Equations with multiple unknowns

The Serbian telecommunications market continues to be in the public spotlight. The end of the year will bring financial data showing how the market activities have influenced the EBITDA results and whether the leading market players have succeeded or succumbed to high costs. The local management has emphasised efficiency improvements in sales, technical operations, and customer care throughout the year. The battle has focused on retaining the existing customer base and evaluating the companies' values.

Investments in optical infrastructure are ongoing, albeit to a lesser extent. Network expansion is noticeable even in rural areas. Operators are shifting their focus to SWAP, primarily migrating ADSL customers, who are the most at risk of switching to another operator or transitioning to mobile internet.

The trends remain consistent through Q3, and a linear conclusion to the year can be expected. Mobile internet continues to see data transmission growth (from 100 million GB in Q2 2020 to 150 million GB in Q2 2021). The triple-play package (internet + fixed line + TV) with 1.6 million subscribers remains the most prevalent package on the market, promoted by marketing campaigns of all operators.

The battle continues over rights, content, price, customer protection, and measures to reduce the number of terminated contracts, with the end-users benefiting the most.

Furthermore, there is a noticeable increase in demand for additional services, especially in the premium user segment. The market also sees a rise in streaming service users like Netflix, Amazon Prime, Disney+, and Hulu, as well as traditional channels like NBC, ABC, and CBS. These users seek freedom of choice and want services available on multiple devices. Therefore, fast internet connections become essential with infrastructure improvements comparable to many developed countries (quality ping in Belgrade and Serbia has attracted numerous professional gamers). These services typically require a minimum speed of 3 Mbps, and some may work with satisfactory rates as low as 0.5 Mbps, where the video automatically converts to lower resolution. The need for better infrastructure is also evident in overcoming traffic congestion, both internal and external, significantly affecting the quality of video streaming or causing "buffering" issues. How will these user demands for freedom affect providers?

The Partibrejkers song emphasizes freedom and individuality, urging everyone to connect with who they are and follow their path. They seem to have understood the Serbian mentality and the need for belonging, as demonstrated by the song "I Want to Know," which has become an evergreen hit.

The telecommunications market remains relevant as everyone anticipates a "uniqueness" from operators that will simplify users' choices. Until now, operator differences were expressed through financial offerings such as discounts, free instalments, gifting TVs or devices, and providing premium channels for free for a limited time. These differences varied from region to region, city to city, and even within cities, depending on which operator's territory they entered and which infrastructure they targeted. These variations quickly converged into similar operator flyers. This led to user insecurity when choosing, mainly targeting one thing – reducing the share of fixed internet and cable TV services within a household budget. This sales policy yielded results for operators since they are well-acquainted with their customers and familiar with market specifics. One of the constantly discussed peculiarities is based on the fact that most households consist of three generations and prefer a bundled service subscription. This can be observed in the number of requests for a second or third set-top box for a single user, a common requirement in most sales agreements. This particularity paints a realistic picture that, for years, purchase decisions have been made by the oldest members of the household, who still manage the family budget as the primary source of income through pensions or secure jobs. Their decision-making has primarily been driven solely by financial aspects, without the ability to understand the specific needs for services such as increased internet speed or greater access to premium channels. Here, we raise the question of how market consolidation will impact the abovementioned facts.

We can see a shift towards creating their content by leading operators (Telekom and SBB), which adds a unique touch for their customers. Over the past three years, many series have gained immense popularity and attracted viewers due to improved production quality and the audience's strong appetite for domestic content. While it might have been expected that the popularity of Netflix would lead to a decline in interest in local series, the metrics tell a different story. The demand for domestic series, both new and old, in the market remains strong. Unlike in the past when series were primarily broadcast on weekends, they are now aired daily. The production of such a large volume of content has revitalized an entire industry, breathed life into locations, and increased the expertise of professionals in film and production. This, in turn, has attracted numerous foreign productions seeking locations and more skilled and professional teams.

For instance, from 1992 to 2006, we had 37 domestic series aired. From 2006 to 2018, there were, on average, between 5 to 9 series per year, but in 2019, there were 19, in 2020, 14, and in 2021, a whopping 37.

During this time, RTS released titles such as: "Južni Vetar," "Hotel Balkan," "Senke nad Balkanom 1," "Kamiondžije," "Balkanske krugove," "Junaci našeg doba," "Radio Mileva," "Kosti," "Tajkun," and "Drim tim."

United Media (SBB) also contributed with series like: "Vreme zla," "Kljun," "Senke nad Balkanom 2," "Ubice moga oca," and "Žigosani u reketu."

We witnessed significant changes when the first transfer occurred, as "Senke nad Balkanom" transitioned from RTS to the United Media Group. This was a considerable user response driven not by financial benefits but by the desire for access to specific content. Are there the capacities to release 45 series annually? Are Telekom and the United Media Group becoming content producers, and are they prepared for it? This represents a new line of business with risks and specificities, and we wonder to what extent telecom operators in our market are familiar with them.

But is it necessary?

It probably is, as it represents one of the most effective defences against over-the-top (OTT) services that pose a significant threat to telecom operators in the internet services segment. OTT, or over-the-top, refers to services you use over your service provider's network services. When Apple introduced the iPhone service, AT&T imposed restrictions on VoIP services over its 3G network. However, these restrictions were quickly lifted following a decision by the FCC, the regulatory body, and we now have fewer such restrictions and attempts to impose them. Companies have realized that it's challenging to counter the expected freedom of end-users, so they have opted to offer their customers high-quality internet connectivity for a better OTT experience. Some providers (including all leading ones in our region), such as SBB with EON, Telekom with Iris, and Orion with their solution, Laki box, offer their own OTT services as an alternative to well-known OTT services, particularly in the realm of film and content, with favourable pricing and additional benefits for their customers.

Additional freedom will bring other benefits and reduce the burden on providers' costs. However, the issue lies in the fact that the telecom market in our region still needs to be consolidated and excessively polarized. For consumers, it is ideal to use different providers.

The entry of Telenor as a new player will likely not bring anything new because, with liberalization in the content domain and access to end-users, there will be genuine improvements in telecom services in the market. From all indications, this won't happen soon, perhaps only when there is a change in the current owners. Until then, we will continue to witness intense competition.