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Liberalization of the mobile telephony market in the Republic of Serbia
Technology in Society 31 (2009) 384–398
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Technology in Society journal homepage: www.elsevier.com/locate/techsoc
Liberalization of the mobile telephony market in the Republic of Serbia Vladica Tintor a, *, Vlade Milic´evic´ b, Milan Jankovic´ a, c, Jovan Radunovic´ a, c a b c
Republic Telecommunication Agency, Visnjiceva 8, 11 000 Belgrade, Serbia Faculty of Economics, University of Belgrade, Kamenicka 6, 11 000 Belgrade, Serbia Faculty of Electrical Engineering, University of Belgrade, Bulevar Kralja Aleksandra 73, 11 000 Belgrade, Serbia
a b s t r a c t Keywords: Liberalization Mobile telephony Serbia Telecommunications services Regulation
This paper shows the process of the liberalization of the mobile telephony market in the Republic of Serbia, with emphasis placed on the positive effects of the process. Following a review of the liberalization of the telecommunications sector globally, in the European Union, and in southeast Europe, the basic legislative and regulatory framework for telecommunications in Serbia is shown. A detailed analysis of the macroeconomic, regulatory and technical aspects of the mobile telephony market in Serbia follows. Next, the paper shows that the introduction of sound competition leads to a simultaneous development of the economy of the entire state and the sector, while users are presented with greater quality of service and lower prices. This has been shown through an analysis of the linear dependence between economic development and the development of the mobile telephony market. Furthermore, this shows that liberalization is a prerequisite for the development of the mobile telephony market, influencing the entire economic development which in turn spurs additional development of the mobile network services. Ó 2009 Elsevier Ltd. All rights reserved.
1. Introduction The extremely rapid development of telecommunication or in a broader sense, information and communication technology (ICT), as well as the convergence of telecommunications systems and services, are of manifold importance on a political, economic, social, and informative level. Modern communications are one of the basic support systems of contemporary society and are one of the key pillars of the development of society. The main branch of telecommunications development in Serbia, as in most developing countries, is mobile telephony. Therefore this paper provides an example of how market liberalization has brought about the rapid development of the mobile network service, as well as telecommunications in general. This development has had consequences for the overall economic development of the country, providing us with yet another reason for this analysis. Thus, a well executed liberalization process can rapidly provide results that are very positive for the state, the telecommunications operators, and the ancillary industry, but also, and perhaps most important, the end user. The liberalization process in the telecommunications sector was first initiated during the 1980s in the United States and the United Kingdom. In 1984, AT&T, the largest American telecommunications company, was broken up into 7 regional companies through a state anti-monopoly ruling. In the United Kingdom, Mercury Communications was granted a license to become the first competitor for the incumbent British Telecom. The European Commission 1990 Directive set up the baseline rules in the field of telecommunications [1]:
* Corresponding author. Tel.: þ381 11 2026 800; fax: þ381 11 3232 537. E-mail address: [email protected] (V. Tintor). 0160-791X/$ – see front matter Ó 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.techsoc.2009.10.010
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Regulatory authorities shall be independent of operators and other state bodies; All operators, both incumbent and new entrants, shall keep to the minimum rules and standards created to prevent damage to the network, electric shock, privacy violations, etc; Operators with a significant market power have greater and more demanding obligations than new entrants, because they need to offer a harmonized service package to costumers, service providers, and other operators, they have to offer interconnectivity and access to telecommunications networks under non-discriminatory conditions and at cost-based prices. Guarantee of the set of basic rights for electronic communications service users, as well as privacy protection. As a result of these goals, the liberalization of the EU market is followed. First, the market of value-added services was liberalized, followed by the basic services and infrastructure. This brought about a turning point in the European region, while at the same time the EU adopted directives with the aim to organize and develop the telecommunications sector. The successful liberalization in the EU has accelerated the liberalization process in candidate countries for the EU membership and those in the process of becoming a candidate. The market liberalization also accelerated the process of tariff rebalancing and the creation of distinctly separate voice service markets at a local, national, and international level. The liberalization process often tends to occur alongside the privatization process. The privatization of the national operators in developing countries has several goals. From the aspect of countries and governments, it is an important source of revenue. From the aspect of telecommunications development, it aims to attract strategic partners, provide modern management and enable easier access to financial institutions and capital markets. During the first period from the beginning of the 1990s up to the end of 1997, before the telecommunications market liberalization in the EU, a limited offer and attractive conditions (a lengthier monopoly period) attracted a large number of interested competitors, resulting in higher prices. Since 1997 and the EU liberalization, western European countries have shown a considerably decreased interest in the purchase of operators in developing countries and countries in transition. Primarily, this is due to the necessary investments in new technologies and services in western Europe, arising from increased competition and the introduction of third generation mobile telephony. In southeast Europe, liberalization has been initiated in the fields of mobile telephony, data transfer, and the providing of Internet services, access to cable television, and satellite networks. The countries of this region are either preparing or have already adopted laws on telecommunications demanding full liberalization of the telecommunications market. The establishment of independent regulatory bodies is an integral part of the telecommunications liberalization process in the region of southeast Europe. The accession of the countries in the southeast European region to the Base Contract on Telecommunications Services of the World Trade Organization would reduce trade barriers and contribute to a greater openness in the telecommunications market [2]. Even though there are financial, regulatory, and political barriers in the region, the liberalization process has started, and a certain percentage of telecommunications operators have already been privatized. Bulgaria, Romania, and Croatia are ahead in the privatization process [3]. Fifty-one percent of the shares of Hrvatski Telekom are owned by Deutsche Telekom AG, 51% of the Macedonian Telekom MT is owned by MATAV from Hungary, being in turn owned at 60% by Deutsche Telekom AG, while Romania has sold 54% of the state monopoly in the ROM Telekom company to the OTE/Greece company in 1998. Twenty percent of the shares of Telekom Srbija are owned by OTE/Greece. The process of privatization is under way in the other countries of southeast Europe.
2. Legislative and institutional basis The Republic of Serbia, one of the republics of the Federal Republic of Yugoslavia, became part of the Process of Stabilization and Accession to the European Union in November 2000. All measures and instruments of the process were made available from 2001. The decision to initiate negotiations for the signing of the Stabilization and Association Agreement was brought about only in April 2005, after accepting the ‘‘double track’’ principle for negotiation with the state union of Serbia and Montenegro. The negotiations were successfully completed by initialing the Stabilization and Association Agreement on November 7, 2007. The Agreement was signed on April 29, 2008, at the meeting of the General Affairs and External Relations Council of the EU in Luxemburg. By signing the Stabilization and Association Agreement (SAA), Serbia entered a new phase of relations with the European Union. For the first time, relations with the European Union are established on a contractual basis, while Serbia has become a state associated with the European Union. By signing the SAA, Serbia is bound to a gradual harmonization of legislation with the acquis communautaire of the European Community, as well as its application. The key economic reform prescribed by the Agreement leading to a greater macroeconomic stability in the period until 2012 is the continuation of the liberalization of infrastructural activities and the acceleration of the restructuring and privatization processes. Privatization is not an end in itself, but a necessary precondition for improved market efficiency and increased investments and employment in Serbia. The Republic of Serbia is seriously preparing for the EU Accession Candidacy, and thus the liberalization process in the telecommunications sector is of great importance. The start of the liberalization process and the cessation of monopoly in the telecommunications sector in the Republic of Serbia, as well as the start of harmonization with the legislative framework of the European Union in this area, were initiated by the adoption of the Law on Telecommunications in 2003, based on the regulatory framework from 1998 [4]. The principles
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for the regulation of relations in the area of telecommunications are, among others, stimulation of competition, cost-effectiveness and efficiency in the performance of telecommunications activities, protection of consumer interests, delivery of the highest quality of telecommunications services, rational and cost-effective usage of the radio-frequency spectrum, distribution of equal-conditions interconnectivity, and adherence to international normative provisions and standards. The Law on Telecommunications defines the distribution of competences between the Government of the Republic of Serbia, the Ministry of Telecommunications and Information Society, and the Republic Telecommunication Agency (RATEL), providing for the separation of political, operative and regulatory functions. A necessary precondition for the application of this law was the founding of RATEL as an independent regulatory body that began its activities in late 2005 [5]. The primary task of RATEL is the creation of open market conditions and granting equal positions for all players in the telecommunications sector. Thus, the primary goal of RATEL is setting conditions for the further development of the telecommunications sector and meeting public interests, achievable through:
Market regulation based on common economic principles, Stimulation of competition by introducing new operators and new services, Continued improvement of the quality of existing services, User protection.
