ZAGREB (Croatia), May 24 (SeeNews) – Fierce pricing competition and declining average revenue per user (ARPU) rates are forcing telecoms in the region of Southeast Europe (SEE) to invest in new products and services, especially in mobile technology, video and cloud, Cisco’s general director for SEE said.
“The SEE countries usually have one of the lowest ARPU rates in Europe on the backdrop of some of the most competitive market environments on the continent, especially in the case of places like Bulgaria and Romania,” Peter Hajdu told SeeNews in an exclusive interview on the sidelines of the Cisco Connect 2013 South East Europe forum held earlier this week in Croatia’s Dubrovnik.
“The price erosion happened very quickly in these markets. This is especially true in Romania where telco services are very low-priced. So in this environment, investment spending has become a challenge.”
In order to remain competitive in the market, Hajdu believes, SEE telecoms need to continue innovating and offering new services, and this is an area where Cisco can help its customers. Putting out more services to the market can help drive demand and contribute to raising their ARPU rates. In that sense, he expects the trend could work out well for the broader market from the customers’ perspective because these operators are pressed to deploy more innovative services compared to peers in countries where the ARPU is a little bit higher.
Despite the low ARPU rates, Hajdu noted that the service customers get from their telecom providers in SEE is quite good and very high value-for-money. “The offer that you get, especially from SEE cable operators that bundle up an array of HD channels, free voice minutes and very fast internet, is quite compelling.”
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IT spending rates in the SEE region are half of those seen in Western Europe in terms of proportion to gross domestic product and Hajdu does not expect this gap will start to close soon, especially not in the course of 2013.
Looking further ahead, Cisco expects SEE telcos to drive the recovery in IT spending as they prepare for the proliferation of bandwidth-hungry devices and services and make sure their networks are data-, cloud- and video-ready.
“Most of the challenge in the SEE region is in the enterprise segment where in the past, let’s say, five years or so ago, we used to have higher IT spending, especially in industries like banking, for instance. Banks used to spend a lot on core infrastructure but by now the nature of spending is changing towards areas which help efficiency and streamlining of operations. In the case of the finance sector, these include virtual branches, Bring Your Own Device (BYOD), applications and services from the private cloud and collaboration between branches as well as between local and international headquarters.”
Another bright spot Cisco sees in the region is the growing awareness among public utility service companies that they can and should do more through technology, especially in the area of cutting transmission losses, and as a result they are pushing to make their networks smarter and add extra services.
Hajdu also sees a role for the consumer in helping IT spending in the region rebound as people will be demanding more and more enhanced services like video running through mobile and online.
The governments throughout SEE could also provide a crucial boost if they commit to providing more public services online and through technology. Unfortunately, the many government reshuffles and ousters in the region recently have disrupted policy-making when it comes to the digital agenda of each state. There is urgent need to raise awareness not only among government officials but among all stakeholders about the implications that underspending on IT and the lack or delayed execution of a digital strategy are having on the region’s competitiveness, according to Hajdu.
“It is our responsibility to create a dialogue with the relevant stakeholders about the importance of advancing the digital agenda.”
Commenting on the different pace of 4G deployments throughout the SEE region, the official said it is partially due to the discrepancy in disposable income levels as well as to the different approaches that operators in the different countries are taking.
“There are certain operators that have exhausted their market potential and they have no other choice than to do LTE [Long-term Evolution] or try to merge some of their existing operations under LTE in a bid to optimise their operating costs.”
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Once Croatia joins the EU on July 1, Hajdu cautions, local businesses will see that this will change the competitive landscape.
“Services and products from other countries will get easier access to the Croatian market which will impact many sectors. Home-grown industries like retail and agriculture – but others as well – will be forced to improve their operations, the way they do business, export, etc.”
He sees this coming at a time when many companies – including telcos – are realizing that their future revenue-generating opportunities lie in the business-to-business (B2) segment as the business-to-customer area is getting very tough with ARPU rates dropping and business being lost to over-the-top services.
Over-the-top services ride on top of a service that a customer already gets and don't require any business or technology affiliations with his network operator.
On this backdrop, telcos are building bigger and bigger capacity to serve the B2B segment and Hajdu points as one great example for this in the SEE region to Hrvatski Telekom (HT) which a couple of years ago bought IT system integrator Combis in a bid to get itself in a position to develop and market full-blown ICT solutions for the local enterprise as well as the public sector.
HT is also getting ready for the future with the pilot TeraStream project that was launched in late 2012 in partnership with Cisco.
TeraStream is a simplified IP network concept that combines network technology, data center technology, and fiber optic infrastructure, offering the possibility of providing all services - including voice, IPTV, and Internet access - from the cloud. HT was the first company in the Deutsche Telekom Group to implement the technology.