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The momentum Romanias telecom scene enjoyed on the back of rapid economic development abated with the advent of the global economic downturn of 2008-2009, while a highly competitive mobile market peaked in 2009 and started to contract. However, with the EUs lowest broadband tariffs, there remains significant potential in the market, particularly in underserved rural areas. Online adspend has been posting eye-catching gains, while smartphones and e-commerce are also tipped for strong growth.
EXECUTIVE SUMMARY
Broadband took a great leap forward in Romania, which saw broadband Internet subscriptions surge 177% over 2006-2011. Conscious of the countrys low penetration by EU standards, the Romanian government intends to bolster infrastructure investment with state aid, to bring blanket coverage by 2015; The number of mobile phone subscriptions increased by 46.3% over 2006-2011, but the saturated market went into reverse after hitting a 2009 peak as recession-hit consumers ditched second phones. The review period saw mobile telecommunications revenues as a percentage of total telecom revenues drop from 56.1% in 2006 to 41.7% in 2011, as competition put mobile operators bottom lines under pressure; Romania placed 67th out of 142 countries in the World Economic Forum (WEFs) Networked Readiness Index (NRI) 2012. This was 12 places below its 2007 ranking, as the countrys fledgling market economy took a huge knock from the global economic downturn; In 2011 47.0% of Romanian households had cable TV, exceeding the proportion of homes with satellite TV, which stood at 38.4%. While cable rates declined slightly over 2006-2011, satellite posted strong growth due to the lack of logistical obstacles and greater affordability; Online adspend rocketed by more than 500% in real terms over 2006-2011, although this picture was partly skewed by a low starting base. Nonetheless, the online realm was a rare bright spot on a generally beleaguered advertising market; Capital investment in telecommunications slumped by 38.5% in real terms over 2006-2011 to reach RON2.3 billion (US$755 million), with downward factors including the local ramifications of the global economic downturn and the delay in the digital switchover.
Chart 1 Total Telecommunications Revenues in 2011: Regional Overview
Source:
MARKET OVERVIEW
Crisis puts brake on dynamic market
Romanias ICT market had been posting healthy gains in the run-up to the global economic downturn of 2008-2009, as the country built on the progress it had made through its emergence from post-communist chaos to anointment as an EU member, a status it acquired in 2007. However, the damage wrought by the international turmoil has seen many telecom indicators falter or go into reverse. While Romania lags behind its fellow EU states in some areas, such as Internet and broadband access, in others, notably mobile phone subscriptions, a market characterised by tight competition, it has reached the saturation levels typical of more developed Western European nations: Total consumer expenditure on communications in Romania rose 19.2% in real terms over 2006-2011. This was a respectable result judging by regional parameters, as several Eastern European economies saw this indicator slip over the period; Romania came 67th of 142 nations in the WEFs 2012 NRI. This was behind Poland (49th), Russia (56th) and Slovakia (64th), but ahead of Albania (68th), Bulgaria (70th) and Ukraine (75th); Romanias position was 12 places below its 2007 NRI placing of 55th, as the crisis-hit country was overtaken by more dynamic nations.
Table 1 Romania and Other Regional Countries in the Global Networked Readiness Index Ranking: 2007 and 2012
2006 Estonia Hungary Croatia Poland Russia Slovakia Romania Albania Bulgaria Ukraine
Source: Note:
2011 24 43 45 49 56 64 67 68 70 75
20 33 46 58 70 41 55 107 72 75
Euromonitor International from World Economic Forum Ranking in 2007 includes 122 countries and ranking in 2012 refers to 142 countries
Capital investment in telecommunications dove as recession beset the country: Capital investment in telecommunications reached RON2.3 billion (US$755 million) in 2011. This was a 38.5% real-term decrease since 2006. Although all but five countries in Eastern Europe also saw this indicator decline, Romania performed particularly poorly at a regional level; Gains in the period prior to the global economic downturn dramatically reversed with the onset of the crisis, with a 12.5% real-term annual hike in capital investment in telecommunications in 2008 giving way to a 29.1% plunge in 2009, and further double-digit falls in 2010 and 2011; Total telecommunications revenues also sank during the review period. The indicator posted a 10.4% drop in real terms over 2006-2011 to reach RON15.7 billion (US$5.1 billion). Romanias performance was not notable in this regard, as many Eastern European countries suffered falls in telecommunications revenues on the back of tougher competition and the global economic downturn.
