1. Spotlight
Telecommunication sector in Moldova
- A look into the future -
Trends, Drivers, Opportunities
Author: IAMBLA Vitalie
iambla.v@gmail.com
- 2011 -
2. Country Overview
Moldova is situated in South Eastern Europe, north of the Balkans, at the crossroads of commercial routes
that join Western Europe and the CIS countries. It stretches 350 km from North to South and 150 km
from East to West, and has a total area of 33,846 sq.km. (about 12,600 sq.mi.).
Booming remittances, FDI, and banking sector have propelled the local economy over the last decade.
GDP growth is projected to continue its strong pace in the future, supported mainly by the projected
recovery in external demand from the major trading partners Russia and Ukraine, by the expanding
commercial balance with EU, accelerated remittances and by the ongoing liberalization and deregulation
of the economy.
3. Market Overview
The Fixed Telephony segment in Moldova remains to be controlled by the Moldova‘s
incumbent operator, Moldtelecom. Even though the market entered into liberalization
phase in 2004, at the end of 2010 the incumbent still retains about 99% market share.
The Mobile Telephony has been the main driver for the local telecom sector during the
recent years, with a CAGR of 21% over 2005 - 2010 period, increasing its market
share in the sector from 39.7% at the end of 2005 to 56.2% by the end of 2010. The
market is divided between three players: two GSM operators (Orange, with 73%
market share, and Moldcell, with 24.2% market share) and one CDMA operator (Unite,
with about 3% market share).
Concerning the development pace, Internet Access Services and Transmission Data
(IAS) segment has recorded the second highest CAGR over 2005 - 2010 period,
32.7%. This dynamics has allowed to expand the segment's market share to 8.6% by
the end of 2010, from 4.5% in 2005.
In terms of market players, IAS segment is the most populated telecom segment in
Moldova, however it is still dominated by low competition, particularly in rural area.
Broadband technologies have taken supremacy on the Moldova's IAS segment. Large
scale deployed investments over the last 5 years have increased the share of
broadband subscribers from 26% in 2006 to 99.7% in 2010.
Moldtelecom is leading the fixed broadband segment, with 65.7% market share at the
end of Q1 2011. Its supremacy has been supported by steady infrastructure
investments across the country and its still monopoly position over fixed-line telephony
outside Chisinau.
4. Market Overview
ADSL is the most popular desktop broadband access platform, with about 60% market
share, by the end of Q1 2011. This leading position, even though declining, is
supported by the fact that ADSL technology is provided by Moldtelecom.
FTTX/LAN technology platform is currently the fastest developing Internet Access
Solution. Until recently this platform had been deployed only in Chisinau. Still there are
a lot of opportunities for this technology to expand, including outside Chisinau. This
solution is provided by Moldtelecom as well, however the incumbent is less active in
expanding this offer than its competitors, being more focused to exploit with ADSL
offers its monopoly position outside Chisinau.
Wi-Fi is also experiencing visible growth, still its market share is less than 1%. Similar
to FTTX, Wi-Fi technology had been deployed almost entirely in Chisinau. However,
during the last couple of years it is receiving increasing acceptance in other regional
towns as well.
Concerning WiMAX penetration, it is still in the project phase. Leading internet
providers have not yet performed any sustainable actions to develop this technology in
Moldova.
Broadcast and retransmission services generated only 24,2 million USD of revenues in
2010, which stands for 4.8% share of Moldavian telecom market. However, in terms of
revenue growth, this segment recorded the fastest pace over 2005 — 2010 period,
with a CAGR of 37.4%.
