In May 2001, a well-known foreign investment bank produced a report on the three Greek cell-phone operators titled «Which one? An embarrassment of choice,» in which it underlined the strong fundamentals of the local market. A year later, the high-flying Greek cell-phone market seems ready to come down to earth as subscriber growth has slowed substantially, market penetration has reached the European Union average of 65 to 75 percent and a fourth operator is preparing to enter the market in a few months’ time. Will this turn out to be a soft or a hard landing? The high-growth profile of this market and the sound financial health of its three operators caught the attention of foreign institutional investors at a time many other European cell-phone companies were struggling to put their houses in order and slash their huge debts. It is no coincidence that the stocks of listed cellular operators CosmOTE, majority-owned by incumbent telecom operator OTE, and Panafon-Vodafone, majority-owned by the Vodafone Group, outperformed both the Athens bourse general share index and the European DJ telecoms index last year and have continued to do the same so far this year. No wonder both stocks have seen more flows from abroad than any other listed stock on the Athens bourse with the exception of incumbent OTE, which is used by foreign passive funds to get exposure in the Greek stock market. Greece’s third mobile operator, Stet Hellas, a subsidiary of Telecom Italia Mobile, is listed on Nasdaq but not on the Athens bourse, although its top officials have repeatedly stated a local listing is a priority, provided market conditions are ripe. Yet with nominal cellular penetration around 68 percent at the end of 2001 and slower subscription growth, many wonder what lies ahead for the companies and the sector. Company officials and sector analysts like to point out that real cellular penetration in Greece is lower due to the large number of inactive subscribers, meaning there is greater growth potential than nominal cellular penetration figures imply. Although this is true, few seem to believe that the catch-up will translate into meaningful revenue growth, given the fact that both new users and the inactive ones spend less than existing users. Moreover, the Greek Telecoms Regulator, in a move seen in other European countries, has asked CosmOTE and Panafon-Vodafone to slash their interconnection charges within a year. Although the final terms have yet to be finalized, everybody agrees that interconnection charges, especially from fixed to mobile, will come down substantially in the next year or so, hurting revenues and the bottom line, since the increase in airtime is not expected to fully compensate for the lower pricing. The entry of a fourth GSM operator later this year complicates the picture even more since the new entrant is expected to follow an aggressive pricing policy to obtain the 5-percent market share, viewed by many as critical for survival. If this turns out to be the case, most expect the other cell-phone companies to respond accordingly, especially Stet Hellas, which is widely regarded as the weakest of the three, in a bid to protect their market share. Although there are valid concerns about revenues from voice and existing data applications, the average SMS usage in Greece continues to be higher than in the rest of EU, partly because of the low-per-message charges and young people’s preference for using their cell phones to send messages to one another. In general, revenues from SMS seem to be higher in Greece than elsewhere in the EU as a percentage of total revenues, but their impact on total earnings remains limited. More encouraging for the sector is the fact that mobile telephony seems to be slowly but steadily replacing fixed-line telephony as a means of communication in Greece. Indeed, more and more people use their cell phones to place phone calls now than in the past and this trend is expected to pick up in the years ahead as contract and prepaid charges drop proportionately more to converge with fixed-line charges. However, nobody expects this process to be abrupt and make a big difference to the companies’ bottom line in the near future. In addition to this, some of the companies may seek growth in foreign markets, following the success of CosmOTE in Albania. What does this all mean? The Greek cellular market has entered a new era of far slower earnings and revenue growth this year and the next. But, barring unexpected developments from the introduction of new technologies, one can argue convincingly that it will be a soft landing for the high-flying market. We learned recently that Santander Central Hispano, one of the biggest European banks, will lay off 14,000 people this year, on top of the 11,000 it fired in 2001, because of declining profits. When a fire breaks out at a neighbor’s house, you should prepare for it to come your way.