In order to regulate the telecommunications sector, RATEL adopted a number of by-laws within its competence, regulating, among other issues: the management, planning, use and control of the radio-frequency spectrum, technical examination procedures, procedures for the control of telecommunications systems compliance with standards and normative provisions, issuing technical permits – certificates, issuing permits for providing telecommunications services (internet, cable distribution systems, etc.). Likewise, a number of by-laws regulating the numeration, telecommunications networks, interconnection, and universal service were adopted or prepared. 3. Strategic goals The government of the Republic of Serbia, as part of its strategies, has adopted the Strategy for the Development of Telecommunications in the Republic of Serbia from 2006 to 2010 [4]. The strategy aims for the development of the telecommunications infrastructure and services, along with the harmonization of the telecommunications legislative framework of the Republic of Serbia with the regulatory framework of the European Union. In developing countries, large investments into the development of information infrastructure, i.e. the development of telecommunications systems and networks, are typical which makes telecommunications one of the driving forces for economic progress. An increase in investments in telecommunications has a highly positive impact on efficiency in other economic areas, which, in turn, stimulates economic growth in general. The importance of the development of telecommunications is even greater because it represents one of the preconditions for accession to the European Union. The important strategic goals for the development of the telecommunications sector in the Republic of Serbia listed in the strategy are: the liberalization and privatization of the field of telecommunications, investment protection in the field of telecommunications, increase in the share of telecommunications services in the GDP, attracting foreign and domestic investments while adopting stimulating measures with the goal of creating a stimulating and prospective business environment, and the introduction of modern telecommunications services. As part of improving the development of the public mobile telecommunications network, the following goals are defined:
1) Issuing a license to a third party mobile operator; 2) Increase in the percent of population and territory covered by mobile telecommunications services, with an emphasis on urban areas and special interest areas in order to achieve the penetration rate present in the EU; 3) Increase in the quality of mobile telecommunications services under all conditions (in buildings; open spaces; urban, suburban and sparsely populated areas; rapid and slow movement conditions or at rest); 4) Increase in the offer of user services, especially new generation mobile system services; 5) Introduction of EDGE and UMTS systems; 6) Increase in the capabilities of international roaming. Said goals were defined in a situation when two public GSM standard telecommunications networks were present on the telecommunications market of the Republic of Serbia; the state-owned Telekom Srbija and Mobtel, partly state-owned and partly privately-owned. Likewise, the contract between the state and private owner created a problem of shared ownership
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Table 1 Baseline indicators of mobile telephony in the Republic of Serbia in the period of 2003–2007. Source: ref. [5].
Number of subscribers (‘000) Penetration (%) Revenue (V mn) Generated outgoing traffic (mn min)
2003
2004
2005
2006
2007
3280 44.52 255.5 827
4340 57.94 295.5 1176
5510 73.5 400 1823
6640 88.6 581.5 2594
8450 112.73 839.6 3771
between these two operators. In these conditions, the state wanted to clear up ownership relations, keep its ownership of only one operator and create conditions and give permissions to other operators interested in working in Serbia.
4. Brief overview of the development of mobile telephony The first mobile telephony network in the Republic of Serbia appeared in 1996 with the creation of the Mobtel company (currently: Telenor), with mixed state and private ownership, transferring to wholly private ownership by the Norwegian telecommunications giant in 2006 following a process of privatization. The second network mt:s (mobile telephony of Serbia) started working in 1998, run by the national operator Telekom Srbija a.d. The company was founded in June 1997 as a shareholders’ company with the majority ownership by the Republic of Serbia at 51%, then rising to 80% in 2003, with the remaining 20% owned by the Greek OTE operator. Both networks provided public digital cellular mobile telephony services in accordance with GSM standards from the start. Territory and population coverage increased every year by the addition of new base stations to the network. The number of mobile telephony users in Serbia also increased constantly since 1996, with Mobtel reaching its millionth user in 2001, and mt:s in 2002. Population coverage in said period was over 75% with both operators. The fact that the share of private ownership of the Mobtel operator could not be clearly determined and the existence of shared ownership between the two operators made the further development of this sector and the improved liberalization of the market in this period difficult. Thus, in 2006, the state decided to initiate a very serious process of liberalization in this sector. First, the Mobtel company was restructured and the Mobi63 company was created and put up for sale with public tender. The Norwegian Telenor company bought the Mobi63 company through public bidding on July 31, 2006 for 1513 million V, thus becoming the sole owner of the mobile operator in Serbia. Therefore, Mobi63 became the thirteenth company part of the Telenor Telecommunications Group, along with the Panon networks from Hungary and Promonte from Montenegro. Telenor started operations in the Republic of Serbia on September 1, 2006, by receiving its license for providing mobile telephony services on the territory of the Republic of Serbia from RATEL. Mobilkom Austria was issued a license on December 1, 2006, but considering that its entrance on the Serbian market was initiated as a greenfield investment, it officially began working in July 2007, with the name Vip Mobile d.o.o. as the sixth company part of the Mobilkom Austria group, along with the regional networks Mobiltel (Bulgaria), Vipnet (Croatia), and Vip operator (Macedonia). Therefore, significant changes occurred during 2006 in the area of public mobile telecommunications networks, related to changes in ownership structure and the issuing and replacement of licenses for the following operators [5]: Telekom Srbija a.d. – Mobilna telefonija Srbije mt:s, owned by JP PTT saobrac´aja Srbija (80%) and OTE from Greece (20%) (License replaced on August 1st, 2006) Telenor d.o.o. Beograd, wholly owned by Sonofon from Denmark (license issued on September 1st, 2006) Vip mobile, wholly owned by Telekom Austria Group from Austria (license issued on December 1st, 2006) All three operators are in possession of licenses for a public mobile telecommunications network and public mobile telecommunications network services in accordance with the GSM/GSM1800 and UMTS/IMT-2000 standards issued by RATEL. The licenses are issued for the territory of the Republic of Serbia for a period of 10 years, with the license being automatically renewed upon expiry for an additional 10 years if all licensing conditions are met. In December 2006, the mt:s mobile operator was the first in Serbia to place the third generation of mobile telephony on the market with the latest HSDPA technology [6], with over 8000 users applying for its use. The third generation network enables a series of new services such as real-time video calls, and additional services based on considerably greater bandwidth. The most interesting are video streaming (showing TV programs, news, sports events in real-time), traffic cam (traffic recording), and cinema clip. The first half of 2008 heralds further development of the mobile telephony market. During the month of April, Vodafone announced that they have expanded their partner network to the Vip mobile operator in Serbia, where Vodafone shall introduce a series of their own products and services. This contract makes Serbia the forty-first partnership market for the Vodafone group. Likewise, by purchasing shares in the Greek telecommunications operator OTE, Deutsche Telekom is becoming a co-owner of the national operator Telekom Srbija. The fact that some of the largest telecommunications companies have entered the Serbian mobile telephony market in a brief period of time certainly shows that the liberalization in Serbia has given exceptional results over a short period.
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Fig. 1. Revenue by mobile telephony services in the Republic of Serbia in the period of 2003–2007.
5. Comparative performance analysis 2003–2007 The comparative performance analysis in the period of 2003–2007 shows the true results of the liberalization in the mobile telephony sector in the Republic of Serbia. Table 1 shows the baseline indicators in the period observed, used for tracking the development of the sector: total number of mobile telephony users in the Republic of Serbia, mobile telephony penetration per 100 citizens, mobile telephony service revenue and outgoing mobile network traffic generated. All of these indicators show a significant trend of increase. In 2005, mobile telephony was the most profitable branch of telecommunications in Serbia with the income of approximately 400 million Euros and the share of 45% in the total business volume. Even more interesting is the revenue increase of over 45% as compared with the previous year. The total number of mobile telephony users at the end of 2005 was 5,510,690, representing an increase of 27% compared with the previous year. This number of users corresponds to a 73.5% penetration rate, thus being above the average of other countries in the region for said period. The postpaid users’ share in the total number is 12.8%, representing an increase of 2 percent compared with the previous year. In total numbers, this represents an increase of almost 50% of new postpaid users, which is certainly encouraging for the successful work of the operator. The increased number of users affected an increase in traffic, thus in 2005 over 1.8 billion minutes of conversation were recorded, representing an increase of over 55%. This represents an annual average of around 330 min per user, as opposed to 2004 when the average user had around 270 min of outgoing traffic. The number of SMS messages also shows an increase, with an average of 380 messages per user annually. The increasing use of the MMS service is especially interesting, being introduced in 2004 and with a recorded growth of 100%. The total GPRS traffic amounted to over 7.6 Tbit/s for the entire year. In 2006, mobile telephony was once again the most profitable branch of telecommunications in Serbia with the profit of 580 million Euros and a 48% share in the total business volume. The total number of mobile telephony users at the end of 2006 was 6,643,722, representing a 21% increase compared with the previous year. This number of users corresponds to 88.6% percent penetration rate, again being above the average of other countries in the region. The postpaid user share in the total number was 16.3%, representing a 3.5% increase over the previous year. The increase in the number of users caused an increase in traffic, thus around 2.6 billion minutes of conversation were recorded, representing a 42% increase. The annual average was around 390 min of outgoing traffic per user. The number of SMS messages is constantly increasing, reaching around 480 messages per user annually in 2006, representing a 50% increase. The number of MMS messages was reduced compared with the previous year. The total GPRS traffic increased by almost 8%, amounting to 8.2 Tbit/s for the entire year. As for territorial coverage, Telekom Srbija has increased territorial coverage by almost 4% as opposed to 2005, by building 350 new base stations, increasing population coverage by 2%, whereas Telenor has increased territorial coverage by 2% as opposed to 2005, by building 48 new base stations. For the third year in a row, mobile telephony was the most profitable branch of telecommunications, thus of the 1.5 billion Euros total revenue in 2007, 57% was mobile operator income in Serbia. The total number of active SIM cards1 at the end of 2007 was 8,452,642, representing an increase of 27% compared with the previous year. This number of users corresponds with a 112.7% penetration. However, many users have multiple SIM cards at the same time, leading to estimates of mobile telephones being used by almost 6.15 million citizens or 82% of the total population. Likewise, estimates place the increase of user numbers in the next five years at four percent annually. Postpaid user share in the total number is 20%, representing
1
Number of active SIM cards in the last 3 months, in accordance with the ITU definition of telecommunications indicators [7].
