Concentration Trends on Telecommunication Marketin Croatia in the period from 2003 to 2008

Željko Jirous1, Mirjana Pejić Bach2 and Jovana Zoroja3

1Faculty of Economics and Business Zagreb (MBA graduate), Trg J. F. Kennedyja 6,Zagreb, Croatia

2Faculty of Economics and Business Zagreb, Trg J. F. Kennedyja 6, Zagreb, Croatia3Faculty of Economics and Business Zagreb, Trg J. F. Kennedyja 6, Zagreb, Croatia

E-mail(s): zeljko.jirous@zg.t-com.hr, mpejic@efzg.hr, jzoroja@efzg.hr

Abstract

The paper analysis the level of concentration of telecommunication industry in Croatiafrom 2003 to 2008. Data from Croatian Infotrend magazine were used to measure theconcentration of telecommunication market in Croatia. The data used in the analysisconsider 50 Croatian largest IT firms that are operating on telecommunication market andspecific telecommunication sectors.The main two assumptions of this article are: (1) degree of concentration on thetelecommunication market in Croatia changed differently in different market shares (2)degree of concentration on the telecommunication market in Croatia is influenced bydifferent barriers to enter the market. The analysis finds that Croatian telecommunicationindustry is in good position.

Keywords: telecommunication market, concentration, Croatia, transition countries

JEL classification: L96, L43

1. Introduction

Telecommunication markets in transition countries were highly concentrated some tenyears ago, meaning that there were only one or few telecommunication companies on themarket, owned mostly by multinational companies (Dvornik, 2000). In the first years of the21st century the process of deregulation in this sector spread to transition countries; thisresulted in an increase of private national and multinational companies.

The second half of the past century was, among other, characterized byderegulation processes (Snow, 1985). In the US the 70s are marked by the deregulation ofroad transport and aviation industry, whereas the 80s witnessed the deregulation oftelecommunications, gas and electricity as well as the financial markets.Telecommunication industry deregulation in the UK also took place in the 80s, whereas inthe countries of the EU in the 90s.

The beginning of the 21st century saw many changes. Most of the countries startedwith the liberalisation of the market. United Kingdom liberalized the telecommunicationmarket in 1980s (Dunnewijk and Hulten, 2007). Liberalisation of the telecommunicationmarket led to the competition between telecommunication companies, development andapplication of new technologies and services, lower prices, that eventually led to the

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increase of end users (Whalley and Curwen, 2012). Croatian telecommunication marketshows a high concentration as well as the lack of efficient regulation of access to essentialnetwork resources (Sabolić, 2008).

The purpose of the paper is to research on the degree of concentration on thetelecommunication market in Croatia. The research will enclose the period from 2003 to2008, applying the method of corresponding concentration measures.

To prove these goals correspondent research methods will be used. Correspondentstatistical-mathematical measures will be applied to measure the concentration;concentration ratios, Herfindahl-Hirschmanov indexs, Entropy Indeks, as well as GiniCoefficient and Lorenz Curve.

The paper is organized as follows; at the beginning there is an introduction part.Section two defines concentration in transition countries. Section three presents statisticaldata, research methodology and statistical analysis. Discussion part explains our findingsand results. Section five concludes the paper.

2. Industrial concentration in transition countries

In the past 15 years, the industrial concentration has been subject matter of many studiesconducted in European transition countries.

Newbery and Kattuman (1992) conducted a research on concentration andcompetition in selected Eastern European countries (Eastern Germany, Czechoslovakia andPoland). Centralized economies of the mentioned countries were characterized by bigdominant companies within specific industrial sectors whereas medium-scale and smallscale enterprises had a marginal impact as a group. The collapse of the Soviet Union in1989 started a process of privatization and restructuring of big companies (Roberts, 2000).The process of restructuring was the outcome of external pressure, in other words,competition, and was supervised by the state. Restructuring often led to discontentmentamong workers that feared to lose their jobs. All of the above led to a decrease ofconcentration and increase of competitiveness in Eastern European countries accompaniedby the development of distribution of firms according to size corresponding to the freemarket economy.