Chart 2 Capital Investment in Telecommunications and Telecommunications Revenues in Romania: 2006-2011
US$ million
Source:
PHYSICAL INFRASTRUCTURE
State aid to boost broadband access
Romanias broadband penetration rates were some of the lowest in the EU in 2011. To remedy this the government has pledged state aid to boost investment in infrastructure. While the major cities are well served, high rural poverty
rates have deterred commercial investors from targeting such areas, as the returns do not make it attractive. In recognition of the countrys poor performance in broadband, the Ministry of Communications and Information Society published a paper on the rollout of broadband networks in underserved areas in 2011. The document sets out the governments plans to use state aid to boost investment in fixed network access and infrastructure, with the ultimate goal of meeting the target of blanket population access by 2015. Dial-up has died off as a method of connecting to the web over 2006-2011: Romania had 4.7 million telephone lines in use in 2011. This was up 12.0% since 2006, as EU directives adopted as part of the countrys accession conditions helped bring about greater competition on the telecom market and allowed alternative operators, in particular cable providers, to move into the fixed-line market; The country had 21.9 telephone lines in use per 100 inhabitants in 2011. This was not a remarkable number for Eastern Europe, where many countries posted in the twenties for this indicator. Having stood at 95.4% in 2006, the availability of digital mainlines rose to 100% in 2007 and remained unchanged through to 2011. Fixed-line infrastructure is often lacking in rural areas, a deficiency the Romanian government has sought to address first with telecentres, in a strategy rolled out between 2004 and 2008, and subsequently by providing telecom operators with financing to install fixed lines in underserved areas.
Chart 3 `000 Broadband Internet Subscriptions for Romania: 2006-2020
Source: Note:
Euromonitor International from International Telecommunications Union/OECD/national statistics Data for 2012-2020 refer to forecasts
The WEF ranked Romania 25th globally for mobile network coverage in 2010, with 99.9% of the public receiving a mobile network signal. 3G is the prevailing mobile market technology in Romania. Orange and Vodafone, the two dominant mobile operators, both launched their 3G networks in June 2006, while the third player Zapp, since taken over by Cosmote, acquired a 3G licence in 2008. The Romanian government is due to put 4G licences up for auction towards the end of 2012 and LTE networks are expected to be launched in 2013. In August 2012, the Romanian government decided to postpone the digital switchover to 2015 to give providers more time to adapt and allow consumers more breathing space before having to upgrade their equipment.
MOBILE CONNECTIVITY
Peak passed on competitive market
The Romanian telecom market was liberalised in 2003. At the end of 2011, the main three mobile operators by market share were Orange on 37.0%, Vodafone on 33.0% and Cosmote on 23.0%, according to trade sources. The mobile market is a competitive one, marked by aggressive promotions. Shrinking revenues of mobile operators were reflected in the sectors contraction:
Mobile telecommunications revenues as a percentage of total telecom revenues sank from 56.1% in 2006 to 41.7% in 2011. This came as the number of mobile phone subscriptions peaked and then began to contract on the back of market saturation and consumer cost-cutting in response to the global economic downturn and an ensuing local recession; While the 46.3% hike in mobile subscriptions over 2006-2011 looks superficially healthy, the year-on-year breakdown paints a gloomier picture. Annual gains of 20.0% and above in 2007 and 2008 were dramatically curtailed to just a 2.6% rise in 2009, while the following two years both brought annual declines in the indicator; In 2011, some 94.3% of Romanian households were in possession of a mobile phone. This put the country seventh in Eastern Europe for this indicator, where the proportions range from 74.9% (Serbia) to 99.4% (Czech Republic).