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Fig. 2. Mobile telephony penetration in the Republic of Serbia in the period of 2003–2007.
a 3.7% increase compared with the previous year. This is very significant for mobile operators, because it is well known that the income from postpaid users is significantly higher, as opposed to prepaid users. The increase in user numbers also drew an increase in traffic, with 3.7 billion minutes of conversation recorded, representing a 46% increase. This growth is in part the result of the more attractive offer existing in the market and in part of the transfer from fixed telephony where traffic has been on a steady decline for the last two years. The annual average is around 475 min of outgoing traffic per user. The number of SMS messages shows a constant increase reaching 564 messages per user annually in 2007, representing an increase of 17.5%. The number of MMS messages has also increased by 80% compared with the previous year. The total GPRS and 3 G traffic increased by 102.4% compared with 2006 and it amounted to 16.6 Tbit/s for the entire year. At the end of 2007, all the operators had a total of over 250,000 3 G technology users. Competition in the mobile telephony market in Serbia has been measured applying the Herfindahl–Hirschman Index (HHI) [8]. HHI is an indicator used to determine the concentration level of a certain market. It is determined as the sum of the squares of operator market shares. The HHI shows the maximum value of 10,000 in case of monopoly, and the smaller this index is, the more competitive the market. In the analyzed market, the HHI index in 2006 was 5332, falling to 4759 in 2007. This type of index drop shows a decrease of market concentration, i.e. an increase in operator competition, being the result of the introduction of a new mobile operator. The lowest value of this index in 2006 was recorded in USA – 2243, and the United Kingdom – 2513. The HHI in Germany was 2998, in France 3761, Ireland 3629, Spain 3581 and Japan 4091 [9]. The five Figures below show the basic indicators for tracking the mobile telephony market in Serbia in the past few years. All of the charts show a constant growth, especially significant between 2006 and 2007, when the main part of the liberalization of the mobile telephony market in Serbia was performed. Fig. 1 shows mobile telephony service revenue across a 5-year period, noting an increase of 230% in said period [5]. Fig. 2 shows the penetration rate, i.e. the number of mobile telephony users per 100 inhabitants, in the same period. The constant growth of this indicator is especially notable between 2006 and 2007 [5]. Fig. 3 shows the total number of mobile telephony users and the distribution of the number of users between prepaid and postpaid. Typical of this is that the number of users nearly tripled in the period observed [5]. Fig. 4 shows how the increase in the number of users caused the increase of outgoing traffic volume, becoming 4.5 times as much in the period observed [5]. The number of SMS and MMS messages generated in the mobile network is given in Fig. 5, clearly showing a trend of increase [5].
Fig. 3. Total number of mobile telephony users in the Republic of Serbia and their distribution in the period of 2003–2007.
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Fig. 4. Outgoing traffic generated in the mobile network in the Republic of Serbia in the period of 2003–2007.
6. Consequences of the market liberalization process Mobile telephony represents a typical segment where the often noted principle is proven: regulation leads to competition, which in turn stimulates investments, having increased penetration as a result. In 2006, based on adopted regulation, conditions were established to open a public competition for issuing licenses. Three licenses were issued during the procedure (one license has been replaced) and total competition was created. Consequently, new services appeared and new subscription packages, along with lower prices. As a result, in 2006, the number of mobile telephony users in Serbia was more than 1 million, while in 2007 it was almost 2 million. The population of Serbia according to the 2001 census is 7.5 million. The benefits from the privatization and liberalization process are many, and in the following pages we shall review the benefits of this process for the economy, the telecommunications market and the end users. 6.1. Benefits for the state and economy Research commissioned by Telenor, one of the three mobile telephony operators in Serbia, and conducted globally by the international auditing firm Deloitte, indicated that the increase of mobile telephone use in Serbia caused an increase in the GDP of 104 billion dinars, i.e. that the direct and indirect income from this activity has increased the gross domestic product of the country by 4.1 percent [10]. Along with the growth, emphasis is placed on the positive influence of mobile telephony on work productivity. Estimates place the effect of privatization and liberalization measures on the mobile market of Serbia at almost 5.7% of the GDP. The inclusion of licensing and privatization funds increased the GDP contribution to 11.6% in 2006 [10]. Mobile operators have also played a significant role in attracting additional foreign investments to Serbia and in introducing communications networks into insufficiently developed areas, increasing potential economic activities in said areas. Considering the large investments in building and modernizing the telecommunications systems and networks, as well as the information infrastructure, telecommunications represent one of the chief motors of economic development with developing countries. Telenor still holds the lead position among foreign investors in Serbia, since their total investment in purchasing Mobi63 was over 1.6 billion Euros, with 320 million Euros paid for licensing, representing, thus far, the single largest foreign investment in Serbia, as well as all of Southeast Europe [11]. Third among the foreign investments in Serbia in 2006 was Vip Mobile (Austria) with 570 million Euros total investments, 320 million of which was also paid for licensing, all of this making Vip Mobile the largest greenfield investor in Serbia in 2007. The presence of two large operators holds promise of additional investments in the period to follow. We have used regression analysis in this paper to analyze how the growth of the gross domestic product influences the development of mobile telephony. Regression analysis is a statistical tool for the investigation of relationships between variables. Usually, the investigator seeks to ascertain the causal effect of one variable upon another d the effect of a price increase upon demand, for example, or the effect of changes in the money supply upon the inflation rate. To explore such issues, the investigator assembles data on the underlying variables of interest and employs regression to estimate the quantitative effect of the causal variables upon the variable that they influence. We have used the minimum sum of squared errors criterion in this paper [12]. We have observed thirteen countries in the neighboring region in the course of our analysis. We have investigated how macroeconomic indicators influence some of the indicators in telecommunications. This analysis was carried out by the EViews 3.0 software program [13]. The macroeconomic indicators under observation were GDP2 in millions of dollars and GDP per capita in dollars. The telecommunications indicators were: number of mobile subscribers in millions and mobile telephony revenue per subscriber in Euros. It must be noted that the number of samples (which was 13 because data was available for those countries only) is insufficient for a detailed analysis, but is enough to notice trends in the results and to provide valid conclusions. Fig. 6 shows the influence of GDP on the number of mobile subscribers in the thirteen countries observed. The regression line shows an obvious linear dependence between GDP on one side and the number of mobile subscribers on the other side.
2
Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time [8].
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Fig. 5. SMS and MMS messages generated in the mobile network in the Republic of Serbia in the period of 2003–2007.
This can be also verified by the fact that the more money people earn, the more money they can spend on their needs, which definitely include usage of mobile telephony. The regression line shown on Fig. 7 is very interesting. Common sense tells us that an increase in the gross domestic product also indicates mobile telephony sector revenues. However, the results obtained show this dependence to be an almost straight line. This leads to the conclusion that annual GDP growth will be followed by the same amount in percentages in mobile telephony revenues. Thus, if the growth of GDP is expected to be more than 6% annually, we can expect the gross revenues of mobile operators to grow by the same amount. This analysis shows the existence of a strong link between the macroeconomic state of the country and the level of mobile telephony development. Estimates place the number of people employed by the mobile telephony sector in Serbia in 2007 at 33,660. This number includes the 2900 employees working directly for the mobile operators, while the largest employment growth was due to the retail facilities for the distribution of SIM cards and telephones. These companies employed 20,750 persons. Further employment opportunities are created by: the fixed operator, network equipment, mobile telephone, and additional equipment suppliers; ancillary service suppliers such as marketing, auditing and consulting; retail employees selling mobile telephones. Unemployment among the educated population has been considerably reduced because a large number of mobile operator employees have university diplomas. The influence of mobile telephony on worker productivity is owed to an improved flow of information between buyers and sellers, reduced travel times, as well as the fact that business has become more flexible and accessible across the country. It is estimated that using mobile communications for business increased the individual worker’s productivity by around 7%, enabling a better flow of information between buyers and sellers [10]. This means an increase of 32 billion dinars in GDP in 2007, representing 1.27% of the GDP, which is a 27% increase relative to 2006. A significant improvement in the domain of business policy has been noted. Ever since the entry of the new operators, the number of new GSM/3 G base stations has grown considerably. Over 50 new retail locations have been opened across Serbia. The mobile operators in Serbia have quickly become the largest marketing advertisers in Serbia, further improving the development of the media sector in Serbia.
Fig. 6. Relationship between the GDP and the number of mobile telephony users.
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Fig. 7. Relationship between the GDP per capita and revenue per mobile telephony user.