5. SWOT
Strengths
Sustainable development during the past years and promising prospects for
future growth
Increasing political support for ICT market development
Fast penetration of mobile and broadband technology platforms
Steady growth of the local outsourcing market
Increasing number of ICT providers with the ability to bundle different services
E-Government and E-Governance initiatives
Future reforms in the sector, as a result of European integration, which are
expected to put greater emphasis on quality services
6. SWOT
Weaknesses
● Inadequate financial resources
● Still monopoly situation in fixed telephony market
● Lack of competition for broadband internet access solutions in rural areas
● Difficult to develop niche products in a small country
● Limited competition on computer hardware and telecom devices retail markets
● Insufficient technical and professional level personnel
● Low computer literacy among people older than 40 years
● Political instability
7. SWOT
Opportunities
● Fast growing demand for broadband and mobile internet access platforms
● Expanding demand for dedicated solutions due to increasing acceptance of
digital technologies
● Growing interest from foreign investors to acquire local players or to start projects
from scratch with focus on outsourcing services
● Sustainable economic growth should accelerate demand for ICT business
solutions (ERP, BI, in-house developed solutions, telecom equipment)
● Increasing prices, internet penetration and demand for convenience should
accelerate the development of online shopping business
● Expanding demand for portable computers, difficult and expensive deployment of
FTTX/LAN platform in rural areas should increase demand for Wi-Fi and mobile
internet access solutions in these regions
● Upcoming large infrastructure projects in the public sector should open many
opportunities for ICT services providers as well as for resellers
8. SWOT
Threats
● High investment costs
● Decrease of average revenue per customer (ARPU)
● Difficult access to commercial debt
● Permanent emigration of Moldova citizens in EU countries and Russia is
expected to accelerate once fears and suspicions of another crisis in these
regions will vanish, as well as when Moldova will get visa-free regime with EU
countries
● In terms of demographic factors, Moldova is expected to experience a negative
natural growth balance over the next decade
9. Market Outlook
The Fixed Telephony segment will remain almost entirely controlled by the local
incumbent operator even though it will raise subscription costs or charges for voice
services.
This segment will continue to decline, being strongly influenced by the fixed-mobile
substitution and internet penetration. Even though the segment will be increasingly
populated, mainly through bundled services, revenues of Moldtelecom's competitors in
this segment will remain marginal.
The ongoing declines in the average per-minute price for voice calls provided by
mobile operators offer limited opportunities for new players to expand their businesses
in Fixed Telephony.
The Mobile Telephony segment will maintain its leading position as telecom's largest
business line. The segment will remain populated only by three players: Orange,
Moldcell, and Moldtelecom's mobile telephony branch – Unite.
Theoretically new operators could access the market by deploying own infrastructure
from scratch or through MVNO approach.
● To develop a profitable business using first option will be highly difficult to achieve, as it
requires large investments. In addition, penetration in Moldavian mobile telephony
market is close to saturation. Eventis, which operated on the market since December
2007 and went into bankruptcy in 2010, is a worth mentioning case.
10. Market Outlook
Concerning MVNO approach, at this stage it is difficult to be deployed by any local
telecom providers. Successful MVNO's are typically well known, well positioned
companies, with a good deal of marketing clout, with extensive financial resources. At
the moment, it is difficult to mention any non-mobile telecom operators in Moldova with
such financial and marketing power.
Future development of the local mobile telecom segment will continue to be hampered
by the migration of local population, which is expected to continue as world economies
are recovering from the recent financial crisis. Estimating the number of Moldovans
abroad is a difficult exercise. According to many sources, estimates range between
500,000 and 1,000,000 people.
At the end of 2010, Orange had about 2 million customers, Moldcell – slightly more
than 1 million customers, and Unite – 131,223 customers. Taking into account the
number of local emigrants, we can assume that the penetration rate in the local mobile
telephony segment overcomes 100%.
By comparison, according to Tariff Consultancy Ltd, by the end of 2010, penetration
rate across eight key European countries had reached 125% in this telecom segment.
Thus, the potential to further expand “mobile” customer base in Moldova is limited.
For the near term, new mobile technologies, like 3G, 4G, LTE or WiMAX are expected
to receive limited adoption, except for 3G. These will be maintained in project phase
for the near future, the profitability of such investments in Moldova will remain
questionable.
