Telecommunications, is at present, one of the fastest and constantly developing industries in the Central and Eastern European economies. The market grew steadily during the 2000-2003 period, reporting compound annul growth rates of some 8%. Growth was driven mainly by sustained economic progress in the CEE region and an improvement in the incomes of the population. Simultaneously, a gradual decline in the prices of telecommunication services, particularly in the most competitive mobile industry, resulted in a substantial growth of the mobile telephony in the region.

The combined value of the telecommunications industry in the CEE region was €31.2 billion in 2003, having grown by some 7% in comparison with the previous year. The mobile market, worth €11.7bn in the relevant period, accounted for the largest proportion of the market: 38%. In contrast to 2002, the value of the mobile market increased by around 19%.

In 2003 the fixed-line market, which, even in 2002, had been the largest segment of the telecommunications industry in CEE, represented around one third of its value but was overtaken by the mobile market. Viewed against 2002, the market shrank by almost 7%. This was prompted by a decline in the number of connections and traffic revenue resulting from mobile substitution, dial-up broadband migration which offers unlimited use for a flat rate monthly subscription, and increasing competition from providers who offer VoIP. The decline of the fixed-line market matched trends seen throughout Europe.

The data transmission market in CEE was worth €1.7bn in 2003, and had increased by 11% in comparison with 2002. The market has been stimulated by broadband internet expansion in CEE, particularly in Poland and Hungary.

Growth in telecommunications market in Russia and CEE fuelled by mobile expansion The mobile market was the most dynamically developing part of the telecommunications industry in CEE in 2003 and 2004. Increasing revenues from mobile services reported by operators across the region resulted principally from a substantial increase in the number of mobile users. According to preliminary data, the total number of mobile users in the CEE region approached the 117 million mark in 2004. In comparison, a year earlier the number was 71 million, which means that within a year the growth rate had reached 66%.

It should be noted that this progress was mainly a reflection of the skyrocketing mobile market in Russia. During the relevant period, the mobile subscriber base grew by 110% in Russia, reaching a total of 74.4 million subscribers. This makes Russia the largest mobile market in CEE. At present, two out of every three mobile subscribers in the CEE region live in Russia.

It is worth mentioning that significant differences can be observed in the level of development of the mobile market in selected CEE countries; this may be explained by the manner in which mobile penetration in those countries has grown since the year when the first GSM network was launched there. The mobile market is at its most advanced in the Czech Republic. The country needed only eight years to reach saturation point of more than 100%. A somewhat comparable situation may be seen in Hungary. As a result of high mobile density in these two countries, non-voice and value-added services, along with those based on 3G, may undergo significant development. Those two markets have, however, rather limited prospects for growth in terms of new customer numbers.

Conversely, Russia and Poland are now at the stage of development of the mobile market which is based on a dynamic increase in the subscriber base, and thus penetration. The Russian mobile market had been growing slowly in the first 7-8 years since the roll-out of GSM-based telephony in the country in 1994. A real boom has been observed over the last two years. At the end of 2002 mobile density in Russia stood at 11.7%, but at the end of 2004 it had jumped to around 52%.

The expansion of mobile telephony in Russia and Poland may be characterised by increased marketing focus on pre-paid services, and thus by lower ARPU subscribers. This trend is also apparent in the Czech Republic and Hungary. The CEE market has expanded beyond the wealthiest, often business, customers and gained lower income mass appeal.

Growth in telecommunications market in Russia and CEE fuelled by mobile expansion Mobile expansion in Russia meant that the top three mobile operators in the country were also the largest mobile providers in the region at the end of 2004. The three companies (MTS, VimpelCom and Megafon) serve as many as 66 million mobile users in the region. This means that every second mobile user in CEE belongs to one of the top three Russian operators. The Polish mobile operators (PTC, PTK Centertel and Polkomtel), which were the largest in the region in mid-2003, now came after the Russian companies.

It should be noted that, in terms of structure ownership, Deutsche Telecom, which has 100% subsidiaries in the Czech Republic (4.4 million users) and Hungary (4 million), in addition to a 49% stake in the Polish PTC (8.5 million) and a 10.5% stake in the Russian MTS (26.8 million), may be considered one of the largest strategic investors in the region.

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