The Baltic Times
Talis Saule Archdeacon
September 26, 2007
With practically the entire population of the Baltics either hooked up or planning to get hooked up to the Internet, the business of providing connection services is becoming ever more crucial and competitive. The big players in the telecoms business, particularly phone and cable TV companies, have turned to Internet service as a major source of revenue, while smaller companies providing different types of niche access have also sprung up. In this week’s Industry Insider, The Baltic Times looks at the Internet Service Provider business, how it’s developing and what its future may be.
RIGA – Internet usage in the Baltic states has skyrocketed in the past few years. As Internet penetration grows, the business of providing Internet service has grown right along with it and sees an even greater growth in the future.
“The Internet market is one of the fastest growing areas in the telecommunication business in Lithuania and is a driving force of the whole market development,” Darius Dziaugys, head of the information sector at TEO, told The Baltic Times.
Dziaugys explained that one of the main reasons behind the rapid expansion of Internet services in Lithuania was falling computer prices.
“Surveys showed that people are not using Internet because buying a PC is quite expensive for them. Hence, government policy in subsidising PC purchases by returning an income tax proportional to PC purchase price (33 percent of price earlier, now 27 percent) greatly facilitated the development [of the industry],” he said.
In Lithuania, Internet usage has grown by an astounding 443 percent since 2000, according to data from Internet World Stats. The number of broadband connections alone has more than tripled since 2005.
“The room for Internet penetration growth still exists but may not be so rapid as a few years ago, when the number of Internet users was doubling each year,” Dziaugys said.
Estonia is seeing similar patterns, but to a lesser extent. Estonia enjoys the highest Internet penetration levels of the new European Union member states, with about 51 percent of the population connected – a growth of about 88 percent since 2000.
Latvia, with about 45 percent of the population using the Internet, has not quite reached the levels of Internet usage in Estonia. Latvia, however, has seen massive growth rates that surpass even Lithuania. According to data from Internet World Stats, Latvian Internet penetration rates have grown by more than 583 percent since 2000.
Not only is the dynamic Latvian market for Internet service providers growing at one of the fastest rates in Europe, spelling good news for private industry, but the face of the entire industry is on the verge of change.
The Latvian government is about to pull out of the entire telecommunications industry by selling off its shares in both LMT – a mobile phone operator – and Lattelecom, which provides a range of Internet services in addition to its fixed line and other services.
That selloff marks a major change in the industry landscape. While the Latvian market has been open to private competition since 2003, the state-run giant has managed to muscle out most of the serious competition that has cropped up over the years, and it has recently been doing the same thing to ISPs.
Earlier this summer, the company went on a spending spree, with local media reporting that it spent more than 10 million lats (14.23 million euros) buying out small ISP companies in an effort to increase its control over the market. Once Lattelecom goes private, the outlook for the entire market will shift.
Nils Melngailis, CEO of Lattelecom and coordinator of the upcoming management buyout, told The Baltic Times in an interview last August that after the sale, he is prepared to face a number of mobile phone companies breaking into the broadband market. “I am certainly counting on them [mobile phone operators] as competitors in the broadband market. They will get into it and they are already getting into it,” he said.
While the market is expanding at a breakneck pace, most of the ISP business is being taken up by a few major providers that dominate the industry.
In Estonia, the market is dominated by Eesti Telekom – a company that also enjoys close ties to the government. In some areas, such as ADSL (a common form of DSL connection), the company holds a virtual monopoly on the market.
Lithuania, meanwhile, has a huge number of players on the market – with more than 100 Internet service providers – but few companies that control a large portion of it. Forty-three percent of the market is controlled by the largest provider, TEO. TEO is a subsidiary of TeliaSonera, the Scandinavian giant that controls the lion’s share of the Baltic telecommunications industry – particularly in the mobile phone industry but to an increasing extent in Internet services as well.
“TeliaSonera at this point has invested quite a lot in this country. They have a very dominant position in the Baltic countries; if you look at Estonia, Latvia and Lithuania, they own practically all of the industry. We are the last company that they don’t really control,” Lattelecom’s CEO said.
Broadband penetration rates: