Iceland Communication Profile

Iceland’s next economic recovery rests on resilient broadband

BuddeComm’s annual publication, Iceland - Telecoms, IP Networks and Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecommunications market in Iceland.

Iceland has of Europe’s smallest telecom markets, and as a result there is little room for significant increase. Nevertheless, there is effective competition in amount sectors: the country is open to amount companies seeking licences or licence-based agreements, and boasts additional than a dozen operators for fixed and Internet services and operators in the mobile sector. The leading players, Síminn and Vodafone Iceland, essentially operated a duopoly until 2008 when the new entrants Nova and Tal launched fixed-line services, complementing their existing presence in the mobile phone market.

In common with amount other sectors of the economy, Iceland’s telecom market will continue to suffer from the grim effects of the recent economic downturn for the next few years at least. Iceland has perhaps recorded Europe’s worst economic collapse, while its performance in the medium term looks bleak. The economy shrank by up to 10% in 2009 and is expected to have shrunk by a further 4% in 2010 – leading to lower in general telecom investments – while interest rates will remain crippling for the foreseeable next, and rising inflation will challenge the government’s ability to manage the economy.

The economic turmoil has translated into cautious spending part consumers, a lot of of whom have lost their savings following the collapse and subsequent nationalisation of the banking sector. Across the board, there is little cash available for discretionary spend, and so consumers have reigned in their outgoings to the essential telecom services. As a result, operators which have had difficulty funding network upgrades are unlikely to see revenue increase in the short term. Services on which they had hoped to realise significant returns, such as high-end mobile data applications, are expected to generate only moderate income during the next few years. Telecom revenue increased by only 1.2% in 2009 though investment crashed 93%.

The incumbent Síminn faces difficulties from the continuing economic disruption inclunding from the banks which have thus far failed to honour their currency swap agreements as Síminn hedged against the fall of the króna (part of Síminn’s borrowings are in foreign currencies). The company is under increased pressure to pay its creditor banks using its available cash, which has obliged it to adopt efficiency measures and streamline its operations through 2010.

Market highlights:

• * Broadband adoption in Iceland is part the highest in the world. FttH networks have been stimulated by government policies to deepen the fibre footprint in the capital and major outlying towns. Fibre is laid as standard in new-build zones and redevelopments, providing an significant stimulus for high-end IP-delivered services.
• * The government ITC policy to 2012 as well aims to enable public services including health, education, government procurement, telecommuting and teleconferencing to be available online via a coordinated network.
• * Síminn and Vodafone Iceland have a largely uncontested duopoly of the DSL market, though other ISPs operate on the margins. The DSL subscriber base has shrunk as customers in the capital have migrated to fibre options, so some vitality remains in smaller towns as the major players upgrade their networks with ADSL2+ technology. Reykjavik Energy owns an open FttH network which connects amount 65,000 homes in Reykjavik and will be extended to most other settlements by 2012.
• * The mobile sector offers genuine competition for Siminn and Vodafone Iceland, with the smaller players having secured 23% market share within the years since launching services. This trend is set to continue during the next few years as they capitalise on their ability to offer 3G services on their 900MHz spectrum.

Broadband Market - Overview, Statistics & Forecasts
Ireland's broadband market is under-developed by European standards, although government efforts to improve local loop unbundling and wholesale access has meant that increase, albeit from a relatively low base, has been strong during the last years. Low penetration has half been due to high wholesale costs, lack of competition, high retail prices, and limited coverage in a lot of non-urban areas. The proposed structural separation of eircom could have been a catalyst for rapid development in this market, but the world financial crisis affecting eircom's parent company, and its sale in November 2009, suspended further evolution.

Convergence - Triple Play & Digital TV
The market for converged media and applications in Ireland has been hampered by poor broadband infrastructure. The position has become brighter since 2008 as the major cable operator UPC Ireland has upgraded its network, and as the incumbent eircom has invested in its NGN and expanded its bundled services offers. Nevertheless, convergence in Ireland continues to suffer from limited fibre deployment beyond a few greenfield sites.

Key Statistics, Telecom Market & Regulatory Overviews
Ireland's telecom market has suffered from poor broadband uptake, underinvestment and mismanagement within some of the key operators. Eircom has perhaps suffered most from the financial crisis which hit the operator's parent company, inclunding the government's reluctance to part-fund its network upgrade. Eircom's sale and indebtedness are compounded by recurrent difficulties at Smart Telecom. In general telecom market revenue fell almost 12% in the year to September 2009, dragged down by a poorly performing mobile sector and continuing economic turmoil.

Mobile Market - Overview, Statistics & Forecasts
Ireland's mobile market has undergone considerable changes in recent years. The market remains dominated by a triopoly of service providers, amount of which provide 3G services, but the entry of the first MVNOs promises radical changes to market competition in coming years. Mobile broadband, on the back of expanding HSPA networks, has become very popular part consumers since the introduction of flat-rate data plans. The regulator has as well announced its willingness to set aside UHF spectrum for possible use by mobile TV services from 2010.