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The DSL revenue market in Central and Eastern Europe will more than quadruple over the next five years growing from US$0.8bn in 2005 to almost US$4bn in 2010. The demand for high speed Internet from both residential and business customers has forced fixed-line operators to modernize their infrastructure and introduce affordable services. Additionally, the large and unsatisfied demand has attracted new alternative infrastructure providers that are now investing significantly throughout the region. The results are immediately apparent, as 2005 has borne witness to a true DSL sector boom. We believe this is just the beginning of a renaissance for fixed-line players.
At the start of this decade, overall, broadband penetration stood at 0 percent. The turning point for the DSL sector was the transformation of incumbents and the entrance of alternative infrastructure operators. More developed markets, such as Poland, Czech Republic and Hungary, incumbents were able to maintain their strong positions in the fixed market with the backing of new parent companies, namely the strongest Western European incumbents: France Telecom, Telefónica and Deutsche Telekom, respectively. Operators invested millions of Euros to modernize infrastructure, adapt services to local market demand and introduce contemporary marketing strategies.
Conversely, incumbents from South Eastern European countries, such as Romania and Bulgaria, faced significant challenges from competition posed by alternative infrastructure operators. Both the Romanian and Bulgarian incumbents have networks that have suffered from under-investment for many years. In the meantime, the demand for high-speed Internet connections has grown significantly, leading to new players entering the market.
The demand for DSL in CEE is driven by residential and business subscribers. Economic growth of CEE countries from by EU membership and foreign investment and is a major reason for the high demand for high-speed Internet. The growth of small businesses is another important factor in spurring market growth. According to the Polish Ministry of Information, about one third of small businesses in Poland bought IT equipment and carried out IT implementation projects, which were financed by EU subsidies. Government bodies and public institutions, such as schools and hospitals, have also obtained extra sponsorship through a number of EU schemes.
PC sales have experienced double digit growth rates during 2004 and 2005 and reached 26 percent in 2005 in the region. This trend will remain stable over the next few years. Furthermore, private users are becoming increasingly familiar with Internet shopping, e-government, music downloads, on-line banking, chat-lines and other services offered via Internet, driving broadband penetration. DSL growth has also been accelerated by the introduction of attractive high speed Internet packages at affordable prices. Last year, TP SA (Poland) introduced Neostrada, a broadband offer with an entry price of US$17 per month. This package is readily available in department stores and supermarkets and is easy to install. Cesky Telekom recently introduced a very similar scheme, which we believe will produce similar growth to that which Poland has enjoyed. Other East European countries are likely to follow this example, especially once better infrastructure is in place.
We estimate the number of DSL subscribers will reach over 11m in 2010 and will bring almost US$4bn in revenue.
Read more about Broadband trends in Central and Eastern Europe in the latest issue of Europe Perspectives available in our online store.
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