Fig. 8 shows the penetration of mobile telephony in EU countries in 2007. The largest mobile penetration rate is present in Luxemburg (152%), Italy (148%), Latvia (139%), and Estonia (132%), while the least penetration is evidenced in France (83%) and Malta (91%) [14–17]. It should be noted that mobile penetration rate in Serbia is within the European Union average. 6.2. Benefits for the users The influence of the liberalization of the mobile telephony market in Serbia on the end user is reflected in the retail prices for mobile network services and the quality of the services themselves. The prices were analyzed using OECD standards [18], with analytics expressed in ref. [19], using three baskets: 1. Low usage basket with: 30 outgoing calls per month þ 33 SMS messages 22% of calls are to fixed line phones, 70% to mobile phones, 8% to voicemail, 2. Medium usage basket with: 65 outgoing calls per month þ 50 SMS messages 21% of calls are to fixed line phones, 72% to mobile phones, 7% to voicemail,
Fig. 8. Mobile telephony penetration in the European Union countries in 2007.
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Fig. 9. Mobile basket in Serbia.
3. High usage basket with: 140 outgoing calls per month þ 55 SMS messages 20% of calls are to fixed line phones, 73% to mobile phones, 7% to voicemail. The analysis has shown that in the last three years the price of mobile telephony services in Serbia has dropped by over 28% for the low usage basket, 44% for the medium usage basket and 127% for the high usage basket. Such considerable changes in prices in merely two years can only be explained by liberalization and greater market competition. This is shown in Fig. 9, where all prices are shown in Euros with VAT. Another interesting fact is that the two already established operators in the Serbian market, Telekom Srbija and Telenor, have nearly identical prices according to the OECD standard in early 2008, while the newest entrant Vip, offers significantly lower tariffs than the competition in the attempt to increase market share in Serbia through more competitive prices. Fig. 10 indicates this with all prices expressed in Euros with VAT. Comparing the price level in Serbia with prices in the region and the European Union, as shown in the three figures below, it should be noted that the analysis has shown that the mobile price level in Serbia is the lowest in Europe. When it comes to prices, only certain operators in Estonia can compare to the operators in Serbia. The prices for other operators were received from the OECD [18]. Fig. 11 shows the low usage basket in Euros per month including VAT for 2007. The average offered by operators in Europe for 30 min of outgoing traffic and 33 SMS messages in accordance with the OECD standard is 12.33Euros. Among the four operators with the lowest tariffs in Europe (in the countries encompassed by the analysis), three are from Serbia, and the low usage basket in Serbia amounts to 5.62V, being over 50% less than the average. The operator with the lowest rates is Vip from Serbia, had the prices from 2005 been retained, the difference in relation to the average would be around 5V.
Fig. 10. Mobile basket in Serbia for 2007 with all three operators.
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Fig. 11. Low usage mobile basket with European operators for 2007.
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Fig. 12. Medium usage mobile basket with European operators for 2007.
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Fig. 13. High usage mobile basket with European operators for 2007.
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Fig. 12 shows the medium usage basket in Euros per month including VAT for 2007. The average offered by operators in Europe for 30 min of outgoing traffic and 33 SMS messages in accordance with the OECD standard is 21.25V. Among the seven operators with the lowest rates in Europe (in the countries encompassed by the analysis), three are from Serbia, and the medium usage basket in Serbia amounts to 10.74V, being almost 50% less than the average. Had the prices from 2005 been retained, the difference in relation to the average would be around 6V and over twenty operators in Europe would have had lower rates. Fig. 13 shows the high usage basket in Euros per month including VAT for 2007. The average offered by operators in Europe for 30 min of outgoing traffic and 33 SMS messages in accordance with the OECD standard is 33.36V. Among the five operators with the lowest rates in Europe (in the countries encompassed by the analysis), three are from Serbia, and the high usage basket in Serbia amounts to 14.62V, being almost 55% less than the average. Had the prices from 2005 been retained, the difference in relation to the average would be less than 10 euro-cents and over thirty operators in Europe would have had lower rates. New technologies such as GPRS, WAP, and 3G have raised the bar for the market, therefore operators are providing a wide array of additional services for users. These include: voicemail, call transfer, call waiting, conference call, sending and receiving short messages (SMS), data transfer, fax, incoming call identification, hidden identification, regular monthly itemized bill, on-demand disconnection, on-demand connection, subscription package change, replacing a damaged or lost SIM card, WAP, multimedia message transfer (MMS), etc. By introducing the 3G network, new types of services have arrived: real-time video calls, video streaming, etc. Analyses show that over 90% of students and employees and 79% of unemployed persons use mobile telephones, while the percentage is significantly lower at only 27% with retirees [11]. Apart from the price drop and increased number of services, the users are offered a large number of mobile telephone models by various companies. Likewise, consumers have various social advantages in using mobile communications: development of interpersonal communications and communication in the family, especially between rural and urban areas, bringing communications to those with low incomes, etc.
7. Further development perspectives The previous analysis of the dynamics and effects of the mobile telephony market liberalization process in the Republic of Serbia can point to certain directions for its further development in the period to come. Accordingly, saturation in the number of users is to be expected, along with a slow increase in the penetration rate already achieved. Further on, as per the introduction of new operators to the market, the interest of those operators offering only services achieved through the existing mobile infrastructure (MVO – Mobile Virtual Operator) is to be expected. Along with the existing operators they will inevitably increase traffic in the mobile network through attractive services to be offered to end users. Likewise, changes in the marketing policy of mobile operators are to be expected, since their campaigns shall no longer be focused on drawing new customers, but retaining the existing ones. Increased competition shall force operators to continually reduce operating costs while improving quality of service. Capital investments in those circumstances will be far more focused on service development. In accordance with these conclusions, an increase in revenue for the operators in the following period can be achieved primarily through providing value-added services. All these trends are focused on the further development of the market through a constant revenue increase of over 20% in the following 3–5 years.
8. Conclusion The strategic importance of globalization is intensified by liberalization, privatization, technological development, increased user demands, mutual international agreements, and multilateral competition in convergent telecommunications markets. Strategic partnerships between large companies are leading to the globalization of telecommunications services, the telecommunications market, and development policies and directions. The liberalization of the telecommunications sector, as agreed upon with the support of the World Trade Organization and made binding by the EU, implies that the Member States undertake reforms in the telecommunications sector which involve changes in the organization of domestic telecommunications operators and telecommunications service providers, because of potential new entrants and in order to attract domestic and international investments. Increased investments in telecommunications have a positive effect on efficiency in other sectors, which ultimately stimulates the overall economic growth. This paper has shown that a precondition for the true development of the mobile telephony market is a well executed liberalization process. Once the liberalization is completed, the economy and mobile telephony become complementary in further development. On the one hand, the development of mobile telephony directly influences the development of the overall national economy because an increased usage of mobile telephones results in a significant increase in the GDP of the country. However, on the other hand the improvement of the quality of life through increasing the GDP per capita directly influences the further development of the mobile telephony market. Thus, the conclusion can be drawn that the liberalization process is a necessary requirement for further development, because only with a liberalized sector does the market develop, further developing the national economy and through a system of feedback then further developing the mobile telephony market itself.
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References [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19]
European Union Telecom Framework. Available at:. World Trade Organization. Available at: . Glisic S. Advanced wireless networks – 4G Technologies. New York: John Wiley & Sons; 2006. International Telecommunication Union (ITU). Available at: . Mankiw G. Brief principles of macroeconomics. 4th ed. Thompson; 2007. Ofcom, The International Communications Market. Available at: . Statistical Office of the Republic of Serbia. Available at: ; 2007. Eurostat. Available at: . The European Information Technology Observatory (EITO). Available at: . GSM World. Available at: . OECD Organisation for Economic Co-operation and Development. Available at: . Mitchell B. Telecommunications pricing: theory and practice. Cambridge: Cambridge University Press; 1991.
Vladica Tintor earned his MS EE degree in telecommunications at the University of Belgrade (2006), an MBA degree at the HEC business school in Paris (2007) and an MScE degree in business economics at the University of Belgrade (2008). He is currently a Ph.D. student at the School of Electrical Engineering. Since 2006 he has been working in the Republic Telecommunication Agency in the manager’s office. He has published 7 scientific papers in international and domestic magazines and conferences. Vlade Milic´evic´ is a professor of Management Accounting and Strategic Management Accounting at the Faculty of Economy of the University of Belgrade. As an accounting, business finance and management consultant he has taken part in the work of several consulting companies in the Republic of Serbia and abroad. Currently he is the vice-dean for finance at the Faculty of Economy in Belgrade and a member of the MB of RATEL. Milan Jankovic´, IEEE member, received his B.Sc. (1975), M.Sc. (1990) and Ph.DEE (1999) degrees from the University of Belgrade, Faculty of Electrical Engineering, Department of Telecommunications. After fourteen years introducing new technologies and products in the telecommunications industry, he joined the Community of Yugoslav PTT, in 1990, as Project leader in the R&D Department responsible for the development and implementation of adequate access network architectures. He was a member of three EURESCOM Projects. From December 2002 to March 2006 he was Director General of the Community of Yugoslav PTT. Dr Jankovic was elected Assistant Professor in the Department of Telecommunications at the University of Belgrade, Faculty of Electrical Engineering. He has published more than 125 papers in Proceedings of International and Domestic Conferences and International (IEEE Communication Magazine) and Domestic Magazines. He is the coauthor of the book ‘‘Access Networks’’. He is currently with the Republic Telecommunication Agency of the Republic of Serbia at the position of Executive Manager. Jovan Radunovic´ graduated from the Faculty of Electrical Engineering in Belgrade (1973), won master’s degree (1977) and doctor’s degree (1984) at the same Faculty. He is currently full professor at the Faculty of Electrical Engineering in Belgrade. His field of scientific research, professional and educational work includes optical telecommunications and optoelectronics and laser systems. He has published 103 scientific papers so far. Among those are 31 papers in leading international scientific journals. He has been the Chairman of the Managing Board of the Republic Telecommunication Agency in Serbia since 2005.
