Croatia, Slovakia and Slovenia telecommunications market overview

Whilst Western Europe has seen high towerco penetration to date, much of Central and Eastern Europe is still relatively untapped by towercos. Signs indicate this is about to change. As three countries where towercos are yet to get a foothold, TowerXchange reached out to Fitch Solutions to offer an overview of the mobile markets in Croatia, Slovakia and Slovenia, to explore countries which could present new opportunities for the towerco sector. Fitch Solutions’ European Telecoms Analyst Gabriel Perez Jaen shares insights

The mobile markets of Croatia, Slovakia and Slovenia display broadly similar characteristics to neighbouring Central European markets: they are relatively stable, mature markets with large mobile penetration rates and a modest organic growth outlook. Of the three markets, Croatia remains the one with the most untapped growth – in Q122, Croatia’s mobile market reached a total 4.40mn mobile subscribers, which translates into a penetration rate of 108.5%. 

With regard to Slovakia and Slovenia, both markets benefit from having a consumer base with higher disposable incomes, which is reflected not only in higher penetration rates – standing at 134.8% and 125.4%, respectively – but also in the market structure in terms of consumer preferences, with a majority of subscribers opting for premium postpaid plans. 

In line with trends that we are observing in markets across Western Europe and CEE, mobile operators across all three markets are pursuing monetisation opportunities through the provision of broadband services, as growth is expected to remain elusive in the mobile segment. 

 

The Croatian mobile market is marked by strong competition. The market for mobile voice services is saturated with subscriptions registering little growth. The wireline voice market is in slow decline, broadly in line with global trends. Market expansion is driven by increasing data usage and a rising number of mobile and wireline broadband subscriptions.

The Croatian mobile market counts three operators, Hrvatski Telekom, A1 and Telemach. The three MNOs progressed to commercially launch 5G services after the country’s spectrum auction in Q321. With an economy heavily reliant on tourism, the Croatian mobile market displays a continuous, seasonal trend in terms of mobile subscriptions, coinciding with the influx of tourists to the country. Financial data reported by Hrvatski Telekom and A1 suggests that mobile service revenues are either stagnant or in decline, mirroring the trend displayed by other Central European markets. Meanwhile, fixed broadband penetration remains relatively low at 25.7% in 2021, presenting opportunity for organic growth here. As a mobile-first market, Croatia offers upsides to tower operators that aim to capitalise on the expansion of 5G in the country and the relatively stagnant status of the market. 

In the past two years, the competitive landscape of the mobile market has remained largely unchanged: incumbent Hrvatski Telekom has dominated the market, with a total share that has ranged between 43% and 46%. 

 

National regulator HAKOM finalised the multi-band spectrum auction in August 2021. The three MNOs secured nation-wide access to the 700MHz, 3.5GHz and 26GHz bands. A number of smaller operators also secured regional access to the 3.5GHz band. Hrvatski Telekom launched commercial 5G services in the 2,100MHz band in October 2020; A1 and Telemach followed suit after the spectrum auction.

At Fitch Solutions, our core view is that growth in 5G uptake in Croatia will be moderate over our forecast period, growing from an estimated 0.260mn in 2021 up to 2.29mn in 2031, or 50% of the mobile market. Adoption of 5G - and to a lesser extent, of 4G - will accelerate with the eventual shutdown of 3G connectivity in the market. 

 

 

The Croatian mobile market is saturated and presents little opportunities for organic growth looking forward. Operator’s strategies are focusing on growing data consumption and multi-play services for revenue growth. According to data from HAKOM, total mobile data usage grew by 29% in 2021, with a total 856.5mn GB consumed. Based on the regulator’s data, we estimated that the average data consumed by subscriber per month in Q118 stood at 2.5GB: in Q122, this figure went up to 17.7GB. The increased mobile data traffic is pushing Croatian MNOs to rapidly expand the capacity and reach of their networks. For instance, A1 carved out its passive mobile infrastructure in November 2021 and launched a wholesale service for mobile and other wireless operators. Considering that all operators have adopted a convergent services strategy, Fitch Solutions expects network sharing agreements and passive infrastructure divestments to take place in the short-to-medium term. 

