Kosovo: Investment and growth already occurring

Posted by Stephen Wilson Friday, January 29th, 2010

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As part of the broadband team at Informa’s drive to cover all growth markets I have taken a careful look at some countries in the Balkan region. For the cineastes amongst you, it has been a voyage of discovery redolent of Harvey Keitel in Angelopoulos’ masterful Ulysees’ Gaze. Kosovo is one such market I have looked into and the evidence shows there is much potential.

The market has already seen significant investment and it is one of the very few markets in Europe where the former state-owned monopoly operator is not the largest broadband provider (Romania is another). The incumbent PTK had just fewer than 80,000 active copper lines at the end of 2008. But this is not a great problem as there are two cable companies, IPKO and Kujtesa with widely-deployed cable networks. There is significant overlap between the networks with all major urban areas of Kosovo covered.

Furthermore at the end of September 2009 IPKO had 88,500 broadband subscribers according to Informa Telecoms & Media data, meaning that any necessity of carrying out an analysis of the need to introduce wholesale DSL or local loop unbundling as part of accession into the EU would be somewhat unnecessary.

The interesting thing is that Kosovo shows there is investment in broadband networks in all corners of Europe. Kosovo is a significant part of Telekom Slovenia’s strategy to grow in nearby Balkan markets. The Slovenian incumbent owns the majority of IPKO and the ISP On.net in Macedonia, which offers unbundled DSL and fixed wireless connections as well as holding the license to operate the country’s digital terrestrial TV (DTT) network. The possible purchase of the incumbent in the Federation of Bosnia Herzegovina, BH Telecom, is also on the company’s agenda. And the strategy is bearing fruit. These markets remain underpenetrated and continue to grow in contrast to some stagnating markets further to the West.

And not only is Telekom Slovenia active in Kosovo but there has also been private equity investment from US firm Bedminster Capital Management, the owner of Kujtesa. Telekom Slovenia has the upper hand I believe. It has a TV offering, which it launched in the capital Prishtina in March and extended to other areas of the country in September. IPKO looks stronger than Kujtesa in the TV market thanks to its exclusive arrangement with leading broadcaster Digitalb for content.

IPKO also looks strong thanks to its potential ability to use its mobile network to bundle mobile services with its fixed-line offerings, something that Kujtesa cannot do. However, Kujtesa has held a WiMAX license since 2006 and is said to be in a testing phase.

One might ask where this all leaves the incumbent, PTK? PTK remains state-owned but there is talk of privatization which could help spur the market further. In November, law firm Wolf Theiss and consultancy Telco AG were selected as part of a consortium to help devise the best privatisation strategy to bring benefits to the people of Kosovo. Ahmet Shala, Kosovo’s Minister for the Economy and Finance, has claimed that the privatization will be complete by the end of this year. Given the competition in the fixed market, the main prize would be ownership PTK’s GSM mobile operator Vala. Certainly in my personal experience, the quality of the fixed line network leaves much to be desired. The obvious candidate for PTK would be Turkish incumbent Turk Telecom, particularly in light of its investment in the Albanian incumbent.

But all operators in the broadband market should benefit from a couple of important trends. Much of the population in Kosovo, unlike in Western Europe, is young, with 75% under the age of 35 and an average age of just 25.9, according to the Economic Initiative for Kosovo development agency. This coupled with the tender for the digitalizing of Kosovan schools should see growth in the use of the internet continue. Furthermore there is a building boom in Kosovo, which will increase the number of households to which fixed broadband operators can sell their products.

In short the foreign investment in Kosovo reflects promise for the future as the market looks set to grow further.