Contents lists available at ScienceDirect
Technology in Society journal homepage: www.elsevier.com/locate/techsoc
Liberalization of the mobile telephony market in the Republic of Serbia Vladica Tintor a, *, Vlade Milic´evic´ b, Milan Jankovic´ a, c, Jovan Radunovic´ a, c a b c
Republic Telecommunication Agency, Visnjiceva 8, 11 000 Belgrade, Serbia Faculty of Economics, University of Belgrade, Kamenicka 6, 11 000 Belgrade, Serbia Faculty of Electrical Engineering, University of Belgrade, Bulevar Kralja Aleksandra 73, 11 000 Belgrade, Serbia
a b s t r a c t Keywords: Liberalization Mobile telephony Serbia Telecommunications services Regulation
This paper shows the process of the liberalization of the mobile telephony market in the Republic of Serbia, with emphasis placed on the positive effects of the process. Following a review of the liberalization of the telecommunications sector globally, in the European Union, and in southeast Europe, the basic legislative and regulatory framework for telecommunications in Serbia is shown. A detailed analysis of the macroeconomic, regulatory and technical aspects of the mobile telephony market in Serbia follows. Next, the paper shows that the introduction of sound competition leads to a simultaneous development of the economy of the entire state and the sector, while users are presented with greater quality of service and lower prices. This has been shown through an analysis of the linear dependence between economic development and the development of the mobile telephony market. Furthermore, this shows that liberalization is a prerequisite for the development of the mobile telephony market, influencing the entire economic development which in turn spurs additional development of the mobile network services. Ó 2009 Elsevier Ltd. All rights reserved.
1. Introduction The extremely rapid development of telecommunication or in a broader sense, information and communication technology (ICT), as well as the convergence of telecommunications systems and services, are of manifold importance on a political, economic, social, and informative level. Modern communications are one of the basic support systems of contemporary society and are one of the key pillars of the development of society. The main branch of telecommunications development in Serbia, as in most developing countries, is mobile telephony. Therefore this paper provides an example of how market liberalization has brought about the rapid development of the mobile network service, as well as telecommunications in general. This development has had consequences for the overall economic development of the country, providing us with yet another reason for this analysis. Thus, a well executed liberalization process can rapidly provide results that are very positive for the state, the telecommunications operators, and the ancillary industry, but also, and perhaps most important, the end user. The liberalization process in the telecommunications sector was first initiated during the 1980s in the United States and the United Kingdom. In 1984, AT&T, the largest American telecommunications company, was broken up into 7 regional companies through a state anti-monopoly ruling. In the United Kingdom, Mercury Communications was granted a license to become the first competitor for the incumbent British Telecom. The European Commission 1990 Directive set up the baseline rules in the field of telecommunications [1]:
* Corresponding author. Tel.: þ381 11 2026 800; fax: þ381 11 3232 537. E-mail address: [email protected] (V. Tintor). 0160-791X/$ – see front matter Ó 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.techsoc.2009.10.010
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Regulatory authorities shall be independent of operators and other state bodies; All operators, both incumbent and new entrants, shall keep to the minimum rules and standards created to prevent damage to the network, electric shock, privacy violations, etc; Operators with a significant market power have greater and more demanding obligations than new entrants, because they need to offer a harmonized service package to costumers, service providers, and other operators, they have to offer interconnectivity and access to telecommunications networks under non-discriminatory conditions and at cost-based prices. Guarantee of the set of basic rights for electronic communications service users, as well as privacy protection. As a result of these goals, the liberalization of the EU market is followed. First, the market of value-added services was liberalized, followed by the basic services and infrastructure. This brought about a turning point in the European region, while at the same time the EU adopted directives with the aim to organize and develop the telecommunications sector. The successful liberalization in the EU has accelerated the liberalization process in candidate countries for the EU membership and those in the process of becoming a candidate. The market liberalization also accelerated the process of tariff rebalancing and the creation of distinctly separate voice service markets at a local, national, and international level. The liberalization process often tends to occur alongside the privatization process. The privatization of the national operators in developing countries has several goals. From the aspect of countries and governments, it is an important source of revenue. From the aspect of telecommunications development, it aims to attract strategic partners, provide modern management and enable easier access to financial institutions and capital markets. During the first period from the beginning of the 1990s up to the end of 1997, before the telecommunications market liberalization in the EU, a limited offer and attractive conditions (a lengthier monopoly period) attracted a large number of interested competitors, resulting in higher prices. Since 1997 and the EU liberalization, western European countries have shown a considerably decreased interest in the purchase of operators in developing countries and countries in transition. Primarily, this is due to the necessary investments in new technologies and services in western Europe, arising from increased competition and the introduction of third generation mobile telephony. In southeast Europe, liberalization has been initiated in the fields of mobile telephony, data transfer, and the providing of Internet services, access to cable television, and satellite networks. The countries of this region are either preparing or have already adopted laws on telecommunications demanding full liberalization of the telecommunications market. The establishment of independent regulatory bodies is an integral part of the telecommunications liberalization process in the region of southeast Europe. The accession of the countries in the southeast European region to the Base Contract on Telecommunications Services of the World Trade Organization would reduce trade barriers and contribute to a greater openness in the telecommunications market [2]. Even though there are financial, regulatory, and political barriers in the region, the liberalization process has started, and a certain percentage of telecommunications operators have already been privatized. Bulgaria, Romania, and Croatia are ahead in the privatization process [3]. Fifty-one percent of the shares of Hrvatski Telekom are owned by Deutsche Telekom AG, 51% of the Macedonian Telekom MT is owned by MATAV from Hungary, being in turn owned at 60% by Deutsche Telekom AG, while Romania has sold 54% of the state monopoly in the ROM Telekom company to the OTE/Greece company in 1998. Twenty percent of the shares of Telekom Srbija are owned by OTE/Greece. The process of privatization is under way in the other countries of southeast Europe.
2. Legislative and institutional basis The Republic of Serbia, one of the republics of the Federal Republic of Yugoslavia, became part of the Process of Stabilization and Accession to the European Union in November 2000. All measures and instruments of the process were made available from 2001. The decision to initiate negotiations for the signing of the Stabilization and Association Agreement was brought about only in April 2005, after accepting the ‘‘double track’’ principle for negotiation with the state union of Serbia and Montenegro. The negotiations were successfully completed by initialing the Stabilization and Association Agreement on November 7, 2007. The Agreement was signed on April 29, 2008, at the meeting of the General Affairs and External Relations Council of the EU in Luxemburg. By signing the Stabilization and Association Agreement (SAA), Serbia entered a new phase of relations with the European Union. For the first time, relations with the European Union are established on a contractual basis, while Serbia has become a state associated with the European Union. By signing the SAA, Serbia is bound to a gradual harmonization of legislation with the acquis communautaire of the European Community, as well as its application. The key economic reform prescribed by the Agreement leading to a greater macroeconomic stability in the period until 2012 is the continuation of the liberalization of infrastructural activities and the acceleration of the restructuring and privatization processes. Privatization is not an end in itself, but a necessary precondition for improved market efficiency and increased investments and employment in Serbia. The Republic of Serbia is seriously preparing for the EU Accession Candidacy, and thus the liberalization process in the telecommunications sector is of great importance. The start of the liberalization process and the cessation of monopoly in the telecommunications sector in the Republic of Serbia, as well as the start of harmonization with the legislative framework of the European Union in this area, were initiated by the adoption of the Law on Telecommunications in 2003, based on the regulatory framework from 1998 [4]. The principles
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for the regulation of relations in the area of telecommunications are, among others, stimulation of competition, cost-effectiveness and efficiency in the performance of telecommunications activities, protection of consumer interests, delivery of the highest quality of telecommunications services, rational and cost-effective usage of the radio-frequency spectrum, distribution of equal-conditions interconnectivity, and adherence to international normative provisions and standards. The Law on Telecommunications defines the distribution of competences between the Government of the Republic of Serbia, the Ministry of Telecommunications and Information Society, and the Republic Telecommunication Agency (RATEL), providing for the separation of political, operative and regulatory functions. A necessary precondition for the application of this law was the founding of RATEL as an independent regulatory body that began its activities in late 2005 [5]. The primary task of RATEL is the creation of open market conditions and granting equal positions for all players in the telecommunications sector. Thus, the primary goal of RATEL is setting conditions for the further development of the telecommunications sector and meeting public interests, achievable through:
Market regulation based on common economic principles, Stimulation of competition by introducing new operators and new services, Continued improvement of the quality of existing services, User protection.
