ALBANIA'S CELL PHONE RATES - HIGHEST IN THE REGION

UNCLAS SECTION 01 OF 02 TIRANA 000632

SIPDIS

DEPARTMENT FOR EUR/SCE

E.O. 12958:N/A
TAGS: ECPS ECON EINV AL
SUBJECT: ALBANIA'S CELL PHONE RATES - HIGHEST IN THE REGION

REF: 07 TIRANA 569

Summary
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1. Albania's nascent telecom regulator and increasing competition
are finally beginning to soften mobile tariffs, currently the
highest in the Balkans and among the highest in Europe. Two
operators, AMC and Vodafone, had virtually free reign to set prices
as they chose from 2000 to 2007, raking in huge profits for their
parent companies and drawing criticism from the EU. Finally, in
2007, the Telecommunications Regulatory Entity (TRE) and the
Competition Authority began to reign in the mobile operators, fining
them for monopolistic practices and forcing them to reduce tariffs.
A third cell phone licensee, Eagle Mobile, came on line in early
2008, and a fourth license is expected to be awarded within six
months, applying further pressure on Albania's high mobile prices.
End Summary.

Mobile Telecommunication Market - a duopoly
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2. As in many developing countries, Albania's fixed line capacity
cannot keep up with demand, forcing citizens to turn to mobile
operators to provide basic phone services. While Albania still has
the lowest penetration of fixed telephony in Europe, mobile phone
service has been growing at a fast pace. Albania, with a population
of 3.2 million, went from 15,000 mobile service users in 2000 to
2.32 million by the end of 2007. Up to the entry in March 2008 of
the third mobile operator, Eagle Mobile, AMC, a subsidiary of
Cosmote Group, Greece, and Vodafone Albania, the subsidiary of
Vodafone Group Plc, each had about half the service base. AMC began
service in 1999 and Vodafone came on line in 2001. Vodafone's
entrance did little to reduce tariffs, which remain the highest in
the region and among the highest in Europe. Although media
frequently accuse the operators of monopolistic practices, the
operators blame the explosive growth in demand since 2000, requiring
constant capacity improvements in infrastructure.


3. This duopoly in the Albanian mobile market continued to flourish
even though in March 2004, a third mobile license was granted to
Alb-telecom, the then state-owned fixed line operator that was to be
privatized in 2005. Eagle Mobile, a Turkish consortium, won the
tender for the license, but became operational only in March 2008
because of a prolonged controversy over the purchase of Alb-telecom
by the Turkish Consortium CETEL that was finalized only in July 2007
(reftel). While Eagle's tariffs average about ten percent less than
those of AMC and Vodafone, it has suffered from delays in providing
coverage throughout Albania and has not been aggressive in pursuing
new customers.

Lucrative Business
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4. For almost seven years the two main operators, AMC and Vodafone,
dominated and shared the lucrative market, with a total 2007
turnover of 389 million euro (AMC - 201 million euro and Vodafone -
188 million euro). AMC's net profit margin of 34.6 percent is the
highest among all companies of the Cosmote Group with the next
highest at 19.5 percent. AMC's EBIDTA for 2007 reached 62 percent
with the next highest score in the group being 41.7 percent. AMC's
tariffs are the highest in the region and among the highest in
Europe. The weighted average price per minute in Albania is 0.23
euro, compared to 0.11 euro in Macedonia and 0.16 euro in Greece.


Getting Tariffs Under Control
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5. In its 2007 Albania Progress Report, the EU notes that the
Albanian Telecommunications Regulatory Entity (TRE) has been unable
to tackle the high retail tariffs of the two mobile operators
through market regulation. The GOA and various Parliamentary
commissions have also been unsuccessful. However, in 2007, the
Albanian Competition Authority conducted an investigation on the
abuse of dominant position by AMC and Vodafone and decided to impose
a fine of 3.76 million euro on them for violation of competition
rules. The TRE also stepped in to set interconnection tariffs after
the fixed and mobile telephone operators failed to reach agreement.
In the absence of any change of behavior by the market operators,
TRE and the Competition Authority are finally beginning to enforce
market regulations. The new TRE leadership appointed in April 2008
has recently approved a plan to regulate tariffs and to gradually
reduce them toward the average EU tariffs. As an immediate step TRE
is proposing a 20 percent reduction of pre-paid mobile service
tariffs, which constitute 80 percent of the mobile users in Albania,
with a second 20 percent decrease a year later.

Comment
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TIRANA 00000632 002 OF 002




6. Regulating mobile tariffs is a formidable job, even for
experienced, powerful European regulators, as reported recently in
the media. The TRE seems to have found its direction, and with the
help of its European big brothers, and perhaps more competition from
a fourth licensee, might finally be able to bring some relief to the
overcharged Albanian consumer.

CRISTINA