Latvia - Telecoms, Mobile, Broadband and Forecasts

Since independence Latvia embraced market reform and joined the European Union (EU) along with neighbouring Estonia and Lithuania. This culminated with a period of rapid economic growth with annual growth rates among the highest in the world; 9% during 2000-2007. Economic distortions were evident; wages doubled during 2005-2008, private sector debt increased to 125% of GDP and much demand was channelled into a real estate bubble.

Latvia was hit particularly hard by the global financial turmoil, with real GDP contracting by 18% in 2009, the highest among the EU27 member nations. The EU estimates GDP will further contract by 4% in 2010, again the highest among the EU27 member nations. Although Latvia has been assisted by a €7.5 billion support package from the international community, future economic growth will depend on export growth as domestic demand is expected to remain weak for some time due to high unemployment.

Latvia’s telecom market benefited from the recent economic growth in terms of demand for new products and funding sources for investment. Increased demand was also the result of regulatory changes such as market liberalisation and implementation of an EU-mandated regulatory framework designed to stimulate competition. Telecom services’ spending was largely protected during the economic downturn due to the utility nature of most telecom services.

Not all sectors are expected to fare the same, given ongoing trends such as fixed mobile substitution and the increasing popularity of fixed and mobile broadband services. Broadband services are widely available and account for almost all Internet subscriptions. DSL is the dominant form of broadband access, with competition predominantly infrastructure based as cable, wireless and Fibre-to-the-Home FttH), and also available. The latter is currently promoted as offering among the fastest speeds in the world, with up to 500Mb/s offered.

Latvia’s wholesale broadband market continues to see less success, with the number of lines retailed via bitstream, local loop unbundling and simple resale inadequate, due to the regulator’s inability to facilitate a viable wholesale market. The recent introduction of a new EU regulatory package for telecoms presents an opportunity to introduce more effective regulation.

A healthy digital TV market is evident, with offerings available from established cable TV, satellite, digital terrestrial TV and broadband TV providers. Digital TV uptake is rapidly increasing in response to the ongoing transition to digital terrestrial TV transmission.

Four GSM/CDMA/WCDMA mobile network operators vie for customers in a market where SIM card penetration exceeds 100%. Although the mobile voice market is at saturation levels in terms of subscriber penetration, voice traffic will continue to migrate from fixed to mobile networks as mobile voice tariffs drop in response to ongoing reductions in mobile network termination rates. To grow revenue service providers are focusing on mobile broadband services, offering increasingly generous amounts of bundled data.