Croatia is taking steps to stimulate the current regime that regulates the deployment of Very High Capacity Networks (VHCN), in line with the European Commission’s Connectivity Toolbox. Among others, the market’s relatively high right-of-use fees and inefficient local planning regimes have been identified as major obstacles for the rollout of mobile and fixed digital infrastructure. On the upside, Croatia launched its National Broadband plan for the 2021-2027 period, the next stage of the country’s digital strategy under the European Commission’s Gigabit Society plan. The new plans envision the deployment of 5G in every urban centre and transport route, which offers opportunities to mobile infrastructure providers once the market begins shifting towards asset divestments.  

Slovakia has four MNOs, Slovak Telekom, Orange Slovakia, O2 and SWAN, the latter operating under the 4ka brand. 

As of Q421 (latest available data for all operators), Slovak Telekom had a majority share of the Slovak mobile market, accounting for 32% of subscribers. Orange and O2 closely followed the incumbent, with 31.7% and 28.8% of the market, respectively. SWAN (4ka) launched mobile services over its own and rivals’ networks in 2015; the operator has embarked on a journey of mergers and acquisitions to attempt to counter the dominance of its three larger rivals, with the acquisition of local operators such as BENESTRA or Imafex. 

  At the time of writing, Slovak operators have not yet entered a network sharing agreement for the rollout of 5G services. However, at Fitch Solutions we expect this to eventually take place as operators near nation-wide coverage, as such arrangements will allow them to cover areas with low population density in a cost-effective manner. 

 

The Slovakian Regulatory Authority for Electronic Communications and Postal Services (RÚ) successfully auctioned 5G-enabling spectrum in 2020 and 2021, which led to the launch of commercial services by all operators. Slovak Telekom became the first operator to launch 5G in December 2020, with the remaining competitors following suit in 2021. Slovak MNOs are currently oriented towards deploying their own infrastructure, and infrastructure sharing is seen as a last resort when no other options - whether for economic or technical reasons - are feasible. 

 

 

 

 

 

Due to the price gap between mobile and fixed services, internet connections in the Slovak market are predominantly via mobile. Meanwhile, fixed-wireless access (FWA) is being deployed as a substitute to fibre-to-the-premises (FTTP) and other fixed broadband technologies in rural areas due to these price constraints, which poses an opportunity for towercos looking to establish a presence in  underserved areas. That said, Fitch Solutions forecasts the rollout of last-mile fibre to pick up in the medium-to-long term (up to 2031), as competition in the market intensifies and the immature fibre market begins gaining traction, albeit from a low base.  

 

Our core scenario is that 5G will not be the predominant technology through to 2031, given the small size of the market and the few opportunities that operators have to exploit beyond the mass consumer market. However, there is an upside risk to our forecast given the growing machine-to-machine (M2M) market which will likely reflect future industrial and enterprise demand for 5G. By 2031, Fitch Solutions’ forecasts indicate there will be 2.8mn M2M subscriptions in Slovakia, up from the 1.3mn reported in 2020.

At Fitch Solutions, we expect Slovakia’s autos industry to be one of the main beneficiaries of the implementation of 5G connectivity in an industry setting. Slovakia’s autos industry accounted for an estimated 25.7% of total exports in 2021 according to UN COMTRADE data, the largest across all products. In a context of decreasing competitiveness, Slovak auto makers will highly benefit from the improved efficiency and reduced costs that arise from automating a larger number of processes.

