Bosnia-Herzegovina Telecommunications Report Q3 2012

Includes 3 FREE quarterly updates

BMI's Q312 report on the telecoms market of Bosnia & Herzegovina includes analyses of the country's mobile, fixed-line and broadband subscriber markets. It also forecasts growth in the number of internet users and analyses specific internet usage trends. The report contains five-year growth forecasts that chart how the country's different telecommunications sectors are likely to develop. Our five-year forecasts are based on the most recent available figures to be published by Bosnia's telecoms regulator, the International Telecommunications Union (ITU) and by the country's leading network operators. In addition to our fiveyear growth forecasts for the mobile, fixed-line and internet markets, we have updated our ARPU forecasts for the mobile market.

The Bosnian market is demarcated into three distinct historical concession areas for the three incumbent telecoms operators. The country is split into two distinct political regions, the Federation of Bosnia & Herzegovina (FBiH) and the Republika Srpska. BH Telecom remains the largest operator across all segments and has the largest historical concession area, in the FBiH. Telekom Srpske is the second largest operator and is responsible for the second largest region, the Republika Srpska. Meanwhile, HT Mostar is the smallest incumbent operator and is active in Herzegovina and is the smallest of the three.

BMI calculates that the Bosnian mobile market grew by 2.4% q-o-q in Q411 and 5.2% y-o-y in 2011 to reach 3.172mn subscribers. This is slightly lower than previously estimated and is a result of the downgrade of subscriber figures for third-ranked HT Mostar to reflect regulatory data'. Meanwhile, we expect subscriber growth to slow down considerably over the next five years as the market approaches saturation.

BMI forecasts mobile penetration in Bosnia's telecoms market to rise to 100.6% by 2016, up from 84.5% at the end 2011. During this period, the number of mobile subscriptions is expected to rise to just over 3.7mn.

Some of the major downside risks to our forecast include a shaky economic outlook and the likelihood of operators focusing more on high-end services such as mobile data as opposed to pursuing rapid subscriber growth from value-led services and network expansion to underserved areas. Meanwhile, we have not changed our 3G subscriptions forecast this quarter, following an upward revision in our previous report. We also retain the view that rising demand for data services, because of the increasing availability and affordability of smartphones and other data devices, will remain key growth drivers for 3G services in Bosnia. We estimate that 3G subscriptions accounted for 13% of total mobile subscriptions at the end of 2011. By 2016, we expect 3G subscriptions as a proportion of mobile subscriptions to reach 56.7%. There are no changes to our forecast for Bosnia's fixed-line sector. Our forecast is based on regulatory figure for the number of fixed-line connections at the end of 2010. According to the regulator, the number of fixed-lines grew by 4.4% in 2010 to reach 990,000 at the end of the year. We believe this number increased slightly to around 1mn at the end of 2011 as several strategies being pursued by the operators including the promotion of bundled service packages and the use of new pricing structures began to pay off.

We expect the continuation of these strategies to help sustain moderate fixed-line growth in 2012. Meanwhile, the introduction of fixed number portability in H211 is understood to have had a favourable impact on the sector, allowing customers to switch operators while signing up to new contracts. Although further growth is anticipated for 2012, we expect the sector to return to negative growth in the latter part of our forecast. Our new long-term forecast envisages the fixed sector shrinking to about 980,000 in 2016, a penetration at 26.5%.

BMI estimates that Bosnia's broadband sector continued to show strong growth in 2011, expanding by over 21% in the 12 months to 31 December. Weaker economic growth is expected to produce slower growth for the broadband sector in 2012. Over the coming year, we believe that Bosnia's broadband subscriber base will increase by almost 12%, with penetration expected to rise to 14.3%. We expect the increasing availability of advanced services such as IPTV to help maintain strong rates of broadband growth. We also expect the promotion of triple-play service packages to have a favourable impact on growth. By the end of 2016 we expect a broadband subscriber base of almost 680,000 customers. This is a penetration rate of over 18%.