In order to regulate the telecommunications sector, RATEL adopted a number of by-laws within its competence, regulating, among other issues: the management, planning, use and control of the radio-frequency spectrum, technical examination procedures, procedures for the control of telecommunications systems compliance with standards and normative provisions, issuing technical permits – certificates, issuing permits for providing telecommunications services (internet, cable distribution systems, etc.). Likewise, a number of by-laws regulating the numeration, telecommunications networks, interconnection, and universal service were adopted or prepared. 3. Strategic goals The government of the Republic of Serbia, as part of its strategies, has adopted the Strategy for the Development of Telecommunications in the Republic of Serbia from 2006 to 2010 [4]. The strategy aims for the development of the telecommunications infrastructure and services, along with the harmonization of the telecommunications legislative framework of the Republic of Serbia with the regulatory framework of the European Union. In developing countries, large investments into the development of information infrastructure, i.e. the development of telecommunications systems and networks, are typical which makes telecommunications one of the driving forces for economic progress. An increase in investments in telecommunications has a highly positive impact on efficiency in other economic areas, which, in turn, stimulates economic growth in general. The importance of the development of telecommunications is even greater because it represents one of the preconditions for accession to the European Union. The important strategic goals for the development of the telecommunications sector in the Republic of Serbia listed in the strategy are: the liberalization and privatization of the field of telecommunications, investment protection in the field of telecommunications, increase in the share of telecommunications services in the GDP, attracting foreign and domestic investments while adopting stimulating measures with the goal of creating a stimulating and prospective business environment, and the introduction of modern telecommunications services. As part of improving the development of the public mobile telecommunications network, the following goals are defined:
1) Issuing a license to a third party mobile operator; 2) Increase in the percent of population and territory covered by mobile telecommunications services, with an emphasis on urban areas and special interest areas in order to achieve the penetration rate present in the EU; 3) Increase in the quality of mobile telecommunications services under all conditions (in buildings; open spaces; urban, suburban and sparsely populated areas; rapid and slow movement conditions or at rest); 4) Increase in the offer of user services, especially new generation mobile system services; 5) Introduction of EDGE and UMTS systems; 6) Increase in the capabilities of international roaming. Said goals were defined in a situation when two public GSM standard telecommunications networks were present on the telecommunications market of the Republic of Serbia; the state-owned Telekom Srbija and Mobtel, partly state-owned and partly privately-owned. Likewise, the contract between the state and private owner created a problem of shared ownership
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Table 1 Baseline indicators of mobile telephony in the Republic of Serbia in the period of 2003–2007. Source: ref. [5].
Number of subscribers (‘000) Penetration (%) Revenue (V mn) Generated outgoing traffic (mn min)
2003
2004
2005
2006
2007
3280 44.52 255.5 827
4340 57.94 295.5 1176
5510 73.5 400 1823
6640 88.6 581.5 2594
8450 112.73 839.6 3771
between these two operators. In these conditions, the state wanted to clear up ownership relations, keep its ownership of only one operator and create conditions and give permissions to other operators interested in working in Serbia.
4. Brief overview of the development of mobile telephony The first mobile telephony network in the Republic of Serbia appeared in 1996 with the creation of the Mobtel company (currently: Telenor), with mixed state and private ownership, transferring to wholly private ownership by the Norwegian telecommunications giant in 2006 following a process of privatization. The second network mt:s (mobile telephony of Serbia) started working in 1998, run by the national operator Telekom Srbija a.d. The company was founded in June 1997 as a shareholders’ company with the majority ownership by the Republic of Serbia at 51%, then rising to 80% in 2003, with the remaining 20% owned by the Greek OTE operator. Both networks provided public digital cellular mobile telephony services in accordance with GSM standards from the start. Territory and population coverage increased every year by the addition of new base stations to the network. The number of mobile telephony users in Serbia also increased constantly since 1996, with Mobtel reaching its millionth user in 2001, and mt:s in 2002. Population coverage in said period was over 75% with both operators. The fact that the share of private ownership of the Mobtel operator could not be clearly determined and the existence of shared ownership between the two operators made the further development of this sector and the improved liberalization of the market in this period difficult. Thus, in 2006, the state decided to initiate a very serious process of liberalization in this sector. First, the Mobtel company was restructured and the Mobi63 company was created and put up for sale with public tender. The Norwegian Telenor company bought the Mobi63 company through public bidding on July 31, 2006 for 1513 million V, thus becoming the sole owner of the mobile operator in Serbia. Therefore, Mobi63 became the thirteenth company part of the Telenor Telecommunications Group, along with the Panon networks from Hungary and Promonte from Montenegro. Telenor started operations in the Republic of Serbia on September 1, 2006, by receiving its license for providing mobile telephony services on the territory of the Republic of Serbia from RATEL. Mobilkom Austria was issued a license on December 1, 2006, but considering that its entrance on the Serbian market was initiated as a greenfield investment, it officially began working in July 2007, with the name Vip Mobile d.o.o. as the sixth company part of the Mobilkom Austria group, along with the regional networks Mobiltel (Bulgaria), Vipnet (Croatia), and Vip operator (Macedonia). Therefore, significant changes occurred during 2006 in the area of public mobile telecommunications networks, related to changes in ownership structure and the issuing and replacement of licenses for the following operators [5]: Telekom Srbija a.d. – Mobilna telefonija Srbije mt:s, owned by JP PTT saobrac´aja Srbija (80%) and OTE from Greece (20%) (License replaced on August 1st, 2006) Telenor d.o.o. Beograd, wholly owned by Sonofon from Denmark (license issued on September 1st, 2006) Vip mobile, wholly owned by Telekom Austria Group from Austria (license issued on December 1st, 2006) All three operators are in possession of licenses for a public mobile telecommunications network and public mobile telecommunications network services in accordance with the GSM/GSM1800 and UMTS/IMT-2000 standards issued by RATEL. The licenses are issued for the territory of the Republic of Serbia for a period of 10 years, with the license being automatically renewed upon expiry for an additional 10 years if all licensing conditions are met. In December 2006, the mt:s mobile operator was the first in Serbia to place the third generation of mobile telephony on the market with the latest HSDPA technology [6], with over 8000 users applying for its use. The third generation network enables a series of new services such as real-time video calls, and additional services based on considerably greater bandwidth. The most interesting are video streaming (showing TV programs, news, sports events in real-time), traffic cam (traffic recording), and cinema clip. The first half of 2008 heralds further development of the mobile telephony market. During the month of April, Vodafone announced that they have expanded their partner network to the Vip mobile operator in Serbia, where Vodafone shall introduce a series of their own products and services. This contract makes Serbia the forty-first partnership market for the Vodafone group. Likewise, by purchasing shares in the Greek telecommunications operator OTE, Deutsche Telekom is becoming a co-owner of the national operator Telekom Srbija. The fact that some of the largest telecommunications companies have entered the Serbian mobile telephony market in a brief period of time certainly shows that the liberalization in Serbia has given exceptional results over a short period.
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Fig. 1. Revenue by mobile telephony services in the Republic of Serbia in the period of 2003–2007.
5. Comparative performance analysis 2003–2007 The comparative performance analysis in the period of 2003–2007 shows the true results of the liberalization in the mobile telephony sector in the Republic of Serbia. Table 1 shows the baseline indicators in the period observed, used for tracking the development of the sector: total number of mobile telephony users in the Republic of Serbia, mobile telephony penetration per 100 citizens, mobile telephony service revenue and outgoing mobile network traffic generated. All of these indicators show a significant trend of increase. In 2005, mobile telephony was the most profitable branch of telecommunications in Serbia with the income of approximately 400 million Euros and the share of 45% in the total business volume. Even more interesting is the revenue increase of over 45% as compared with the previous year. The total number of mobile telephony users at the end of 2005 was 5,510,690, representing an increase of 27% compared with the previous year. This number of users corresponds to a 73.5% penetration rate, thus being above the average of other countries in the region for said period. The postpaid users’ share in the total number is 12.8%, representing an increase of 2 percent compared with the previous year. In total numbers, this represents an increase of almost 50% of new postpaid users, which is certainly encouraging for the successful work of the operator. The increased number of users affected an increase in traffic, thus in 2005 over 1.8 billion minutes of conversation were recorded, representing an increase of over 55%. This represents an annual average of around 330 min per user, as opposed to 2004 when the average user had around 270 min of outgoing traffic. The number of SMS messages also shows an increase, with an average of 380 messages per user annually. The increasing use of the MMS service is especially interesting, being introduced in 2004 and with a recorded growth of 100%. The total GPRS traffic amounted to over 7.6 Tbit/s for the entire year. In 2006, mobile telephony was once again the most profitable branch of telecommunications in Serbia with the profit of 580 million Euros and a 48% share in the total business volume. The total number of mobile telephony users at the end of 2006 was 6,643,722, representing a 21% increase compared with the previous year. This number of users corresponds to 88.6% percent penetration rate, again being above the average of other countries in the region. The postpaid user share in the total number was 16.3%, representing a 3.5% increase over the previous year. The increase in the number of users caused an increase in traffic, thus around 2.6 billion minutes of conversation were recorded, representing a 42% increase. The annual average was around 390 min of outgoing traffic per user. The number of SMS messages is constantly increasing, reaching around 480 messages per user annually in 2006, representing a 50% increase. The number of MMS messages was reduced compared with the previous year. The total GPRS traffic increased by almost 8%, amounting to 8.2 Tbit/s for the entire year. As for territorial coverage, Telekom Srbija has increased territorial coverage by almost 4% as opposed to 2005, by building 350 new base stations, increasing population coverage by 2%, whereas Telenor has increased territorial coverage by 2% as opposed to 2005, by building 48 new base stations. For the third year in a row, mobile telephony was the most profitable branch of telecommunications, thus of the 1.5 billion Euros total revenue in 2007, 57% was mobile operator income in Serbia. The total number of active SIM cards1 at the end of 2007 was 8,452,642, representing an increase of 27% compared with the previous year. This number of users corresponds with a 112.7% penetration. However, many users have multiple SIM cards at the same time, leading to estimates of mobile telephones being used by almost 6.15 million citizens or 82% of the total population. Likewise, estimates place the increase of user numbers in the next five years at four percent annually. Postpaid user share in the total number is 20%, representing
1
Number of active SIM cards in the last 3 months, in accordance with the ITU definition of telecommunications indicators [7].
