Mobile market review – Czech Republic 2008

The Czech Republic has a mature mobile market which, after having grown healthily in recent years, boasts more than 13 million mobile subscribers –not bad for a country of 10.3 million inhabitants–. Having achieved a penetration of roughly 130%, opportunities for growth in terms of subscribers, although still exist, are obviously limited.

There are four players in the market: three operators using the standard GSM/3G networks –T-Mobile Czech Republic , O2 and Vodafone– as well as a new one, U:fon, that uses a CDMA 450 license to offer fixed and broadband services and which, having launched mobile services only in June 2008, so far has a negligible number of subscribers.

T-Mobile and O2 have very similar patterns regarding subscribers and market-share. While T-Mobile has become SIM market leader in 2007 with 5.3 million customers (40.4% share), O2 has remained the leader in service revenue (30.5 billion CZK in 2007, a share of 38.6%) and, while T-Mobile has kept stable market-share and service revenue over the last years, O2 has lost some market-share in terms of both subscribers and service revenues. Vodafone, while being the player with the smallest market-share, has consistently grown its share of subscribers and service revenues throughout the last few years.

Churn levels have been increasing throughout the years despite a continuous migration of the customer base from postpaid to prepaid. Nevertheless, overall churn levels, at roughly 1.1%, are still low compared to other markets.

This market has been fairly stable for the last few years in terms of the competitive position of the players. It has stayed profitable over time despite important price decreases (a CAGR of -8.3% in voice prices for the period 2002-2007), as they have been compensated with increases in voice usage that in turn has resulted in healthy ARPU levels and EBITDA margins for operators.

Nevertheless, the entry of new players could lead to changes in the current market equilibrium:

• The recent entry of a fourth operator opens the door for new competition. Although the use of a different standard imposes a series of limitations to U:Fon –mainly in terms of handset variety and limitations of roaming for its customer base–, the low frequency in which U:fon operates has enabled it to build a network at a fraction of the cost of a GSM equivalent.

In most European countries Mobile Virtual Network Operators have long ago entered the market, increasing competition and in some cases creating strong downward price pressures.The Czech Republic has not yet shown the presence of such players, but at some point the regulator might force, as in other countries, players to open their networks to MVNOs.