11. Market Outlook
The major factors that will restrain the penetration will remain cost issues and limited
demand for expensive high speed broadband services.
Concerning the Internet Access Services segment, in the near future it will be difficult for
newcomers to access the fixed broadband market., particularly in Chisinau. As a result of
substantial investments needed, mostly well established providers with their extensive
infrastructure and customer bases can profitably roll out ADSL and FTTX/LAN
technologies platforms.
Taking into account that penetration of broadband internet is significantly lower in Moldova
comparing to all EU states, 6.3% versus EU27 average of 25.6% at the end of 2010, it is
obvious that there is a huge market potential remained to be capitalized. Most of this
potential is outside Chisinau, thus, the hot topic for the near term will be the penetration in
the regions, particularly in regional towns. At the end of 2010, share of broadband internet
subscribers outside Chisinau accounted for only 48.7%.
This expansion will be achieved mostly with FTTX/LAN and wireless technologies.
However, due to Moldtelecom's monopoly position outside Chisinau, lower computer
proficiency and many low populated rural areas, most ISPs are reluctant to expand their
presence in the regions.
Alongside stand-alone Internet Access offers, current infrastructure allows the
development of bundled services (e.g. Internet Access + Fixed Telephony; Internet Access
+ Television; Internet Access + Fixed Telephony + Television), which are increasingly
demanded by population. Thus, the development of new high speed broadband access
platforms will hardly be deployed profitably in Moldova over the near to medium term.
12. Market Outlook
Because of substantial economies of scale, replication of fibre access lines for high
speed services is not economically viable on any widespread basis.
Current Internet Access Solutions have the capacity to satisfy almost all internet related
issues (e.g. speed, type of connection, access technology) demanded by subscribers.
In addition, taking into account that fixed-mobile substitution trend in Moldova is
accelerating, and the incumbent fixed operator is unable to expand its presence on the
mobile telephony segment (its market share has been hovering below 4% over the last
couple of years), Moldtelecom will increasingly focus on its internet division. This focus
will consequently raise the possibility that the incumbent could once again increase its
market share, reversing the trend towards more competition in the market.
For the near term, the Internet Access Services segment will be propelled by the ADSL
to FTTX/LAN migration, primarily in Chisinau, and by increasing penetration in regional
towns. On the back of these trends, most probably Moldtelecom will continue to lose
market share.
Increasing penetration of FTTX/LAN and radio technologies will be fueled primarily by
cost issues, growing propensity for local networks, greater flexibility provided by new
providers and increasing share of portable computers.
In addition, once the competition on the Internet Access Services market is growing,
users are becoming not only price sensitive, they are increasingly aware of internet
connection issues (e.g. speed, stability) as well.
13. Market Outlook
Thus, in order to prevent migration local internet providers will have to pay increasing
attention to quality parameters, not only to quantitative aspects. From this perspective,
Moldtelecom lags behind its major competitors.
Broadcasting and retransmission services market will be among the most active in
terms of investments and revenue growth. This trend will be supported by the
increasing demand for digital and HD television.
Currently the market is highly fragmented. This situation opens promising opportunities
for future consolidation initiatives between urban and rural based operators.
Other promising business for telecom operators will be satellite TV. This service will be
demanded mainly in the rural area, as population increasingly demands digital, HD
quality TV channels.
14. MDL million Thousands
Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
15. MDL million Thousands
Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
16. MDL million Thousands
Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
17. * Orange entered into this market in December 2008, by acquiring Telemedia Group SA
Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
18. * Orange entered into this market in December 2008, by acquiring Telemedia Group SA
Source: National Regulatory Agency for Electronic Communications and Information Technology of Moldova
19. *Data as of Q2, 2010. By the end of Q1, 2011 penetration rate increased to 8.2% in Moldova.
Source: Eurostat, ANRCETI
