Broadband Begins to Take Hold in Central and Eastern Europe

LONDON, April 20, 2010 – Broadband is making strong inroads in Central and Eastern Europe, thanks to government and other incentives for providers to offer service in these previously bypassed areas.

Two recent reports from consultancies Arthur D. Little and Frost & Sullivan offer differing perspectives on Central and Eastern Europe. However, they agree that broadband services will depend much more heavily on mobile networks there than in either Western Europe or North America.

Telecommunications firms across Central and Eastern Europe are taking a bold approach to broadband deployment and the business models that support it, according to Arthur D. Little’s report, “Space for Creativity: Innovative Solutions in Central and Eastern European Telecommunications.” Mobile communications are becoming dominant and favored over fixed line networks for broadband deployment. The mobile solution provides a quicker and less expensive way of rolling out services than digging to install fiber. However, fiber is being deployed in some cities, although not often to the home, in some cases to backhaul mobile base stations.

Frost & Sullivan also notes the ascendancy of mobile communications for broadband in Central and Eastern Europe in its report “Mobile Broadband in Central and Eastern Europe,” but places greater emphasis on negative factors imposed by the economic recession. A lack of money for investment and restrictive regulatory practices can hamper competition.

However, the effect of those challenges largely will be to hold back penetration of fixed broadband so that mobile broadband will not just be considered an added value but an essential service, according to Frost & Sullivan ICT Research Analyst Edyta Kosowska.

“Mobile broadband operators should initially focus on improving the service quality through sufficient network upgrades as customers expect the same download speed and data download limits as from fixed broadband internet,” Kosowska said, adding that only then should operators follow the West European approach of developing value-added services of mobile broadband, such as advanced navigation and location-based applications.

Meanwhile, telecom firms in Central and Eastern Europe are exploiting their emerging IPTV services to gain customers from incumbent cable operators who currently dominate the triple play – or phone, Internet and cable – markets there, according to the Arthur D. Little report.

Telecom firms have cornered the market in rural areas. This, combined with financial incentives from the European Union in the case of EU member countries, is encouraging them to accelerate deployment of broadband in sparsely populated areas. In EU countries such as Poland and Hungary, operators can benefit from the “digital exclusion” policy, providing subsidies for rural deployment of broadband from a pot of money worth about $1.4 billion as part of the European Agricultural Fund for Rural Development.

This type of incentive could prompt operators to focus on rural areas, where overall broadband penetration remains relatively low, according to Kosowska. “First of all, companies implementing this strategy can count on market regulators’ favor, as it links directly with the ‘preventing digital exclusion’ policy. Additionally, part of the investment might be financed by EU funds,” she said.

When it comes to mobile broadband, Central and Eastern Europe could benefit from their position as relative newcomers to the broadband market.