Czech Republic Telecommunications Report Q1 2013

BMI View: The Czech Republic telecoms market contains a number of major international players suchas Telefónica O2, T-Mobile and Vodafone in mobile, and Telefónica and UPC in wireline. The markethas been under many of the same pressures as markets throughout the region with market saturation,regulatory factors such as cuts to mobile termination rates and the impact of the eurozone crisis onmacroeconomic performance acting as drags on performance. However, while subscription growth mayhave slowed significant opportunities remain, not least in the booming wireless data market and VASopportunities arising from the rapid proliferation of smartphone ownership.

Key Data:

We expect continued moderate growth in mobile services with the number of subscribersforecast to rise to 14.2mn by YE17, at a penetration of 132.7%.

Strong growth is forecast to continue in the 3G market, rising to 8.2mn subscribers in 2017,equivalent to 57.7% of the total mobile subscriber base.

ARPU levels are forecast to keep gradually declining as price competition offsets growth in dataand VAS.

Our forecasts for the broadband market anticipate dedicated mobile subscriber growth will befaster than fixed broadband growth, but that growth in both areas will push the number ofsubscribers to 4.469mn in 2017, a penetration of 41.8%.

After a period of slight growth in 2010, we expect the fixed-line sector will continue to declinein the face of fixed-to-mobile substitution and alternative technologies, with penetrationexpected to drop to 19.1% by 2017.

Key Trends And Developments

In July 2012 the CTU published the final terms and conditions for the spectrum auction planned forH212.The regulator plans to reserve the 1,800MHz bandwidth for newcomers to the market, which willalso be able to access current mobile operators' networks, but the CTU will not be offering spectrum inthe 800MHz band. The CTU plans to cut the cost of new spectrum in the 1,800MHz band by 20% toattract new entrants to the market. In September 2012, the CTU announced that all four companies thatsubmitted bids had met the requirements for the tender: Telefónica O2, Vodafone, T-Mobile and newentrant PPF Mobile Services.

Changes to BMI’s methodology for our regional Risk/Reward Ratings have pushed the Czech Republicinto second place behind Poland, moving from fourth place in the Q412 report. The buoyant fixed anddedicated broadband market, healthy take-up of smartphones and 3G services and the launch of 4G LTEservices by Telefónica in June (with the other operators set to follow suit) all helped propel the country upthe regional table.