BULGARIA COUNTRY COMMERCIAL GUIDE FY2001
MOBILE TELEPHONE MARKET
1. SUMMARY
Like elsewhere in Central & Eastern Europe, Bulgaria's telecom infrastructure lags far behind the West. However, Bulgaria has the highest penetration rate of all countries in the region. With over 3.4 million telephones, Bulgaria currently has 38 lines per 100. The number of telephone subscribers in 1995 increased 18 percent and telephone density increased 4 percent over 1994. Yet the quality of service is still low and the waiting period for a new telephone is still lengthy.
In this situation, there are many opportunities for cellular and other wireless technologies. Already, there are existing cellular operations in Bulgaria. Subscribers are using mobile phones as a substitute for land-line phones.
This ISA briefly discusses the market situation and opportunities for cellular mobile telephony. In order to understand the situation thoroughly, it is necessary to also discuss the general telecom situation (existing infrastructure and development activities) as well as the regulatory environment. This market overview is organized in the following manner:
1. Summary
2. Telecommunications Situation
3. Telecom Sector Structure
4. Regulatory Framework
5. Cellular Market
6. Competitive Situation
7. Market Access
8. List of Contacts
2. TELECOMMUNICATIONS SITUATION
There are more than 3.4 million telephones and 2.3 million main lines in Bulgaria. The penetration rate is 38 percent. The number of telephone subscribers in 1995 increased 18 percent and telephone density increased 4 percent over 1994. Yet the quality of phone service is still substandard. The call completion rate is still only 40 percent. Telephone lines are insulated often with paper and many areas still use obsolete switching technology.
Since 1991, telecommunications development has become a priority for the government. In 1992, the Bulgarian Telecommunications Company (BTC) initiated an investigation of the state of Bulgaria's telecom infrastructure. With the assistance of international financial institutions, BTC developed a modernization plan.
Bulgaria started modernizing by building a digital overlay network (DON). The aim of the DON project is to not only upgrade but to expand the existing backbone, focusing on the development of the main digital trunks. The cost of the modernization project is estimated at USD 300 million. The World Bank is participating with USD 30 million, EBRD with ECU 32 million and the European Investment Bank with ECU 70 million. The government of Bulgaria will contribute an additional USD 150 million.
As a result of various tenders being issued since 1992, contracts have been awarded to:
o Ericsson for the construction of trunk and local digital exchanges;
o Siemens for a new international digital exchange;
o Alcatel for the installation of an optical fibre trunk line;
o Northern Telecom for an optical fibre line;
o Satellite Transmission Systems for the construction of an Intelsat ground station.
The DON project should be completed by the end of 1996. As a result many new subscribers, mainly business users will be included in the network.
The most recent change in telephone rates undertaken by The Bulgarian Telecommunications Company was in 1994. Tariff levels for telephone services increased by 44 percent for residential subscribers and 34 percent for business subscribers. The methodology for updating telephone prices is approved by the Council of Ministers in accordance with fluctuations in the exchange rate of the USD to the Bulgarian Lev and revenues and operational expenses of BTC. A new rate increase of 40 percent in accordance with EBRD and World Bank requirements, will shortly by implemented.
The high growth rate of subscriber numbers to the land-line phones and their non-satisfactory quality has increase in the use of mobile phones in the country. Cellular development is just beginning in Bulgaria with two systems, an analog and a digital one, in operation . The cellular market in Bulgaria will grow and further competition on the service side is expected. In terms of equipment, the European suppliers dominate the market, although handsets are being supplied by Motorola as well.
3. TELECOM SECTOR STRUCTURE
Prior to 1991, Bulgarian maintained an integrated posts, telegraph and telephone company which controlled the various services. In 1992, the PTT was abolished and the Bulgarian Telecom Company (BTC) was created. BTC is the owner and national public operator of the telecom network (telephone, telegraph, data, radio and TV broadcasting). BTC's rights and obligations are stipulated in a license. BTC has exclusive rights to provide access to local, long distance and international conventional basic services over a fixed network, as well as other services referred to in the license.
The Bulgarian Telecom Company has entered into various joint ventures to pursue development objectives. BTC participates in joint ventures which perform the following activities: public payphones, operating with prepaid card, for local, long-distance and international calls; cellular mobile telephony; data transmission and electronic mail:
o BETKOM is a 51-49 percent joint venture between BTC and GPT (Great Britain) for the supply, installation and operation of GPT pay-phones within the country;
o Radio Telecommunications Company, Ltd. (RTC) is a joint venture between BTC (39 percent), the Bulgarian state-owned company Radio Electronic Systems (12 percent) and the British company Cable & Wireless (49 percent) for construction and operation of a cellular radio-telephone system (this venture is discussed in detail in Section 5);
o Sprint Business Telecommunications Company (SBTC) is a joint venture between BTC (40 percent) and SPRINT (60 percent) for value-added telecommunication services in the operation of a data network;
o Bulphone is the newest joint venture between the Greek company Intracom (68 percent) and BTC (32 percent) for installation and operation of a GSM network and production/trade of software for new telecom systems (this jv has created considerable controversy and is discussed in more detail in Section 5).
