The telecommunications market in the Czech Republic
In 2010, the Czech telecommunications market saw the first signs of the gradual economic recovery, which brought an approximately 2% growth of the economy measured by the Gross Domestic Product (GDP). Despite the positive developments, especially in early 2010 customers continued to drive prices down as they optimised their spending for all products and services, including telecommunication services, and the competitive pressure further intensified. During the year, the customer spend on mobile services gradually increased, slowing down the rate of ARPU dilution. The mobile market was also influenced by regulation in the area of mobile termination rates and international roaming; the number of customer additions slowed down followed by revenues decline. According to Telefónica O2’s estimates, revenues from the Czech telecommunications market were down approximately 7% in 2010.
Revenues from the fixed line segment declined approximately 8% year on year, while mobile revenues saw a drop of 6% approximately, basically matching the rate of decline from 2009. The fixed line penetration reached 30% at the end of 2010, continuing the downward trend of previous years. Mobile penetration (measured by the number of registered SIM cards with a 13 month activity criterion), on the other hand, exceeded 134% (an accurate figure cannot be determined due to differences in the Czech operators’ methodologies of accounting for mobile customers), which is among the highest penetration rates in Europe.
Among European Union member states, the Czech Republic has for a long time been in the upper echelon of countries with the highest volumes of voice traffic in mobile networks. This, however, did not stop the fixed-to-mobile substitution and the proportion of mobile voice traffic continued to grow also in 2010. According to Company’s estimates, 86% of all voice traffic generated in 2010 was in the mobile networks, which translates into a 2 p.p. year-on-year growth.
The year 2010 saw a massive growth in the demand for data services – and the operators moved quickly to respond by expanding the coverage of their 3G networks and coming out with new products in this area.
Trends in the fixed line market
In 2010, the revenues from fixed lines reached approximately CZK 45 billion, which represents a year-on-year decline of approximately 8%. The fall of the voice revenues was partly offset by the growing revenues from broadband internet, IT services and business solutions.
Below we bring a round-up of the most important events in the fixed line market in 2010.
The acquisition of the retail business of České Radiokomunikace a.s. at the end of 2009 allowed T-Mobile Czech Republic a.s. (hereinafter T-Mobile) to offer its own fixed telecommunication service. At the beginning of 2010 T-Mobile introduced its ‘2in1’ bundle combining an ADSL Internet data tariff and a choice of mobile voice tariffs; the products in the bundle were more economically priced than when purchased separately.
During 2010, České Radiokomunikace a.s. continued to deploy the WiMAX technology in other towns in the Czech Republic. České Radiokomunikace a.s. announced a change of ownership at the end of the year; Macquarie, a fund management company from Australia, became the new owner.
In September, Dial Telecom a.s. took over the corporate and wholesale businesses of Volný and strengthened its position in the Czech telecommunications market. Together with the business and wholesale customer base, Dial Telecom a.s. took over also a part of the sales and technical department. Dial Telecom a.s. also announced plans to continue investing in the expansion of its proprietary optical infrastructure, as per its strategy.
At the beginning of April, UPC Česká republika, a.s. (hereinafter UPC) added UPC Fiber Power 25 to its broadband internet portfolio and at the same time permanently slashed the prices of its two fastest internet services (UPC Fiber Power 50 and UPC Fiber Power 100) by 40%.
In the pay TV market, Telefónica O2 came out with an innovated O2 TV concept branded O2 TV Flexi in the autumn, in which it heeded the wishes of customers who wanted to make up their own programme menu and did not want to pay for channels they do not watch. Now they can combine their own menu of programmes in the basic package and select two optional programme packages of different varieties.
T-Mobile entered the pay TV market in November with its T-Mobile TV. Under this brand, T-Mobile began to market an already existing satellite platform by Skylink, one of the big four satellite TV providers in the Czech Republic.
The number of satellite television and IPTV users continued to grow in 2010. UPC began to broadcast in 3D on its HD+ channel.
Providers of WiFi internet connectivity (including various mutations of FTTx technology) retained, with approximately 835 thousand users, their strong position in the fixed broadband market. Despite the relatively high number of these providers, the quality of service varied greatly between them. During the course of 2010, WiFi providers intensified investments in FTTx infrastructure.
Trends on the mobile market
The mobile market in the Czech Republic in 2010 yielded revenues in the range of CZK 76 billion, which translates into a year-on-year drop of approximately 7%.
In the conditions of the gradually recovering economy and high penetration, all mobile operators saw their customer base increase in 2010. The net additions of active customers of Telefónica O2 and the registered customers of T-Mobile and Vodafone Czech Republic a.s. (hereinafter Vodafone) reached 108 thousand in 2010, compared to 249 thousand in 2009. The net additions recorded a 70% slump year on year.
