In the Baltics, as everywhere around the globe, the mobile phone has had a profound impact on everything from office politics to dating. The world has, in the space of a decade, become utterly dependent on this convenience, and for certain companies, that dependence has translated into enormous profits. In the Baltics, however, the outlook for mobile companies isn't quite so rosy. This week's Industry Insider takes a look at the mobile communications business in the Baltics and the challenges it faces.
Riga - The mobile phone industry in the Baltics is under a squeeze. While phone users reach for their handsets at an ever-increasing rate, tough competition and new players have put a pinch on profits.
That's good news for consumers however, who are being offered a wider range of products at ever-decreasing costs.
A recent Eurobarometer study found that Latvia and Lithuania have the lowest mobile phone use prices in the European Union, and Estonia comes in a close 7th. Low prices are fueled by increasingly intense competition that shows no signs of slowing down.
"The mobile communications services market operates under severe competition. Even more rapid decreases of tariffs may be expected in this market," Raimonds Bergmanis, director of the communications division at the Latvian Ministry of Transport and Communications, told The Baltic Times.
Tonu Grunberg, board member of the Estonian Association of Information Technology and Telecommunications, or ITL, said theirs was one of the few sectors where prices dropped each year.
"The profit margins are eroding year by year. All the companies are still profitable, but it's troublesome. All our costs are rising 's fuel, electricity, salaries and so on, but we still have to lower our prices. It can't last forever," Grunberg said.
In Estonia, three main companies control the Estonian market. EMT, a subsidiary of the fixed line service provider Elion 's which is partially controlled by the government 's controls 48 percent of the market. Tele2, part of a worldwide brand owned by Swedish interests, controls 32 percent, while the Finnish-owned Elisa has 20 percent.
The Latvian market is likewise divided between only two major companies and one smaller one. LMT, owned by the Latvian government, will soon be sold to the Swedish TeliaSonera. The other major player, Tele2, is also a Swedish-owned company. Bite is a smaller mobile operator which, through a series of creative marketing strategies, is quickly on the rise.
Consumers might be fooled into thinking the market is wider than just a few players. That's because the big brands have all launched smaller budget subsidiaries in order to prevent others from beating them to the punch. In Estonia, for example, brands such as Diil, Tele Yks and Smart all come under the banner of bigger corporations. These budget companies offer lower prices, but fewer services. "The cheap brand is a good way to stop customers going to a competitor. They go to your cheap brand instead, and you can maintain your main brand with high quality and high-end service," Grunberg explained.
The Estonian National Communications Board said 10 smaller companies have registered as mobile telephone service providers. Most are yet to make a real impact on the Baltic industry, but at least one is about to.
The next few months will see the growth of the Bravocom 3G network. Bravocom, a consortium of Estonian and foreign companies, successfully tendered to hold the country's third 3G license. High-speed, high-quality 3G networks have been in operation in Estonia since 2005, and many expect the expansion of the Bravocom 3G service to help increase competition.
While most customers prefer using the GSM system, Grunberg believes 3G will gain popularity.
"The uptake of GSM is very fast now. If you look at mobile data traffic, at least 30 percent is on the 3G network. That's a large percentage."
The Baltics are already remarkably active in the mobile industry. According to the Eurobarometer study, Lithuania boasts the second highest level of mobile communications penetration in Europe. Estonia and Latvia are also well above average.
The market is similar in Lithuania, where three major operators, Omnitel, Bite Lietuva and Tele2, take 96.5 percent of the market. Four smaller companies, Eurocom, Laracijos, Teledema and Norfos mazmena, offer mobile access but don't own their networks 's they piggy-back onto the Bite Lietuva system.
"Despite the fact that the market share of these smaller service providers isn't significant, it is worth noting that it has grown speedily. During the last year it increased by 2.71 percent, and the number of active subscribers increased almost 5 times," said Diane Korsakaite, deputy director of Lithuania's Communications Regulation Authority.
Along with smaller service providers, the bigger network operators face competition from the growth in free WiFi-accessed voice over internet protocol (VoIP) sites such as Skype (see related story, opposite page). But Korsakaite said she did not believe VoIP was a real competitor.
"It only works in WiFi zones, and there are very few free WiFi zones in Lithuania. One mobile operator offers a service where you can call Skype users from a mobile phone. Existing VoIP offers in Lithuania have expensive tariffs to call out to mobile phones, and it's still cheaper to use a mobile network," she said.
The future of the mobile communications market seems to lie in new technologies and innovation. One Estonian company, for example, allows you to use your handset as a virtual ID card for online banking and, one day, voting.
In Lithuania innovations in the mobile communications business are outstripping the rest of the quickly growing ICT business. "The mobile communications segment in Lithuania's CT sector remains the most innovative," The Lithuanian communications progress report reads.
With this level of competition, it may be that only the innovative can survive.
Mobile market shares (at beginning of 2007):