There are several other studies on concentration within selected industries in certaincountries in transition. Sadowski (2000) researched the influence of competitors fromWestern European countries on the telecommunication market of Poland, Hungary and theCzech Republic. Grandys (2005) analysed the characteristics of the textile industry inPoland. Their research and results discovered the decrease within the industrialconcentration. Furthermore, the concentration of the bank sector is subject matter ofresearch that underlined the liaison between competition, concentration and efficiency ofbanks (Athanasoglou et al., 2006; Koutsomanoli-Filippaki et al., 2008).

The structure of the mobile telecommunication market differs among the countriesof the EU. There are monopolized markets with a handful of subscribers and markets withseveral operators and a high number of subscribers (Whalley and Curwen, 2012). The

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number of countries that open up to new mobile operators on their markets is growing.Number of mobile network operators increased for two reasons. The first reason is theliberalisation of mobile and landline telephony that started in the 1980s. The other reasonis connected to the privatisation of the former incumbent public telecom operators during1980s and 1990s.

In Croatia the process of liberalisation started a bit later. High concentration can benoticed in the Croatian market only in the first years of the 21st century. In the market offixed telephony there was a monopole held by only one company up to then, and on themarket of mobile telephony there was a duopoly and no broadband until 2005. At thebeginning of 2005 things change, one new operator comes into the fixedtelecommunications market, and one into the mobile market (Sabolić, 2008).

Whalley and Curwen (2012) conducted a research on telecommunication operatorsin European countries and had interesting results. One of these results is that thecompetition is present in 45 out of 49 analysed countries. Four countries with only onemobile operator and where there is no competition are: Greenland, Gibraltar, Andora andMonaco. Within the 45 countries there are more than one operator, 32 countries have twoor more operators, and 14 countries has four or more mobile operators on the market.Germany, a country with a population of 80mil and Lichtenstein with a population of35,000 have the same number of mobile operators – four.

3. Research methodology and results

The analysis gives a short overview on the telecommunication market. Data on all the 50biggest telecommunication companies were used, as well as data on specific sectors;producers of telecommunication equipment distributers, services providers andimplementers of telecommunication solutions. Publications on the biggesttelecommunication companies on the Croatian market published in the Infotrend magazinein 2003 and 2008 were used as data source for concentration trends in telecommunicationmarkets.

Table 1 shows values of market concentration for all of the 50 biggesttelecommunication companies together.

Comparing the given results similarities can be noticed, and mostly in the samemovement of concentration ratios. All the considered sectors, as well as all of the 50biggest telecommunication companies together there is the same direction of concentrationchange, regardless to which concentration measures are used, with two exceptions; Ginicoefficient moves in the opposite direction compared to the other concentration measures,but with a low intensity of the opposite movement.

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Table 1. Value of indicators of market concentration in 2003 and 2008

Indicator Year 50biggest

telecomm

unicationcom

panies

Telecomm

unicationequipm

entproducers

Telecomm

unicationequipm

entdistributors

Telecomm

unicationservice

providers

Telecomm

unicationsolutions im

plementers

Liders market share 2003. 42,27% 53,88% 29,90% 54,50% 14,46%2008. 30,15 % ↓ 50,70% ↓ 76,83% ↑ 39,05% ↓ 15,86% ↑

Concentration ratioC2

2003. 59,43% 88,53% 54,84% 76,64% 25,30%

2008. 51,15% ↓ 93,49 % ↑ 93,24% ↑ 66,25% ↓ 28,49% ↑Concentration ratioC4

2003. 84,41% 98,41% 74,94% 98,55% 46,89%

2008. 76,89% ↓ 99,21% ↑ 99,32% ↑ 92,20% ↓ 49,59% ↑HH index 2003. 2.456 4.158 1.903 3.873 842

2008. 1.801 ↓ 4.425 ↑ 6.195 ↑ 2.790 ↓ 999 ↑Entropy index 2003. 0,8084 0,4682 0,8072 0,4993 1,1215

2008. 0,9139 ↓ 0,4069 ↑ 0,3223 ↑ 0,6579 ↓ 1,0524 ↑Gini coefficient 2003. 0,9331 0,7110 0,8403 0,8403 0,2793

2008. 0,8687 ↓ 0,5662 ↓ 0,8378 ↓ 0,8378 ↓ 0,3543 ↑Source: Infotrend (2004-2009). TOP50 in Croatian telecommunication industry. Elaboration of author's data.