In 2010, Telefónica O2 recorded a 2.1% year-on-year drop in the number of active customers down to 4,839 thousand, which is attributed mainly to the one-off disconnection of 111 thousand inactive customers. Without the effect of the one-off disconnection, the total number of customers would rise 0.1% year on year, which, given the highly competitive and penetrated mobile market in the Czech Republic, is a good result. The exact share of active customers of the Company in the total market cannot be determined due to differences in the methodologies used by T-Mobile and Vodafone; the two companies publish only figures of registered customers. The ongoing migration of customers from the pre-paid to post-paid service produced a year-on-year increase of 5.7% in the number of contract customers of Telefónica O2 (disregarding the effect of the one-off reduction due to disconnection of inactive customers), up to 2,975 thousand, in 2010.
Mobile operators responded to the needs voiced by their customers and innovated their voice and data tariff portfolios, shifting their focus to mobile internet and internet in mobile devices. As to voice tariffs, the offer of the so-called ‘flat-rate’ tariffs with unlimited calls included in the monthly fee was substantially expanded. Vodafone introduced a wholly new ‘Tailor Made’ tariff concept.
In the spring, Telefónica O2 expanded its offer of flat-rate mobile tariffs; SME customers could choose from O2 Business, tariffs with unlimited calling within business hours. Another innovation came in the form of the innovated tariffs for SMEs O2 Business with the new O2 Business Unlimited with unlimited calls, SMS and data. In January, T-Mobile launched Grand and Grand Plus, the first flat-rate tariffs in its portfolio, with unlimited calls for non-business customers. Shortly after, T-Mobile introduced Profi tariffs, offering the same service to business customers. The SME proposition was later expanded by community-based tariffs under the Team brand. Also in 2010, T-Mobile launched pre-paid Twist tariffs, which came with free on-net calls and SMS for the rest of the day after the first five calls or SMS paid for.
In the second quarter of 2010, Telefónica O2 added a pre-paid service to its mobile internet offer, and in early June it introduced a new portfolio of post-paid mobile data tariffs. Also in the second quarter, T-Mobile came out with a pre-paid mobile internet tariff.
In March, Vodafone announced an innovative concept of ‘Tailor Made’ tariffs, which let customers combine voice and data services of their choice, from zero monthly fee to unlimited calls, SMS and data.
Throughout the year, all operators introduced the improved offers of internet in a mobile device, together with a choice of smartphones.
At the end of the first half of the year, a regulatory intervention by the European Commission cut the prices of voice calls and SMS sent from abroad. The European Commission required that all operators implement a so-called ‘data roaming limit’, to protect customers from unexpectedly high bills for internet usage during their travels abroad. The data roaming limit of CZK 1,500 including VAT was implemented with effect from 1 June; it concerned all users who use mobile internet when visiting European Union and European Economic Area countries.
During the course of 2010, all mobile operators continued with their efforts to modernize and expand their 3G networks. As at the end of the year, Telefónica O2’s ‘smart network’ had the widest coverage of 43%; its mobile 3G network was, at the end of December, available in 84 towns and cities. At the beginning of 2010, T-Mobile started the commercial operation of its 3G network in selected districts of Prague, and at the end of the first half year it completed the project of GSM network modernisation. By the end of the year, T-Mobile’s 3G network covered already 37% of the Czech population. Vodafone signed an agreement with MobilKom a.s., the operator of the U:fon network, for CDMA mobile data network sharing. Vodafone also continued with the expansion of its own 3G network, which covered 38% of the population by the end of 2010.
At the end of 2009, MobilKom a.s. announced a turnaround in its business strategy and market positioning and declared its intention to become the first low cost operator in the Czech Republic. It plans to offer voice and data services on a retail and wholesale basis. At the end of June 2010, MobilKom a.s. announced that it would open its network to other operators wishing to offer broadband mobile internet or voice under their respective brands; MobilKom thus opened the door to virtual operators. WIA, OpenCall or MujOperator were some of the virtual operators using the U:fon network at the end of the year.
Regulation
Several changes occurred in 2010 in the regulatory environment which governs the field of electronic communications in the Czech Republic. The most material changes included the following:
- changes in the legislation;
- changes in the areas of markets analysis and product regulation;
- changes in the Universal Service provision and in the government’s policy and support of broadband internet access.
Below we bring an overview of the most important changes in the legislation which governs the area of electronic communications:
- Enactment of the Act No. 132/2010 Coll., on audio-visual media services on demand and on the amendment to some other laws (Act on Audio-visual Media Services On-demand);
- Enactment of the Act No. 153/2010 Coll., amending the Act No. 127/2005 Coll., on electronic communications and on the amendment to some related laws (Electronic Communications Act), as amended, and some other laws;
- Promulgation of the Regulation No. 318/2010 Coll., laying down the form of traffic and location data records and the method of its provision to the Czech Telecommunication Office;
- promulgation of the Regulation No. 360/2010 Coll., laying down the format for electronic form of “the proposal for the decision of the dispute on obligation to payments” and technical requirements for its usage;
- Commencement of the implementation of the revised regulatory framework for electronic communications networks in the Czech law:
- I. Directive 2009/136/EC of the European Parliament and of the Council amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services;
- II. Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws;
- III. Directive 2009/140/EC of the European Parliament and of the Council amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services;
- IV. Directive 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities, and 2002/20/EC on the authorisation of electronic communications networks and services;
- V. Directive 2002/20/EC on the authorisation of electronic communications networks and services;
- Regulation (EC) No 1211/2009 of the European Parliament and of the Councilestablishing the Body of European Regulators for Electronic Communications (BEREC) and the Office.
Telefónica O2 was involved in the preparation of the above legislation by providing consultation either directly or on the platform of industry associations of telecommunications operators or through its parent company Telefónica.
The passing of the new Payment Services Act also directly concerned the Company. The provision of these services – previously known as “third party services”, of Telefónica O2, which allowed the customers to order and buy goods and services of third parties, was concerned primarily by the following laws:
- Act No. 284/2009 Coll., on the Payment System, which incorporates in particular the European Parliament and Council Directive 2007/64/EC on payment services in the internal market, European Parliament and Council Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, to be amended by the European Parliament and Council Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions,
- Act No. 285/2008 Coll., on selected measures against the legalisation of the proceeds from crime and terrorist financing.
The Company also contributed to the preparation of the above legislative amendments through its involvement in the process of expert or public consultations, either directly – through industry associations of telecommunications operators, or through the parent company.
Relevant markets analysis and product regulation
Telefónica O2 continued to meet its duties with which it was tasked based on the relevant markets analysis undertaken by the Czech Telecommunication Office (hereinafter CTO) in previous periods.
In April 2010, the CTO published new regulated wholesale mobile termination rates. The price per one minute of call went down to CZK 1.96 with effect from 1 January 2010, and further down to CZK 1.66 with effect from 1 July 2010. Based on the same CTO decision, the maximum regulated wholesale mobile termination rates will continue to go down also in 2011: from 1 January 2011 to CZK 1.37 and from 1 July 2011 to CZK 1.08.
In February 2010, the CTO published the analysis of market no. 1 – access to the public telephone network in a fixed point, and subsequently decided on the determination of an undertaking with a significant market power and on the imposition of remedies.
In May 2010, the CTO published the analysis of the wholesale physical access to infrastructure in a fixed point, and subsequently decided on the determination of an undertaking with a significant market power on the imposition of remedies and price regulation.
In December 2010, the CTO published the relevant market analysis for market no. 6 – wholesale terminating segments of leased lines irrespective of the technology used for the provision of leased or reserved capacity.
The CTO promulgated decisions for relevant markets no. 2, 3 and 7, identifying an undertaking with a significant market power and imposing remedies and price regulation.
The CTO proceeded with the consultation on the regulation strategy in the area of Next Generation Access (NGA), and on 27 September 2010 it published a document ‘Proposals for Regulation of Next Generation Optical Access Networks according to Individual Network Construction Scenarios’. This paper is based on a document published by the European Commission ‘Recommendation on regulated access to Next Generation Access Networks [C(2010)6223]’ on 20 September 2010.
Regulation of international roaming
Retail prices of incoming calls went down to EUR 0.5 per minute with effect from 1 July 2010; the prices of outgoing calls were down to EUR 0.39 per minute. The prices in Czech crowns were set based on the applicable exchange rate.
In March 2010, Telefónica O2 introduced a safeguard mechanism for data services provided to end customers. Customers are automatically protected against too high bills for data roaming services over EUR 50 per month.
Imposition of duties related to the provision of the Universal Service
Telefónica O2 provided the following services during 2010 as part of meeting its duties imposed by the CTO in relation to the Universal Service provision:
- the public payphone service;
- access to the public telephone service, of the same quality as for other end users, for people with disabilities, namely by means of special terminal equipment;
- special price plans for persons with disabilities, which are different from the regular price plans provided under the standard commercial terms and conditions.
As to the services under (a), a CTO decision from 2009 led to a significant reduction in the number of public payphones operated as part of the Universal Service in 2010.
Universal Service
The CTO published its final decision determining the amount of loss incurred as a result of Universal Service provision in 2007 and 2008.
Telefónica O2 submitted a request for reimbursement of loss incurred as a result of Universal Service provision in 2009. The CTO commenced a process of verification of the claim against the document supplied.
The CTO published a final decision determining the amount of loss from the provision special price plans for people with physical or health-related disabilities in 2009.
State policy and support in the area of broadband internet
The Ministry of Industry and Trade of the Czech Republic completed a policy paper titled ‘Digitální Česko’ (Czech Republic Goes Digital), which was put for public consultation in December 2010. The policy paper deals with the development of ICT, with an emphasis on levelling out the disparities in broadband internet availability between urban and rural areas. The policy paper also includes a plan for the development of optical and wireless access networks in the Czech Republic.
EU structural funding continued to be available for projects to implement ICT in public and private sector organisations.
Telefónica O2, as a member of industry associations (Association for Information Technologies and Telecommunications, Association of Mobile Network Operators and the Czech Telecommunications Association), sent its comments on the draft of Digitální Česko policy paper. The Company is constantly monitoring options offered to customers by structural funds, and modifies its products and services so that they are eligible for subsidies. A special attention was paid to Call 8 under the Integrated Operational Programme for the development of eGovernment services in the regions.
