Speed war on Estonia's broadband market

  • 2004-01-29
  • By Steve Roman
TALLINN - Earlier this month Estonia's biggest cable Internet service provider, Starman, made an announcement that sent its competitors reeling. The company said that beginning February it would double the downstream connection speed it provides to home users who subscribe to its popular StarLight package - increasing the rate from 512 Kbps to a whopping 1 Mbps. And better still, it would do so at no extra charge.

Elion, the main telephone service operator and biggest player in its ADSL market, and Tele2, another cable-based Internet service provider, quickly followed suit, announcing days later that it would also double home customers' downstream without raising rates.
These moves to match Starman are just the latest indicators of what those in the ISP industry already know: competition for providing home users with high-speed, broadband connections has gotten fierce.
"The market is quite aggressive, especially between Elion and Starman for residential customers," says Ain Parmas, head of media relations for Elion Enterprises.
And given the current growth trends, it's no wonder. In 2000, just 2 percent of Elion's revenue came from the Internet, data communication and the IT market. Now this figure has swelled to 30 percent, and Elion expects that it will reach 50 percent by 2006. Parmas says the Internet itself is the single fastest growing area of Elion's business, with its number of ADSL customers growing by 60 percent - 70 percent per year.
In Estonia, most of the new clients are residential. For the last three to four years, home users have been switching from traditional dial-up services to broadband services like ADSL and cable Internet. Not only do surfers get a much faster connection, they have the advantage of an "always-on" connection that doesn't interfere with incoming phone calls.
Elion estimates that there are about 30,000 customers in Estonia, mainly residents, who still use dial-up, as opposed to 43,000 broadband users. Even using calculations based on Tele2's cheapest cable modem services, which are about 23 percent cheaper than Elion's basic ADSL service, these new customers represent a potential 6 million euros in annual subscriptions.
To lure some of these clients, Elion has been offering three-month discounts on its ADSL service. But Oliver Raal, information manager for Starman, is unconcerned about losing potential clients to Elion.
"Elion upped also this connection speed, but we are two times better. We are cheaper," he said, pointing out that Starman's new 1 Mbps package is, at 295 kroons (19.1 euros) per month, 50 kroons cheaper than Elion's new 512 Kbps package.
As Peeter Marvet, an independent expert who runs Tehnokratt, an IT information NGO, explains, the competition on the market is not straightforward. "The fact that we have different telecom operators in the market doesn't mean that they own any copper," he says, adding that broadband providers can only service customers if they have access to the lines connecting the residence. In Estonia this means either the phone line, which is controlled by Elion, or the coaxial cables that cable TV providers use. And where there's no cable service - outside urban residential areas - there's no possibility of cable Internet connection.
But even rural areas have their own dynamic when it comes to competition for broadband services, Marvet explains. Though demand is high, there's still a lack of infrastructure, which makes connecting communities difficult. ADSL only works within six kilometers of a phone exchange, and some communities are connected to the telephone network through a broadband-unfriendly radio relay. However, grassroots pressure is increasing to make more villages ADSL-capable, with Elion competing against local wireless networks to see who will be the first to get the rural populace online.
With the entire country going broadband, one might think that the market might soon hit a wall. But this isn't the case. Ain Parmas from Elion doesn't see the current growth trend slowing for at least three years. As he says, "More people are buying computers, and there will be more attractive content on the Internet. This means that they have more motivation to use the Internet."
Other industry experts, such as Juri Kaljundi, head of marketing and communications at Microlink, believe that the next trend will be a shift to higher connection speeds. "I think quite soon it's a question of our customers and our competitors' customers starting to upgrade to higher speeds, because I believe there will be more multimedia services, like radio or video services," he says.
Indeed, speed and price are the main selling points for competing broadband services in Estonia. Kersti Gorstov, communication manager at Tele2, sees this as a good thing. "Competition is pulling Internet speed up, at the same time it is holding prices down," she says. "So we have entered into a kind of 'speed war,' rather than a price war."