The Czech telecommunications market
in the first half of 2011
In the first six months of 2011, the telecommunications market in the Czech Republic continued to decline as a result of a slow recovery in consumer spend, additional mobile termination rates (MTR) cuts and the competitive pressures in selected customer segments.
The mobile market was dominated largely by introduction of new data services.
At the beginning of the year, Telefónica CR introduced a cost-optimised new way of charging for mobile services. Customers paid CZK 15 for the first hour of connection and the maximum amount of CZK 30 for a full day (FUP data limit was 30 MB/day). Especially customers who surf the internet on their mobile only occasionally benefited from the new mobile data pricing.
T-Mobile Czech Republic, a.s. (T-Mobile) came out with three new data bundles for contract and prepaid customers (Twist Internet in Mobile for A Week, Twist Internet for Travelling for A Month and Internet for Travelling for A Day). T-Mobile also introduced new data roaming tariffs, in both a “One Day” and “One Week” option.
Vodafone Czech Republic a.s. (Vodafone) launched mobile data roaming tariffs for the occasional data user in February: Passport Data for A Day and Passport Data for Good. The tariffs allow for the local monthly tariff being used also for going online in selected countries.
In March, Vodafone expanded its internet access portfolio when it added Connect for Two Days tariff, which is designed mainly for the occasional user of mobile internet.
Since March 2011, Telefónica CR cut the prices of its baseline offer of data roaming services for all zones; the largest price cut was for the EU zone, from CZK 240/MB down to CZK 24/MB, which is approximately 90%. The prices for roaming data bundles were also reduced by a significant margin.
Just before the holidays, all operators cut their prices of data roaming and voice services.
An independent survey by Ipsos Tambor showed that Telefónica CR had the best mobile data services and the best mobile internet coverage. The respondents confirmed that Telefónica CR is the leader in mobile internet among all operators.
In March, T-Mobile launched Magic Tuesdays, a new concept of customer benefits which replaced the company’s previous Bonus programme. Bonus remained in effect only for medium business and large corporate customers.
From April, Telefónica CR introduced a number of improvements in the way it serves its entrepreneur and small business clientele. Telefónica CR among other things abolished the interactive voice response system in the call centres. The customer is now put directly through to the live operator. Selected brand stores have been fitted with special priority desks staffed with qualified assistants for business customers.
During the first half of the year, all mobile operators continued to modernize 3G networks and expand their coverage in the Czech Republic.
In February, Telefónica CR and T-Mobile signed an agreement to share their 3G networks in areas which are not yet covered. The shared infrastructure will in the future include approximately 1,000 BTS, with each operator committing to building a half of them. Telefónica CR will cover the eastern part of the Czech Republic, while T-Mobile will do the western part of the country.
As part of the 3G network sharing arrangement with T-Mobile, Telefónica CR standardised its methodology for the calculation of population coverage. At the end of June, the Company covered 55% of the population with its 3G network, thus confirming its leadership among mobile operators.
Two new virtual operators went live in the Czech Republic at the beginning of the year. OpenCall, which uses the CDMA network of U:fon operated by MobilKom a.s. (MobilKom), offers wireless fixed access and mobile voice in the form of a prepaid card. The second one, Mujoperator, also uses U:fon’s network infrastructure to carry its services.
Several changes in the ownership relationships of companies occurred in the Czech fixed market during the first half of 2011.
The Office for the Protection of Economic Competition consented in January to the sale of České Radiokomunikace, a.s., to funds managed by Macquarie of Australia. The seller, Falcon Group, also owns almost 40% of T-Mobile.
In February, MobilKom, which operates the U:fon mobile network, announced a change in its ownership. Divenno Holdings, the parent company of Dial Telecom, a.s., acquired 100% of the shares in the company.
Also in February, UPC Česká republika, a.s. (UPC) took over Sloane Park Property Trust, a.s., which allowed UPC to interconnect the backbone optical networks of both companies. UPC established UPC Business, a unit dedicated solely to serving the business customer. In March, UPC also opened its first data centre in Prague.
In the fixed access segment, VOLNÝ, a.s., decided to terminate the provision of ADSL internet to the residential segment as part of its new strategic direction. Approximately 11 thousand of household accounts were taken over by Telefónica CR. The migration commenced in mid-March 2011 and the service parameters and the prices remained the same.
In February, MobilKom came out with a new proposition of fixed internet access using the ADSL technology, which complemented MobilKom’s existing portfolio of prepaid and postpaid mobile internet. MobilKom buys fixed line connectivity wholesale from Telefónica CR.
In early May, Telefónica CR launched its new VDSL technology, which offers up to three times faster broadband internet for the home. Existing customers were given a faster internet connection at no extra charge. The technology was available to approximately 45% of households which are within a 1.3 kilometre radius from the switch..
Regulation
Several changes occurred during the first half of 2011 in the regulatory environment which governs the field of electronic communications in the Czech Republic. The most material changes included the following:
- Enactment of the Government Resolution No. 156/2011 Coll., amending the Government Resolution No. 154/2005 Coll., on the determination of the amount and method of calculation of fees for using radio frequencies and numbers, as amended;
- Enactment of the Government Decree No. 53/2011 Coll., amending the Decree No. 117/2007 Coll., on network numbering plans and electronic communications services, as amended;
- Enactment of the Decree No. 22/2011 Coll., on the method of determination of coverage of terrestrial radio broadcasting over selected frequencies;
- Continuation 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, Directive 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.
Telefónica CR was involved in the preparation of the above legislation by providing consultation either directly or on the platform of industry associations of telecommunications operators or through its parent company Telefónica, S.A.
Relevant markets analysis and product regulation
Telefónica CR continued to meet its duties with which it was tasked based on the relevant markets analysis undertaken by the Czech Telecommunication Office (CTO) in previous periods.
On 1 January 2011, the regulated wholesale price of mobile termination went down from CZK 1.66/minute to CZK 1.37/minute.
Further in January, the CTO issued a decision by which it gave a mandate to Ernst & Young, s.r.o., to develop a LRIC methodology and a model for the service of call termination in fixed public networks. The outputs from this project will be used by the CTO for the determination of maximum call termination prices for fixed public networks in late 2012 and early 2013.
Also in January 2011, the CTO decided to appoint the Asset Valuation Institute of the University of Economics in Prague to deliver a calculation of a WACC value for the purposes of regulation in the sector of electronic communications. Telefónica CR expects that the updated WACC will be used for the determination of regulated prices from 2012 onwards.
In February 2011, the CTO embarked on the third round of analysis of the relevant market No. 5 – wholesale broadband access in electronic communications networks. Telefónica CR expects that the analysis will be published in the form of a general measure by the end of 2011.
In April 2011, the CTO issued a decision, reflecting on the results of its analysis of the relevant market No. 6 – wholesale terminating segments of leased lines irrespective of the technology used for the provision of leased or reserved capacity, which changed the regulatory measures applicable to Telefónica CR in this market. Based on the decisions, pricing regulation no longer applies to the wholesale service. The imposed regulatory measures newly apply also to Ethernet leased lines.
Imposition of duties in connection with the Universal Service provision
Telefónica CR provided the following services as part of meeting its duties imposed by the CTO in relation to the Universal Service provision:
- a) the public payphone service;
- b) access to the public telephone service, of the same quality as for other end users, for people with disabilities, namely by means of special terminal equipment;
- c) special price plans for persons with disabilities, which are different from the regular price plans provided under the standard commercial terms and conditions.
For services under a), a CTO decision from 2009 reduced the number of payphones included in the Universal Service in 2011. The duty to operate payphones as part of the Universal Service concerned municipalities under 4,999 residents.
For services under c), a CTO decision imposed on Telefónica CR the requirement to provide the Universal Service component for special prices for a period of three years starting from 2 July 2011.
Government policy in the area of broadband internet
In January 2011, the Czech government approved a State Policy in the Area of Electronic Communications – Digital Czech Republic. The strategy deals with the development of ICT, with a special emphasis on bridging the digital divide between urban and rural areas. The document set the following objectives:
- to ensure that broadband internet with the minimum (downlink) speed of 2 Mb/s, and 10 Mb/s in towns, is available in all populated locations in the Czech Republic by 2013;
- 2. to ensure that, by 2015, broadband internet is available in all rural settlements, with a speed which will equal at least 50% of the average broadband speed in towns. 30% of homes and businesses in towns should have internet with a speed of at least 30 Mb/s available to them.
As part of the process to implement the policy Digital Czech Republic, the Ministry of Industry and Trade published the first draft of the development criteria for the planned auction of frequencies in the so-called “digital dividend” band.
Continued support from the EU Structural Funds allowed ICT projects to continue in public institutions. The funding was directed mainly into the building of regional networks interconnecting public institutions, and also in the business sector. Telefónica CR was successful in tendering for public contracts financed with structural funding.
In April, the European Commission started the process of public consultation in the Community concerning the state aid rules with regard to fast roll-out of broadband networks.