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Fig. 2. Mobile telephony penetration in the Republic of Serbia in the period of 2003–2007.
a 3.7% increase compared with the previous year. This is very significant for mobile operators, because it is well known that the income from postpaid users is significantly higher, as opposed to prepaid users. The increase in user numbers also drew an increase in traffic, with 3.7 billion minutes of conversation recorded, representing a 46% increase. This growth is in part the result of the more attractive offer existing in the market and in part of the transfer from fixed telephony where traffic has been on a steady decline for the last two years. The annual average is around 475 min of outgoing traffic per user. The number of SMS messages shows a constant increase reaching 564 messages per user annually in 2007, representing an increase of 17.5%. The number of MMS messages has also increased by 80% compared with the previous year. The total GPRS and 3 G traffic increased by 102.4% compared with 2006 and it amounted to 16.6 Tbit/s for the entire year. At the end of 2007, all the operators had a total of over 250,000 3 G technology users. Competition in the mobile telephony market in Serbia has been measured applying the Herfindahl–Hirschman Index (HHI) [8]. HHI is an indicator used to determine the concentration level of a certain market. It is determined as the sum of the squares of operator market shares. The HHI shows the maximum value of 10,000 in case of monopoly, and the smaller this index is, the more competitive the market. In the analyzed market, the HHI index in 2006 was 5332, falling to 4759 in 2007. This type of index drop shows a decrease of market concentration, i.e. an increase in operator competition, being the result of the introduction of a new mobile operator. The lowest value of this index in 2006 was recorded in USA – 2243, and the United Kingdom – 2513. The HHI in Germany was 2998, in France 3761, Ireland 3629, Spain 3581 and Japan 4091 [9]. The five Figures below show the basic indicators for tracking the mobile telephony market in Serbia in the past few years. All of the charts show a constant growth, especially significant between 2006 and 2007, when the main part of the liberalization of the mobile telephony market in Serbia was performed. Fig. 1 shows mobile telephony service revenue across a 5-year period, noting an increase of 230% in said period [5]. Fig. 2 shows the penetration rate, i.e. the number of mobile telephony users per 100 inhabitants, in the same period. The constant growth of this indicator is especially notable between 2006 and 2007 [5]. Fig. 3 shows the total number of mobile telephony users and the distribution of the number of users between prepaid and postpaid. Typical of this is that the number of users nearly tripled in the period observed [5]. Fig. 4 shows how the increase in the number of users caused the increase of outgoing traffic volume, becoming 4.5 times as much in the period observed [5]. The number of SMS and MMS messages generated in the mobile network is given in Fig. 5, clearly showing a trend of increase [5].
Fig. 3. Total number of mobile telephony users in the Republic of Serbia and their distribution in the period of 2003–2007.
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Fig. 4. Outgoing traffic generated in the mobile network in the Republic of Serbia in the period of 2003–2007.
6. Consequences of the market liberalization process Mobile telephony represents a typical segment where the often noted principle is proven: regulation leads to competition, which in turn stimulates investments, having increased penetration as a result. In 2006, based on adopted regulation, conditions were established to open a public competition for issuing licenses. Three licenses were issued during the procedure (one license has been replaced) and total competition was created. Consequently, new services appeared and new subscription packages, along with lower prices. As a result, in 2006, the number of mobile telephony users in Serbia was more than 1 million, while in 2007 it was almost 2 million. The population of Serbia according to the 2001 census is 7.5 million. The benefits from the privatization and liberalization process are many, and in the following pages we shall review the benefits of this process for the economy, the telecommunications market and the end users. 6.1. Benefits for the state and economy Research commissioned by Telenor, one of the three mobile telephony operators in Serbia, and conducted globally by the international auditing firm Deloitte, indicated that the increase of mobile telephone use in Serbia caused an increase in the GDP of 104 billion dinars, i.e. that the direct and indirect income from this activity has increased the gross domestic product of the country by 4.1 percent [10]. Along with the growth, emphasis is placed on the positive influence of mobile telephony on work productivity. Estimates place the effect of privatization and liberalization measures on the mobile market of Serbia at almost 5.7% of the GDP. The inclusion of licensing and privatization funds increased the GDP contribution to 11.6% in 2006 [10]. Mobile operators have also played a significant role in attracting additional foreign investments to Serbia and in introducing communications networks into insufficiently developed areas, increasing potential economic activities in said areas. Considering the large investments in building and modernizing the telecommunications systems and networks, as well as the information infrastructure, telecommunications represent one of the chief motors of economic development with developing countries. Telenor still holds the lead position among foreign investors in Serbia, since their total investment in purchasing Mobi63 was over 1.6 billion Euros, with 320 million Euros paid for licensing, representing, thus far, the single largest foreign investment in Serbia, as well as all of Southeast Europe [11]. Third among the foreign investments in Serbia in 2006 was Vip Mobile (Austria) with 570 million Euros total investments, 320 million of which was also paid for licensing, all of this making Vip Mobile the largest greenfield investor in Serbia in 2007. The presence of two large operators holds promise of additional investments in the period to follow. We have used regression analysis in this paper to analyze how the growth of the gross domestic product influences the development of mobile telephony. Regression analysis is a statistical tool for the investigation of relationships between variables. Usually, the investigator seeks to ascertain the causal effect of one variable upon another d the effect of a price increase upon demand, for example, or the effect of changes in the money supply upon the inflation rate. To explore such issues, the investigator assembles data on the underlying variables of interest and employs regression to estimate the quantitative effect of the causal variables upon the variable that they influence. We have used the minimum sum of squared errors criterion in this paper [12]. We have observed thirteen countries in the neighboring region in the course of our analysis. We have investigated how macroeconomic indicators influence some of the indicators in telecommunications. This analysis was carried out by the EViews 3.0 software program [13]. The macroeconomic indicators under observation were GDP2 in millions of dollars and GDP per capita in dollars. The telecommunications indicators were: number of mobile subscribers in millions and mobile telephony revenue per subscriber in Euros. It must be noted that the number of samples (which was 13 because data was available for those countries only) is insufficient for a detailed analysis, but is enough to notice trends in the results and to provide valid conclusions. Fig. 6 shows the influence of GDP on the number of mobile subscribers in the thirteen countries observed. The regression line shows an obvious linear dependence between GDP on one side and the number of mobile subscribers on the other side.
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Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time [8].
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Fig. 5. SMS and MMS messages generated in the mobile network in the Republic of Serbia in the period of 2003–2007.
This can be also verified by the fact that the more money people earn, the more money they can spend on their needs, which definitely include usage of mobile telephony. The regression line shown on Fig. 7 is very interesting. Common sense tells us that an increase in the gross domestic product also indicates mobile telephony sector revenues. However, the results obtained show this dependence to be an almost straight line. This leads to the conclusion that annual GDP growth will be followed by the same amount in percentages in mobile telephony revenues. Thus, if the growth of GDP is expected to be more than 6% annually, we can expect the gross revenues of mobile operators to grow by the same amount. This analysis shows the existence of a strong link between the macroeconomic state of the country and the level of mobile telephony development. Estimates place the number of people employed by the mobile telephony sector in Serbia in 2007 at 33,660. This number includes the 2900 employees working directly for the mobile operators, while the largest employment growth was due to the retail facilities for the distribution of SIM cards and telephones. These companies employed 20,750 persons. Further employment opportunities are created by: the fixed operator, network equipment, mobile telephone, and additional equipment suppliers; ancillary service suppliers such as marketing, auditing and consulting; retail employees selling mobile telephones. Unemployment among the educated population has been considerably reduced because a large number of mobile operator employees have university diplomas. The influence of mobile telephony on worker productivity is owed to an improved flow of information between buyers and sellers, reduced travel times, as well as the fact that business has become more flexible and accessible across the country. It is estimated that using mobile communications for business increased the individual worker’s productivity by around 7%, enabling a better flow of information between buyers and sellers [10]. This means an increase of 32 billion dinars in GDP in 2007, representing 1.27% of the GDP, which is a 27% increase relative to 2006. A significant improvement in the domain of business policy has been noted. Ever since the entry of the new operators, the number of new GSM/3 G base stations has grown considerably. Over 50 new retail locations have been opened across Serbia. The mobile operators in Serbia have quickly become the largest marketing advertisers in Serbia, further improving the development of the media sector in Serbia.
Fig. 6. Relationship between the GDP and the number of mobile telephony users.
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Fig. 7. Relationship between the GDP per capita and revenue per mobile telephony user.
