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New data from Wireless Intelligence reveals that the Baltic states of Estonia, Latvia and Lithuania saw a significant slowdown in their respective mobile markets during the first quarter of the year as price pressures, fierce competition, and the effects of the global recession and currency fluctuations took their toll. In total, mobile connections across the three markets declined by almost 17,000 in 1Q09 on a sequential (quarter-on-quarter) basis. In a highly penetrated region, Wireless Intelligence forecasts that growth in the market will not return until 2010, which could see investments in high-speed networks and services scaled back.

TeliaSonera, the market-leader in two of the three Baltic countries, has proved most resilient to the downturn, managing to avoid falling into negative net additions in the quarter. The Stockholm-based operator benefits from greater economies of scale and synergies than its smaller competitors, but sales are falling and margins are tightening in most of its Baltic markets. According to the operator’s 1Q09 figures, its Lithuanian unit (Omnitel) was the hardest hit, with sales falling by 15 percent to SEK577 million (EUR53.9 million) over the year-earlier period, and the EBITDA margin shrinking from 39 percent to 32.4 percent. TeliaSonera cited a 20 percent reduction in Lithuanian interconnection fees, which came into effect at the beginning of the year, as being partly responsible.

However, TeliaSonera’s relatively high-end focus in the Baltic states (it is the exclusive distributor of Apple’s iPhone in all three markets) has protected it against much of the market volatility that has affected its competitors. Tele2, TeliaSonera’s closest competitor in all three markets, lost a significant number of customers in the quarter as it refocused on corporate and higher-value customers in an attempt to offset the effects of the negative market situation. As a result, Tele2 saw net sales drop sequentially in all three markets; by 4.2 percent (to SEK271 million) in Estonia, by 6.9 percent (to SEK431 million) in Lithuania, and by 0.6 percent (to SEK484 million) in Latvia. However, earnings rose in both Estonia and Lithuania.

Tele2 noted in its first-quarter earnings statement that it expects the market situation in its Baltic markets to remain tough for the remainder of 2009, but it said it would use its position as a price-leader to target corporate customers that are reviewing their telecoms spend in light of the downturn. It noted also that, in most cases, the sales downturn was affecting hardware sales rather than minutes-of-use.

Meanwhile, Bite – which competes with TeliaSonera and Tele2 in Lithuania and Latvia – reported that first-quarter service revenue in Lithuania fell to EUR35.4 million from EUR41.6 million a year ago (a fall of 15 percent) and EBITDA dropped from EUR12.2 million to EUR10.6 million (13 percent). Its results in Latvia – where Bite has a much smaller presence – were more positive; service revenue increased to EUR5.4 million from EUR3.2 million (up 68 percent), while EBITDA losses shortened to EUR3.2 million from EUR4.5 million a year earlier (a 28 percent improvement). In Lithuania, Bite blamed the macro-economic slowdown for negatively impacting ARPU and increasing involuntary churn.

The situation has seen the operator look to rein in both opex and capex in order to increase free cash flow. In first-quarter 2009, Bite’s capex (consolidated to include both Lithuania and Latvia) was reduced to EUR4.5 million, almost half the amount of a year ago (EUR8.9 million), and representing just 10 percent of revenue. 

Joss Gillet, Senior Analyst, Wireless Intelligence

The trend in the Baltic countries reflects the overall situation in Europe where a high level of maturity and strong competitive pressures have impacted operator performances. During 2008, Baltic mobile connections grew at a slightly lower pace than the average in Europe, and market penetration has passed the 100 percent mark. Market growth is being driven mainly by replacement and mobile operators are facing strong competitive price pressures. Operators are therefore forced to monitor price elasticity very carefully and focus on improving contract customer retention. Such trends make it difficult to believe that the economic downturn has been solely responsible for the negative net additions over the last two quarters, as Baltic GDP growth has been outperforming average Euro zone GDP growth in recent years.