move in as many months, having formally bought into neighboring Bosnia’s No 2 telecoms operator, Telekom Srpske, in January, by greatly outbidding rivals. «If you pay over and above the real value it indicates that the motive is not purely a business one,» said Miroslav Prokopijevic, a professor of economics in Belgrade and in the Montenegrin capital Podgorica. «The political message is clear. Telekom Srbija is becoming a company that unifies territories where Serbs live.» Montenegro, where a third of the 650,000 population consider themselves to be Serbs, was in a union with Serbia for nearly 90 years until May 2006, when it voted to break away and declare independence, to Belgrade’s dismay. In Bosnia there are 1.3 million ethnic Serbs. Since the end of the 1992 to 1995 war, most live in Bosnia’s autonomous Serb Republic, which has close ties to Serbia and a cool relationship with Bosnia’s other half, the Muslim-Croat Federation. Telekom Srbija, which is financing its expansion through loans, says the demographics make this move a no-brainer. «By operating in the Serb Republic, Montenegro and Serbia, Telekom Srbija will be able to save up to -8 million ($10.5 million) as it won’t need to pay roaming services to different operators,» Vladimir Lucic, head of Telekom’s mobile phone division, told Belgrade’s Glas Javnosti daily. «It would result in cheaper calls for our clients.» As in all other state-owned companies in Serbia, the managing board of Telekom Srbija is appointed by the government. Analysts say the sums involved show that politics played a big role in decision making, with Telekom paying -646 million for the 65 percent share in Bosnia’s Telekom Srpske, 200 million more than Telekom Austria was willing to give. Bosnian-Serb Prime Minister Milorad Dodik, who is close to Belgrade, said even he was surprised by such a «dream offer.» Foreign investment consultant Milan Kovacevic said such deals indicate that «we cannot expect Telekom Srbija to be the most efficient company, because its management is appointed by the government and it implements their policy.» The mobile arm of Telekom Srbija, MTS, has 3.5 million clients among an estimated 5.5 million mobile phone users in the country. Serbia’s population is 7.5 million, excluding 2 million in breakaway Kosovo, which is run by the United Nations. Only a few people had mobile phones in 2000, when Serbia opened up after a decade of war and sanctions. Market penetration is forecast at 100 percent in a few years and average revenue per user (ARPU) is also seen expanding as incomes rise and Serbs switch from prepaid to fixed contracts. Domestic growth coupled with recent acquisitions make Telekom Srbija a possible regional rival to Norway’s Telenor, now established in Serbia, Montenegro and Hungary, and Telekom Austria, with assets in Bulgaria, Croatia and Slovenia. Some economists predict that future growth and the «local touch» would eventually put Telekom Srbija in pole position. «The telecoms expansion will eventually make Serbia a regional leader in telecommunications,» said Jurij Bajec, a professor at Belgrade University. «However, I can’t say whether it’ll be a good bargain, having in mind the price that was paid for it.»