Of the three markets surveyed in this article, Slovenia is the most advanced as its population benefits from significantly higher disposable incomes, which supports the uptake of Value-Added Services (VAS) and advanced technologies. Additionally, Slovenia’s economy is supported by a robust manufacturing base that is well-connected to EU supply chains. Under our view, Slovenian operators are well-placed to capitalise on the expansion of mobile connectivity to serve enterprise clients, and especially its large manufacturing sector, with opportunities arising from growing segments such as the Internet of Things (IoT) and edge computing. 

Slovenia’s four MNOs are state-owned Telekom Slovenije, A1, Telemach and T-2. Incumbent Telekom Slovenije dominates the market, accounting for 35.8% of mobile subscriptions in Q122 according to data from the Agency For Communication Networks and Services (AKOS). A1 falls in second place with almost 30% of the market, followed by Telemach (25.5%) and T-2 (8.3%). In the 2019-2022 period, the incumbent has slowly but consistently lost subscribers to Telemach, and to a lesser extent, to T-2 as a result of competitive pricing. Following a similar trend to Croatia and Slovakia, Slovenian operators are focusing on convergent services and prepaid-to-postpaid transition as key growth levers. 

  

With a large postpaid subscriber base, which accounted for 81.7% of the mobile market in Q122 according to the national regulator, consumer churn is relatively lower in Slovenia than in Slovakia and Croatia. 

Due to the small size of the market and the overall stagnation of subscription growth, competition has remained broadly stable in recent years; according to national regulator AKOS, the only credible threat to Telekom's dominance has been multi-services player Telemach, which has focused on growing its mobile market share - from 21.5% in Q119 to 24.8% in Q122 at the expense of the incumbent with a strong entertainment offering. 

At Fitch Solutions, our view is that the Slovenian government’s ownership of incumbent Telekom Slovenije poses downside risks to the development of the mobile market. A partial or full sale of the incumbent to private investors would bring much-needed investment, as a reduced involvement of the state in the market would likely encourage private investors. In Q122, the government’s asset manager SDH entered talks for the sale of Telekom Slovenije with private equity firm Cinven. However, in April 2022 the deal fell through as the acquiring group cited concerns around the complex political environment in the country and EU-wide changes to international roaming regulations among the key factors that determined its decision.  

Due to its large postpaid subscriber base and the rapid uptake of 4G and 5G in the country, Fitch Solutions’ forecasts indicate that the Slovenian mobile market will arrive at peak penetration rate by 2030 when it is expected to reach 136.5%. Meanwhile, the little room for organic subscriber growth left in the market will be alleviated by the move towards 4G in the short-to-medium term, and 5G in the longer term. By 2031, Fitch Solutions expects there will be 1.8mn 5G subscribers in Slovenia (66% of the mobile market), up from an estimated 55,000 in in 2022.  

Non-voice usage in Slovenia is on the raise, as data from both the national regulator and the national statistics agency show that total mobile data traffic increased from 127.4mn GB in 2019 up to 235.1mn GB in 2021. Increased data usage and support for multi-play services - including premium fibre and fixed 4G/5G-based offerings -   requires considerable investment in infrastructure. Although network-sharing is permitted in Slovenia, operators are yet to exploit this as a means of containing costs. This leaves space for passive infrastructure providers to tap the market once operators reconsider their network infrastructure strategies. 

Croatia, Slovakia and Slovenia share certain characteristics in their market structure and demographics. All three markets will face an ageing population in the long term, with challenges added from a large rural population base. As demand for mobile services nears saturation levels, Fitch Solutions expects operators across the three markets to compete in terms of quality of service. With convergence a strong competitive element and the migration of 3G towards 4G/5G imminent, operators in Croatia, Slovakia and Slovenia will increasingly engage in less capex-intensive operating models, with network sharing agreements and passive infrastructure divestments likely to materialise in the short term.

Broadly in line with countries in CEE, but also in Western Europe, demand will be driven by broadband and the associated adjacent service portfolios that operators implement. As such, the importance of the tower market in the region will be emphasised as operators look to alleviate their balance sheet burdens while continuing to search for new avenues of growth.