As in 2009, also in the first six months of 2010 our performance was influenced by the challenging macroeconomic environment in the Czech Republic, which manifested itself mainly in lower earnings and expenditure on the part of businesses and consumers. As a result, we saw a decline in the growth of the number of new customers and in falling revenues. In addition to the foregoing, mobile revenues were also negatively impacted by further cuts of the mobile termination rates.
The offer of the so-called ‘flat-rate’ mobile tariffs by all operators was significantly expanded at the beginning of the year: at the end of January, T-Mobile came out with two new voice tariffs, Grand and Grand PLUS, which offered unlimited calls for individual customers, and later also Profi, new tariffs offering the same to business customers; in March, Vodafone introduced a brand new concept of tailor made tariffs (Tarify šité na míru), which let customers combine services based on their actual need – from a zero monthly fee to the option of unlimited calls, SMS or unlimited data.
In April, Telefónica O2 expanded its portfolio of flat-rate mobile tariffs. Small business and self-employed customers were offered O2 Podnikání, and in May, the innovated tariffs for small and medium business customers O2 Business came out, and introduced a new tariff, O2 Business Unlimited, with unlimited calls, SMS and data.
All mobile operators continued to upgrade and expand the coverage of their networks during the first half of the year. In January, T-Mobile started the commercial operation of its 3G network in parts of Prague, and by the end of the half-year it covered the remaining parts of the capital and the cities of Pilsen and Brno with signal. In June it also completed the project of upgrading its GSM network. In the first half of the year, Vodafone also covered the remaining parts of the capital and the cities of Brno and Karlovy Vary with signal.
Telefónica O2 rolled-out its 3G coverage to additional towns and cities; by mid-July, its UMTS/HSPA network was available to a third of the Czech population.
Vodafone revised its commercial strategy in the first half of the year – it began to offer a franchise on its brand stores. It plans to expand its retail network through franchises to approximately 130 locations within two years.
U:fon opted for a wholly different approach; at the end of 2009 it announced a principal turnaround of its commercial strategy and market positioning. U:fon set itself the goal to become the first low-end operator in the Czech Republic and it intends to focus primarily on marketing and development of mobile data. It also has plans for a wholesale operation in the mobile data and voice services. At the end of June, U:fon announced it would open its network also to the other operators, which would market fast mobile internet and voice to customers under their respective brands, allowing for the emergence of virtual operators. Live Telecom, WIA and Pe3nyNet became U:fon’s first wholesale customers.
At the end of the first half of 2010, all operators had to cut the prices of their roaming voice and SMS services under pressure from the European Commission. A so-called ‘data roaming limit’ was implemented on a mandatory basis; it serves the purpose of protecting customers from unexpectedly high data roaming bills.
The fixed-line market saw an expansion of internet connectivity services on offer. In early April, UPC added a new product, UPC Fiber Power 25 to its broadband proposition, and cut by 40% the price of its two fastest broadband services (UPC Fiber Power 50, UPC Fiber Power 100).
In the second quarter Telefónica O2 and T-Mobile expanded their offers of mobile internet services by adding a prepaid option, and in early June, Telefónica O2 introduced a new portfolio of flat-rate data tariffs to the market.
České Radiokomunikace continued in the roll-out of their WiMAX network to other towns in the Czech Republic
Regulation
The regulatory environment in the electronic communications market in the Czech Republic saw the implementation, in the first half of 2010, of a number of changes, of which the most principal were the following:
- legislative changes;
- changes in the area of the relevant markets analysis and product regulation
- changes to the principles of the Universal Service provision, government policy and support for broadband internet access.
The following changes were introduced to the legislative environment governing the area of electronic communications:
- Enactment of the Act No. 132/2010 Coll., on audio-visual media services on demand and on the amendment to some other laws (Act on Audio-visual Media Services On-demand);
- Enactment of the Act No. 153/2010 Coll., amending the Act No. 127/2005 Coll., on electronic communications and on the amendment to some related laws (Electronic Communications Act), as amended, and some other laws;
- Commencement of the implementation of the revised regulatory framework for electronic communications networks in the Czech law:
- Directive 2009/136/EC of the European Parliament and of the Council of 25 November 2009 amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws;
- Directive 2009/140/EC of the European Parliament and of the Council of 25 November 2009 amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities, and 2002/20/EC on the authorisation of electronic communications networks and services;
- Regulation (EC) No 1211/2009 of the European Parliament and of the Council of 25 November 2009 establishing the Body of European Regulators for Electronic Communications (BEREC) and the Office.
Relevant markets analysis and product regulation
Telefónica O2 continued to meet its obligations which were imposed based on the relevant markets analysis by the Czech Telecommunications Office (CTO) in the previous period. In the first half of 2010, the CTO analysed two wholesale markets. The analyses resulted in a gradual reduction of the regulatory burden on the Company.
In April, the CTO published the new regulated wholesale mobile termination rates. The price per minute of call went down from CZK 2.31 to CZK 1.96 with effect from 1 January 2010, and later it was cut further to CZK 1.66, with effect from 1 July 2010.
The CTO also continued in the consultation of the regulation strategy for access to New Generation Networks (NGA), which concerns all businesses in the market of optical access networks. To this end, the CTO presents to the concerned entities the draft regulation for individual scenarios of optical access network construction. The draft paper is based on yet-to-be-published Commission Recommendation on regulated access to Next Generation Access Networks (NGA).
International roaming regulation
The retail prices for incoming calls were cut to 5 cents per minute with effect from 1 July 2010. The price for outgoing calls went down to 39 cents per minute. The prices in Czech crowns were set base on the applicable official exchange rate.
In March, the Company put into operation a protection mechanism for services to end customers. The customer is now automatically protected from bills for roaming data services in excess of EUR 50 per month.
Imposition of duties in connection with the Universal Service provision
As part of its Universal Service obligations imposed by the CTO, in the first half of 2010 Telefónica O2 provided the following ancillary services:
- public payphone service;
- access to the public telephone service for persons with disability, equal to that granted to other end users, specifically through special terminal equipment;
- special price plans for persons with disability, which differ from price plans provided under standard terms and conditions of service.
In the first half of 2010, the services under (a) were changed by a CTO from 2009; the change implies a significant reduction in the number of public payphones included in the scope of Universal Service.
The CTO also issued a decision concerning the amount of net cost of services included in the Universal Service for 2007. The decision has not yet become final and conclusive, as other operators who are to contribute towards the loss incurred in connection with the Universal Service provision appealed against the decision.
Furthermore, the CTO continued the process of examination of the claim for compensation for the loss from Universal Service provision for 2008 and the related documentation. Telefónica O2 prepared documentation for the claim for compensation for the loss from Universal Service provision for 2009.
Government policy and support in the area of broadband internet
The Ministry of Industry and Trade of the Czech Republic began work on a paper titled ‘Digital Czech republic’, which is to be an ICT development policy, with an emphasis on broadband including optical networks, in the Czech Republic. Subsidies from the EU Structural Funds continued to be used for projects for the development of ICT in the public and private sectors.
Telefónica O2 participated, as member of industry associations, in the discussion of the published principles of the draft paper. Telefónica O2 continues to monitor all possibilities that the EU Structural Funds create for customers, and designs its products and services in a way which allows meeting the Structural Funds eligibility criteria.