4. REGULATORY FRAMEWORK
As part of the reform effort in 1991, the government took actions to separate the regulatory and commercial functions. Hence, the Committee on Posts and Telecommunications (CPT) became the government authority responsible for developing and implementing government policy in the field of telecommunications in Bulgaria. CPT strictly follows the tendency for liberalizing the telecommunications sector, taking care at the same time to ensure the recovery of investments procured by the State. CPT also performs the functions of exercising state ownership rights in the sector. Privatization issues are considered closely related to the management and administration of State property.
CPT Regulation No 14 (1994) regulates the issuance of licenses. The regulation establishes the terms and conditions of licenses for telecom operators. The activities for building, maintaining, and operating telecom networks or providing telecom services require a license. Licenses are issued through an open tender or in certain cases, by negotiations with potential candidates for operators.
In October 1995, the government enacted the Law on Concessions. Essentially, the state may, on the basis of a concession agreement, grant private investors a partial monopoly in activities normally reserved for the central and/or local governments. This law stipulates that activities related to or involving telecommunication networks and services are subject to the law. The decision for giving concessions is undertaken by the Council of Ministers, upon consent of the National Assembly. Concessions are awarded through an open or closed tender or auction process. Presumably, the CPT would be the designated expert authority charged with overseeing the tender and evaluation process, and developing a recommendation for the Council of Ministers on making the final concession award.
5. CELLULAR MARKET
Cellular phones are being widely used in Central and Eastern Europe as a substitute for land-line phones. This has happened in the Czech Republic and Hungary; Bulgaria is no exception. Currently Bulgaria has two cellular mobile operators (analog and digital) and the issuance of a tender for a second GSM license is expected in early 1996.
NMT Operator: Mobicom
A cellular mobile telephone network of the NMT-type (450 MHz) is under construction. The operator is Radio Telecommunication Company, Ltd. better known as Mobicom. Currently, the system provides services to 50 percent of the population. By the end of 1996, Mobicom predicts that 85 percent of the population will be serviced. At present, Mobicom has 16,400 subscribers. Capacity of the system is 45-50,000 subscribers. Mobicom expects to achieve this subscriber level within the next two years. In terms of geographic coverage, the network is expected to have nation- wide coverage by 1997. Currently, Mobicom services all the largest urban areas (Sofia, Plovdiv, Varna, Bourgas, Rousse, Stara Zagora, etc). Mobicom is now working at providing coverage on the major roads and highways. Mobicom has entered into an agreement for international calls with Romania and is ready to sign agreements with all the countries in Central and Eastern European and Scandinavia as well as Russia.
GSM Operator: MobilTel
In 1994, a license for the first GSM operator was given to the private Bulgarian company "MobilTel" Ltd. which was a joint venture between the American company US West (25 percent) and the Bulgarian company Tron (note: US West withdrew from the project in 1995). At present the network covers the cities of Sofia, Plovdiv, Pazardzhik and soon Varna, amounting to 38 percent of the population of Bulgaria. MobilTel has 4,000 subscribers currently with a minimum number of 50,000 subscribers forecasted by the year 2,000. MobilTel has signed an agreement for international calls with Sweden and is about to enter into agreements with Greece, Germany, Austria as well as other European countries.
Pending GSM License:
In 1995, the government announced that it would issue a second GSM license. Shortly thereafter, BTC entered into a new joint venture (Bulphone) with the Greek company Intracom (note: Ericsson holds shares in Intracom). Intracom agreed to invest USD 200 million in the development of a GSM system. Additionally, the company pledged to modernize the Sofia telephone system.
In October 1995, the CPT announced that it would not hold a tender and the license would be issued to Bulphone. However, the enactment of the Law on Concessions has forced the government and the CPT to reevaluate the situation. A tender for a second GSM operator is now expected to be issued in 1996.
Mobicom, the current NMT operator, is expected to bid on the second GSM license. The company offered to build a combined digital-analog system on the basis of the existing infrastructure with an investment of USD 77 million. The digital system can be used in larger cities, and the analog in less populated areas. Mobicom has calculated that the capacity of the analog network for Sofia will be exhausted in September 1996 with the subscriber level reaching 25,000. The company intends to offer to its clients, if it gets the license, a GSM telephone for use in the large cities and analog "mobiphones" in the country.
5. COMPETITIVE SITUATION
In general, Bulgaria is very receptive to U.S. telecom service operators and equipment suppliers. To date, however, European suppliers dominate the cellular equipment market.
Hand-sets are imported from Nokia (Finland), Motorola (USA), Benefon (Finland), and Maxon (Denmark). To date, the larger cellular infrastructural equipment has been supplied by Siemens and Ericsson. Siemens is supplying the GSM equipment to MobilTel while Ericsson is supplying the analog equipment to Mobicom. Both Bulgarian cellular operators indicate that the primary factors in choosing the equipment suppliers are technical characteristics of the equipment and pricing.
6. MARKET ACCESS
Tariffs:
Bulgaria has no quotas for the import of telecommunication equipment. The import rate is 15 percent plus a 1 percent customs clearance. The equipment is also subject to an 18 percent Value Added Tax.
Testing & Certification:
Any equipment interconnected to the Bulgarian telecom network must received an approval by the Committee on Posts and Telecommunications. The company importer presents to the Committee respective documents with technical data, parameters and standards of the equipment. The Committee approves the telecom equipment on the base of this documentation: the approval process takes about a month.
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