Chart 4 Proportion of Mobile Revenues in Total Telecom Revenues and Household Possession of Mobile Phone in Romania: 2006-2011
Source:
Euromonitor International from International Telecommunications Union, World Bank, trade sources and national statistics
With penetration rates comparable to those found in Western European countries and the number of mobile subscriptions on the wane, as cost-conscious consumers give up second phones and seek cheaper deals, operators are facing more hostile market conditions and are making greater use of value-added services as revenue drivers: Smartphones, though still a market niche in Romania, are becoming ever more popular. In mid-2011, trade sources reported that from a sample of 60,000 mobile Internet users, 55.8% used the iOS platform and 22.5% used Android. Symbian was in third place with 16.9%; Development of the Romanian smartphone market creates the conditions for more complex services and content, helping local companies keep costs down and operate with greater efficiency. It also gives consumers an array of convenient retail and entertainment options; Mobile banking has a history of over ten years on the Romanian market, though progress has been hampered by lack of consumer trust in online security for sensitive transactions. Towards the end of 2011, trade sources reported that the country had 200,000 users of mobile banking; In August 2011, TVR, Romanias public broadcaster, announced the launch of the countrys first TV channel app. The country has a lively app scene generally, including both paid and free applications. Mobile payment has been available in Romania since the early 2000s. Like mobile banking, the development of mcommerce in Romania has been held back by public reticence towards exposing financial details online. Executives surveyed by KPMG in 2011 predicted that it would take four years for mobile payments to enter the Romanian mainstream. The rapid rise of smartphone adoption is expected to underpin the growth of m-commerce. In August 2012, Garanti Bank announced that it was launching the first direct mobile payments through QR codes in Romania. While m-
commerce remains limited, online operators will lack opportunities to extend their customer bases, while consumers will be required to shop in the traditional way visiting physical premises rather than enjoying the convenience of modern payment methods. However, a limited m-commerce scene offers some respite to traditional retailers, who are unable to compete with the low overheads and general cost efficiencies of nimbler online players.
HOME CONNECTIVITY
Big broadband gains
The government intends to boost Romanias poor broadband access: Romanias dial-up died off during the review period, dropping from over 200,000 connections in 2006 to zero by 2010; The number of households in possession of a broadband Internet enabled computer rose significantly, going from just 5.0% in 2006 to 27.3% in 2011, though still a very low proportion for an EU member. This figure put Romania 55th out of 86 countries, behind neighbouring Bulgaria and Montenegro but ahead of Belarus and Macedonia.
Chart 5 Household Possession of Broadband Enabled Computer and Fixed-line Telephone in Romania: 2006-2020
% of households
Source: Note:
Euromonitor International from trade sources and national statistics Data for 2012-2020 refer to forecasts
Cable remains the most popular method of viewing subscription television, with 47.0% of households having cable TV in 2011. The figure, however, is down from the 51.7% of homes that had the service in 2006. This is attributable to the strong expansion of satellite TV, for which household possession expanded from 11.3% in 2006 to 38.4% in 2011. Logistical difficulties preclude households in some areas from accessing cable, another factor in the rise of satellite, which has been able to fill the gaps. The Romanian home communications scene faces the challenge of a near saturated market, combined with the local ramifications of the global economic downturn, which has led to recession, job losses and salary cuts, with local consumers cutting back on discretionary spending.
PUBLIC CONNECTIVITY
Smartphones make a splash
There were 43.2 Internet users per 100 inhabitants in 2011, up markedly on 2006 when the number was 24.7. With 50.3% of homes in possession of an Internet enabled computer in 2011, over half of Romanian citizens can get online from home. The growing popularity of smartphones is giving many users the option of connecting in public
areas. Public connectivity outlets include Internet cafs, hotels, restaurants and public hotspots. Public access also takes some unconventional forms in 2011 Internet was made available in Bucharests underground metro system, while in 2012 Vodafone provided free Wi-Fi on five ski slopes. Romanias first WiMAX licence was granted to the state-owned SNR in 2008. Wi-Fi is increasingly found in homes and public spaces. In August 2012, Romania had 448 Wi-Fi hotspots, according to jiwire.com. The Internet market in Romania has more room to grow, and a robust 38.7% increase in the number of Internet users is projected over 2012-2020. Broadband subscription rates are forecast to rise by a more modest 11.5% over the same period, suggesting that the growing popularity of mobile Internet will be a significant factor in boosting access.
Chart 6 Internet Users and Internet Users per 100 Inhabitants in Romania: 2006-2020
Source: Note:
Euromonitor International from national statistics Data for 2012-2020 refer to forecasts
Ten Most Visited Internet Sites by Reach in Romania: August 2012 Description Ranking (out of 100) 1 2 3 4 5 6 7 8 9 10
Social networking site Romanian-version search engine Video-sharing site Search engine Internet portal Free encyclopedia Paid-to-click service Blog services Online newspaper News channel
Alexa Reach refers to the number of unique visitors per month as a percentage of total users. Values correspond to the average of the three months ending at the end of August 2012.
Web 2.0 applications have an enthusiastic audience in Romania, with big global names dominating the scene.
Blogging
Blogging is a popular activity in Romania, as evidenced by the presence of WordPress among the countrys top websites. Interest in this means of expression has been stoked by dissatisfaction with the mainstream media, which tends to be concentrated in the hands of a few powerful business people and held in low regard by readers and viewers. Trade sources reported that in early 2011 Romania had about 20,000 users of the micro-blogging site
Twitter, with 58.0% of users coming from Bucharest and 73.0% in the 21-30 demographic. IT, media and marketing professionals are highly represented among local Twitter users.
Social networking
Facebooks place at the pinnacle of the countrys top websites, according to Alexa`s August 2012 data, exemplifies the popularity of social networking among Romanian consumers. According to Socialbakers, in September 2012 the site had 5.0 million users in Romania, placing the country 34th worldwide in terms of Facebook users. The site is most popular among the 18-24 demographic.
Table 3 Global Ranking for the Use of Virtual Social Networks in Romania and Other Regional Countries: 2010-2011 Rank Estonia Lithuania Czech Republic Slovakia Slovenia Romania Croatia Hungary Ukraine Poland
Source: Note:
Score 6.1 5.8 5.8 5.5 5.2 5.1 5.1 5.1 4.4 4.4
17 30 36 53 67 76 80 81 116 119
World Economic Forum, Executive Opinion Survey 2010-2011 Latest data available; score based on 1 = not at all, 7 = widely; ranking out of 142 nations
Digital media
The rise in the popularity of smartphones has given digital media a wider audience in Romania. YouTube was the third most popular website in the country in August 2012, according to Alexa. Trilulilu.ro is a local site based on YouTube, which allows users to share videos, music and photos, though it is far less popular than its model. Online piracy is extensive in Romania, and the International Intellectual Property Alliance recommended keeping the country on its watch list for 2012. Piracy is on the rise to the extent that legitimate content providers and distributors are threatened.
Sellsumers
Romanias associations with eBay have tended to be regrettable, with the country becoming notorious for scams targeting the auction site. However, authorities have clamped down on this in recent years. The country has a version of the Polish online auction site Allegro, named Mercador.ro.
telecommunications services over 2012-2015. However, the longer-term outlook is expected to improve, with a modest 5.8% real-term rise projected over 2012-2020. The prospects for equipment are quite the reverse. Real household consumer spending on telecommunication equipment is forecast to soar by 128% over 2012-2020, the highest growth rate in Eastern Europe, as smartphone fever spreads and more Romanians come to consider a high-capacity handset the default mobile phone option. These promising figures suggest a fertile market for both handset manufacturers and the array of online players who can take advantage of this spending surge, from Internet retailers to content providers. Household possession of durables is likely to see only fractional increases: Household possession of a cable TV system is expected to creep upwards in Romania, reaching 48.2% in 2020, with alternative online viewing methods keeping a lid on growth. Satellite TV is set to post a similar performance, with possession rates inching up to 40.3% in 2020; Income is pivotal in access to satellite television services. While 100% of the wealthiest fifth of Romanian homes (deciles 9 and 10) had satellite TV in 2011, among the poorest tenth of households (decile 1) the figure was just 3.8%. For cable TV the effect is less pronounced: in 2011, 69.3% of decile 10 households (richest tenth) had this service, against 29.4% of their decile 1 counterparts; By 2020, Internet enabled computers are expected to be found in 63.6% of Romanian households, with the figure for broadband enabled computers at 60.6%. Home connection is the preserve of the countrys affluent: 82.9% of decile 10 households had an Internet enabled computer in 2011, versus 10.6% of decile 1 homes; Mobile phone penetration rates are predicted to inch ever higher: household possession is set to reach 96.8% by 2020. The wealthier are more likely to have access to a mobile phone, with 99.5% of decile 10 households owning such a device in 2011, compared to 80.7% of decile 1 homes. However, the fact that over four-fifths of the poorest homes in Romania have a mobile phone is indicative of the general affordability of this technology.
Chart 7 % of households Household Possession of Digital Equipment by Decile in Romania: 2011
Source: Note:
Euromonitor International from national statistics Deciles are calculated by ranking all of the households in a country by disposable income level, from the lowestearning to the highest earning. The ranking is then split into 10 equal sized groups of households. Decile 1 refers to the lowest earning 10%, through to Decile 10, which refers to the highest earning 10% of households. The figure in brackets refers to the average disposable income of households in each decile.
Romania is not an exception to international patterns of TCM consumption. Higher income, further education, being a young adult and living in an urban area all correlate with greater use of ICT. Education is a particularly pertinent factor. Romanians relatively low disposable incomes mean that price is a key consideration when communications purchases are being pondered. This has been exacerbated by the damage the local economy has sustained in the wake of the global economic crisis.