4. Discussion

The conclusion on the basis of given results in Table 1. is that the highest lider marketshare in 2003 was that of the telecommunication services provider (54,50%), andtelecommunication equipment producer (53,88%). The lowest leader market share is thatof the telecommunication solutions implementers (14,46%).

Concentration ratio CR2 in 2003 shows a significantly higher figure compared tothe lider's market share. The conclusion can be drawn that in all telecommunication sectorsthere was strong oligopoly in this period. The highest value of concentration ratio CR2 in2003 was reached by the sector of telecommunication equipment producers (88,53%), andin 2008 the highest value was reached by the same sector (93,49%).

Furthermore it can be seen that the concentration ratio CR4 showed significantlyhigher figures compared to both the lider's market share and concentration ratio CR2 in2003. On the basis of the given result the conclusion can be drawn that in alltelecommunication sectors there was a strong oligopoly presence in that period. Thisconfirms the former conclusion. In 2008 we observe the same situation. The highest valueof the concentration ratio CR2 was reached by the sector of telecommunication equipmentproducers (98,41%) in 2003, and in 2008 the highest value was reached by the same sector(99,32%).

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HH index also shows higher values in 2003 than in 2003. Given data show decreasein concentration on the market, with the exception of the sector of telecommunicationequipment distributers, where the concentration actually increases. Concentrationdecreases in the sector of telecommunication service providers in all of the 50 biggesttelecommunication companies.

Considering data in Table 1 it is clear that the concentration movement measures bythe entropy index and the Gini coefficient mostly follow the movement of the HH index.

5. Conclusions

The topic of this paper is to measure the concentration on the telecommunication market.Data on the 50 biggest telecommunication companies are gathered from the Infotrendmagazine.

In the research the concentration was measured by the lider's market share withconcentration ratios CR2 and CR4, HH index, concentration index, and Gini coefficient.

The paper sets two goals. The first goal assumes that the concentration degree onthe telecommunication market in Croatia changed differently in different shares of thetelecommunication market in the period from 2003 to 2008. The stated goal is confirmedby means of analysis of concentration indicators. The other goal assumes that the degree ofconcentration on the telecommunication market is influenced by barriers to enter themarket.

As most of the other industrial branches, the telecommunication industry was underthe strong influence of regulation. Private subjects were enabled to enter the market only inthe mid 90s of the past century. It is also clear that there has been a sharp growth in thetelecommunication market from the increased number of users, and a more dynamic usageof the telecommunication services. Taking under consideration expected trends, differentchanges can be expected. Further growth and development of the telecommunicationindustry will depend on liberalisation, privatisation and deregulation of thetelecommunication market on the global level. The application of new technologies andmarket competition will also have a positive influence on even better services provided tothe end users in the telecommunication industry.

References

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Kutsomanoli-Filippaki, A., Margaritis, D., Staikouras, C. (2008). Efficiency andproductivity growth in the banking industry of Central and Eastern Europe. Journal ofBanking and Finance, 33(3), 557-567.Newbery, D.M., Kattuman, P. (1992). Market Concentration and Competition in EasternEurope. World Economy, 15(3), 315-334.Roberts K., C. Zhou. (2000). New Private Enterprises in Three Transitional Contexts:Central Europe, the Former Soviet Union and China. Post-Communist Economies 12, 186-199.Sabolić, D. (2008). Telecommunication reform in Croatia. Technology in Society, doi:10.1016/j.techsoc.2008.10.005.Sadowski, B. M. (2000). The myth of market dominance: telecommunicationmanufacturing in Poland, Hungary and the Czech Republic – a case study.Telecommunications Policy, 24(4), 323-345.Snow, M. (1985). Regulation to deregulation: the telecommunications sector andindustrialization: Evidence from the Pacific rim and basin. Telecommunications Policy,9(4), 281-290.Whalley, J., Curwen, P. (2012). Incumbency and market share within European mobiletelecommunication networks. Telecommunications Policy, 36, 222-236

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