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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- 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