Source: Note:
World Economic Forum, Executive Opinion Survey 2010-2011 Latest data available; ranking out of 142 nations
Research released by GfK in 2011 found that just 4.0% of Romanians with a bank account had used Internet banking, one of the lowest rates in Central and Eastern Europe. Lack of familiarity with the concept and security fears have been cited as factors keeping take-up rates of e-banking low. The financial crisis has persuaded banks to push their online services in a bid to take advantage of the cost-efficiencies of the online realm. Online commerce is in an incipient state in Romania: Internet retailing nearly doubled over the review period, climbing 93.4% in real terms over 2006-2011 to reach RON1.1 billion (US$366 million) in value. However, most Romanian retailers operate on the payment-ondelivery principle, which their customers feel comfortable with, rather than exclusively via online payments; The most dynamic performance came in the apparel category, where spending soared by 235% in real terms over 2006-2011. After other Internet retailing (on 32.2%), the most significant Internet retailing category in 2011 was consumer electronics and video games hardware, making up 29.0% of total Internet retailing value that year; The Internet retail market in Romania is predicted to swell by a real-term 57.7% over 2012-2016. This represents decent growth in regional terms, putting Romania among the top-ten Eastern European countries for this indicator, and behind just three fellow EU member states.
SNAPSHOT IN 2020
Table 4 Table 4: Key TCM Indicators in Romania: 2020
Indicator Household possession of broadband-enabled computer Household possession of cable TV Household possession of mobile telephone Household possession of fixed-line telephone Household possession of satellite TV system Number of mobile phone subscribers Mobile subscribers per 100 inhabitants Number of Internet users Internet users per 100 inhabitants
Source: Note:
2020 60.6% of households 48.2% of households 96.8% of households 36.1% of households 40.3% of households 24.5 million 116 13.8 million 65.5
Euromonitor International from national statistics/International Telecommunications Union Figures are forecasts.
DEFINITIONS
Apps
Apps, or applications, are small, specialised software programmes that are typically downloaded onto mobile devices.
3G
Third generation mobile systems which provide high-speed data transmission and support multimedia applications such as full-motion video, video-conferencing and Internet access, alongside conventional voice services.
3.5G
3.5G refers to evolutionary upgrades to 3G services that provide significantly enhanced performance.
4G
Fourth generation mobile systems, also known as beyond 3G. 4G technologies provide data transmission at much higher rates than previous generations as well as high-quality multimedia applications on an anytime, anywhere basis.
Bandwidth
The measure of the maximum capacity of a data link in the network.
Broadband
High-speed access to a public Internet (a TCP/IP connection). High-speed access is defined as being equal to, or greater than 256 kbit/s, as the sum of the capacity in both directions. This can include for example cable modem, DSL, fibre-to-the-home/building and other fixed (wired) broadband subscribers.
Cloud computing
Data storage that relies on sharing computing resources rather than having local servers or personal devices to handle applications.
HDTV
High-definition television is a digital television broadcasting system with a significantly higher resolution than traditional formats.
M-commerce
M-commerce (also referred to as mobile retailing) is the use of wireless handheld devices such as mobile telephones, smart phones or other devices to connect to the Internet and purchase goods online.
Mobile broadband
Various types of wireless high-speed Internet access through a portable modem, telephone or other device.
Narrowband
A service which provides Internet data speeds up to 128 kilobits per second otherwise known as dial-up. This is most commonly used for making phone calls over a copper wire.
Web 2.0
A second generation of web-based communities and hosted services such as social-networking sites and wikis which facilitate collaboration and sharing between users.
Wi-Fi
Short range wireless technologies that allow an over-the-air connection between a wireless device and a base station (also known as a hot spot), or between two wireless devices. WiFi has a range of around 30 metres indoors, and around a kilometre outside.
WiMAX
Worldwide Interoperability for Microwave Access is a wireless technology, which is similar to WiFi, but with a longer range of many kilometres. WiMAX is a wireless alternative for an access technology to provide high speed access links instead of copper-based technologies.
Sellsumers
Private consumer-to-consumer salespeople providing goods and/or services online via private transactions or retail/auctioning websites.
Crowdsourcing
A process that involves outsourcing tasks to a distributed group of people. These tasks could be online or offline, paid or for free, and they are outsourced to an undefined public.