Fig. 8 shows the penetration of mobile telephony in EU countries in 2007. The largest mobile penetration rate is present in Luxemburg (152%), Italy (148%), Latvia (139%), and Estonia (132%), while the least penetration is evidenced in France (83%) and Malta (91%) [14–17]. It should be noted that mobile penetration rate in Serbia is within the European Union average. 6.2. Benefits for the users The influence of the liberalization of the mobile telephony market in Serbia on the end user is reflected in the retail prices for mobile network services and the quality of the services themselves. The prices were analyzed using OECD standards [18], with analytics expressed in ref. [19], using three baskets: 1. Low usage basket with: 30 outgoing calls per month þ 33 SMS messages 22% of calls are to fixed line phones, 70% to mobile phones, 8% to voicemail, 2. Medium usage basket with: 65 outgoing calls per month þ 50 SMS messages 21% of calls are to fixed line phones, 72% to mobile phones, 7% to voicemail,
Fig. 8. Mobile telephony penetration in the European Union countries in 2007.
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Fig. 9. Mobile basket in Serbia.
3. High usage basket with: 140 outgoing calls per month þ 55 SMS messages 20% of calls are to fixed line phones, 73% to mobile phones, 7% to voicemail. The analysis has shown that in the last three years the price of mobile telephony services in Serbia has dropped by over 28% for the low usage basket, 44% for the medium usage basket and 127% for the high usage basket. Such considerable changes in prices in merely two years can only be explained by liberalization and greater market competition. This is shown in Fig. 9, where all prices are shown in Euros with VAT. Another interesting fact is that the two already established operators in the Serbian market, Telekom Srbija and Telenor, have nearly identical prices according to the OECD standard in early 2008, while the newest entrant Vip, offers significantly lower tariffs than the competition in the attempt to increase market share in Serbia through more competitive prices. Fig. 10 indicates this with all prices expressed in Euros with VAT. Comparing the price level in Serbia with prices in the region and the European Union, as shown in the three figures below, it should be noted that the analysis has shown that the mobile price level in Serbia is the lowest in Europe. When it comes to prices, only certain operators in Estonia can compare to the operators in Serbia. The prices for other operators were received from the OECD [18]. Fig. 11 shows the low usage basket in Euros per month including VAT for 2007. The average offered by operators in Europe for 30 min of outgoing traffic and 33 SMS messages in accordance with the OECD standard is 12.33Euros. Among the four operators with the lowest tariffs in Europe (in the countries encompassed by the analysis), three are from Serbia, and the low usage basket in Serbia amounts to 5.62V, being over 50% less than the average. The operator with the lowest rates is Vip from Serbia, had the prices from 2005 been retained, the difference in relation to the average would be around 5V.
Fig. 10. Mobile basket in Serbia for 2007 with all three operators.
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Fig. 11. Low usage mobile basket with European operators for 2007.
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Fig. 12. Medium usage mobile basket with European operators for 2007.
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Fig. 13. High usage mobile basket with European operators for 2007.
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Fig. 12 shows the medium usage basket in Euros per month including VAT for 2007. The average offered by operators in Europe for 30 min of outgoing traffic and 33 SMS messages in accordance with the OECD standard is 21.25V. Among the seven operators with the lowest rates in Europe (in the countries encompassed by the analysis), three are from Serbia, and the medium usage basket in Serbia amounts to 10.74V, being almost 50% less than the average. Had the prices from 2005 been retained, the difference in relation to the average would be around 6V and over twenty operators in Europe would have had lower rates. Fig. 13 shows the high usage basket in Euros per month including VAT for 2007. The average offered by operators in Europe for 30 min of outgoing traffic and 33 SMS messages in accordance with the OECD standard is 33.36V. Among the five operators with the lowest rates in Europe (in the countries encompassed by the analysis), three are from Serbia, and the high usage basket in Serbia amounts to 14.62V, being almost 55% less than the average. Had the prices from 2005 been retained, the difference in relation to the average would be less than 10 euro-cents and over thirty operators in Europe would have had lower rates. New technologies such as GPRS, WAP, and 3G have raised the bar for the market, therefore operators are providing a wide array of additional services for users. These include: voicemail, call transfer, call waiting, conference call, sending and receiving short messages (SMS), data transfer, fax, incoming call identification, hidden identification, regular monthly itemized bill, on-demand disconnection, on-demand connection, subscription package change, replacing a damaged or lost SIM card, WAP, multimedia message transfer (MMS), etc. By introducing the 3G network, new types of services have arrived: real-time video calls, video streaming, etc. Analyses show that over 90% of students and employees and 79% of unemployed persons use mobile telephones, while the percentage is significantly lower at only 27% with retirees [11]. Apart from the price drop and increased number of services, the users are offered a large number of mobile telephone models by various companies. Likewise, consumers have various social advantages in using mobile communications: development of interpersonal communications and communication in the family, especially between rural and urban areas, bringing communications to those with low incomes, etc.
7. Further development perspectives The previous analysis of the dynamics and effects of the mobile telephony market liberalization process in the Republic of Serbia can point to certain directions for its further development in the period to come. Accordingly, saturation in the number of users is to be expected, along with a slow increase in the penetration rate already achieved. Further on, as per the introduction of new operators to the market, the interest of those operators offering only services achieved through the existing mobile infrastructure (MVO – Mobile Virtual Operator) is to be expected. Along with the existing operators they will inevitably increase traffic in the mobile network through attractive services to be offered to end users. Likewise, changes in the marketing policy of mobile operators are to be expected, since their campaigns shall no longer be focused on drawing new customers, but retaining the existing ones. Increased competition shall force operators to continually reduce operating costs while improving quality of service. Capital investments in those circumstances will be far more focused on service development. In accordance with these conclusions, an increase in revenue for the operators in the following period can be achieved primarily through providing value-added services. All these trends are focused on the further development of the market through a constant revenue increase of over 20% in the following 3–5 years.
8. Conclusion The strategic importance of globalization is intensified by liberalization, privatization, technological development, increased user demands, mutual international agreements, and multilateral competition in convergent telecommunications markets. Strategic partnerships between large companies are leading to the globalization of telecommunications services, the telecommunications market, and development policies and directions. The liberalization of the telecommunications sector, as agreed upon with the support of the World Trade Organization and made binding by the EU, implies that the Member States undertake reforms in the telecommunications sector which involve changes in the organization of domestic telecommunications operators and telecommunications service providers, because of potential new entrants and in order to attract domestic and international investments. Increased investments in telecommunications have a positive effect on efficiency in other sectors, which ultimately stimulates the overall economic growth. This paper has shown that a precondition for the true development of the mobile telephony market is a well executed liberalization process. Once the liberalization is completed, the economy and mobile telephony become complementary in further development. On the one hand, the development of mobile telephony directly influences the development of the overall national economy because an increased usage of mobile telephones results in a significant increase in the GDP of the country. However, on the other hand the improvement of the quality of life through increasing the GDP per capita directly influences the further development of the mobile telephony market. Thus, the conclusion can be drawn that the liberalization process is a necessary requirement for further development, because only with a liberalized sector does the market develop, further developing the national economy and through a system of feedback then further developing the mobile telephony market itself.
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European Union Telecom Framework. Available at:
Vladica Tintor earned his MS EE degree in telecommunications at the University of Belgrade (2006), an MBA degree at the HEC business school in Paris (2007) and an MScE degree in business economics at the University of Belgrade (2008). He is currently a Ph.D. student at the School of Electrical Engineering. Since 2006 he has been working in the Republic Telecommunication Agency in the manager’s office. He has published 7 scientific papers in international and domestic magazines and conferences. Vlade Milic´evic´ is a professor of Management Accounting and Strategic Management Accounting at the Faculty of Economy of the University of Belgrade. As an accounting, business finance and management consultant he has taken part in the work of several consulting companies in the Republic of Serbia and abroad. Currently he is the vice-dean for finance at the Faculty of Economy in Belgrade and a member of the MB of RATEL. Milan Jankovic´, IEEE member, received his B.Sc. (1975), M.Sc. (1990) and Ph.DEE (1999) degrees from the University of Belgrade, Faculty of Electrical Engineering, Department of Telecommunications. After fourteen years introducing new technologies and products in the telecommunications industry, he joined the Community of Yugoslav PTT, in 1990, as Project leader in the R&D Department responsible for the development and implementation of adequate access network architectures. He was a member of three EURESCOM Projects. From December 2002 to March 2006 he was Director General of the Community of Yugoslav PTT. Dr Jankovic was elected Assistant Professor in the Department of Telecommunications at the University of Belgrade, Faculty of Electrical Engineering. He has published more than 125 papers in Proceedings of International and Domestic Conferences and International (IEEE Communication Magazine) and Domestic Magazines. He is the coauthor of the book ‘‘Access Networks’’. He is currently with the Republic Telecommunication Agency of the Republic of Serbia at the position of Executive Manager. Jovan Radunovic´ graduated from the Faculty of Electrical Engineering in Belgrade (1973), won master’s degree (1977) and doctor’s degree (1984) at the same Faculty. He is currently full professor at the Faculty of Electrical Engineering in Belgrade. His field of scientific research, professional and educational work includes optical telecommunications and optoelectronics and laser systems. He has published 103 scientific papers so far. Among those are 31 papers in leading international scientific journals. He has been the Chairman of the Managing Board of the Republic Telecommunication Agency in Serbia since 2005.