Market Overview and Regulation in Albania

Market Trends 2015

2

3

4

5

Revenue growth for the sector (after many years of stagnation)1

Steady growth of fixed broadband

Higher substitution of mobile voice and SMS with OTT services

Number of subscribers to triple play bundles increased 3 times

Significant growth of mobile broadband due to 4G

6 IPTV important driver for increased broadband connections

Fixed telephony subscribers: in decline since 20097

Market TURNOVER 2015

- 10,000 20,000 30,000 40,000 50,000 60,000 70,000

2008

2009

2010

2011

2012

2013

2014

2015

Million LEK

Mobile and Fixed operators

Telekom Albania Vodafone Albtelecom (Mobile) Plus Albtelecom (Fiks) OA

- 10,000 20,000 30,000 40,000 50,000

2008

2009

2010

2011

2012

2013

2014

2015

Million LEK

Mobile Networks

Telekom Albania Vodafone Albtelecom (Mobile) Plus

• Mobile networks: 2% growth Vodafone, Telekom, EM: 0-2% increase

Plus: 20% growth

• Fixed networks: 2% growth Albtelecom: -4%

AO: +22%

• Total market Turnover: € 309 mil. 2% annual growth

Growth after decline since 2009 (exc.2012)

• Main operators revenues stable

• Revenue from mobile v fixed networks: 77% v 23%

Revenue Market Shares

Vodafone 47.07%

Telekom Albania34.35%

Albtelecom 12.01%

Plus6.57%

Mobile Networks Rev. 2015

Albtelecom fix59.05%ABCOM

17.32%

ASC4.79%

Abissnet3.41%

Nisatel2.42%

ATU2.28%

Other AO10.73%

Fixed Networks Rev. 2015

MNO-s market shares stable in 2014-2015

62% of MNO investments in 2015 for broadband

Albtelecom market share in fixed sector declined from 66% in 2014 to 59% in 2015

Fixed Broadband 2015

5

End of 2015: 243 thousands subscribers (QII_2016: 255 thousands)

2010-2015: steady annual growth 14-17%.

8.6% subscribers per population

31% subscribers per Household

• International Connectivity: 77Gbps (61 Gbps 2014)

• Market shares: – Albtelecom 40%– Abcom 21%

• Four main operators: – 84% of the total market – Triple play offers (Internet, telephony, TV)

59%43% 42% 40% 40% 40%

11%

21% 22% 24% 23% 21%

6% 11% 11% 11% 11% 10%

5% 7% 7% 8% 14% 13%

19% 18% 17% 16% 12% 16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015

Market Shares

2010-2015

Albtelecom Abcom Abissnet ASC OA te tjere

4%4.90%

5.70%6.40%

7.3%

8.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

50,000

100,000

150,000

200,000

250,000

300,000

2010 2011 2012 2013 2014 2015

Fixed broadband subscribers and penetration per

population

Subscribers Penetration

Fixed Broadband and IPTV

• Broadband subscribers: + 17%

• Triple Play (Internet, Tel, +TV (IP/CATV) subscribers: 3 times (from 23 thous. To 69 thous.)

• Albtelecom: increase 4 times of triple play ( with IPTV), and 63% of total broadband subscribers

0

20,000

40,000

60,000

80,000

100,000

120,000

2013 2014 2015

Albtelecom broadband subscribers

Broadband No bundles Internet + Telephony

Internet, Telephony +IPTV

Fixed Broadband by Technology

1.DSL: 63% (FTTN/C 52%)

2. Cable 23%

3. Cable DOC SIS 3.0: 14% of total cable

4. NGA Subscribers: 63% mostly FTTN/C

1. DSL: 69% (VDSL included)

2. Cable 19%

3. Cable DOC SIS 3.0: 80% of total cable

4. NGA: 35% mostly VDSL, FTTH/B and Cable DOC SIS 3.0

Albania Albania EUEU

DSL on 100% copper line

11%

DSL on FTTN/FTTC

52%FTTH/B7%

Cable23%

Other7%

Albania 2015

Fixed broadband by Download Speed

8%

28%

60%

4%

0% 0%

256 kbps up to < 2 Mbps

2 Mbps deri ne < 4 Mbps

4 Mbps up to < 10 Mbps

10 Mbps up to < 30 Mbps

30 Mbps up to < 100 Mbps

100 Mbps or more

5%

25%

64%

5%

1% 0%

256 kbps up to < 2 Mbps

2 Mbps up to < 4 Mbps

4 Mbps up to < 10 Mbps

10 Mbps up to < 30 Mbps

30 Mbps up to < 100 Mbps

100 Mbps or more

20142015

• Moving up from 1-2 Mbps to 4-10 Mbps

• 64% of subscribers on 4-10Mbps

• 256kbps-4Mbps: from 36% in 2014 to 30% in 2015

• Fast (30 Mbps) and ultra fast (100 Mbps): 1% of total connections

Broadband Prices (PPP adjusted)

89

76 76

60 58

5249 47 46 45 44

3936 35 34

3128 27

0

10

20

30

40

50

60

70

80

90

100

LV IS CY ES HR

NO LU

EU2

7 SI SK HU LT AL FI PL

DK EE SE

Monthly Price Fixed Tel, Internet, TV 8-12Mbps (EURO PPP)

69

5249

46 4543

4138 38 37

35 34 33 33 3230 30 30 28 27 27 25 25 24

22 21 21 2017

12

0

10

20

30

40

50

60

70

80

Monthly Price Fixed Tel+Internet, 8-12 Mbps (EURO PPP)

Mobile Broadband 2015

10

• 4 MNO-s with 3G services

• 3 MNO-s launched 4G services in July-September 2015

• 2 million users of mobile broadband

• 1.4 million active users(1.5 milionQ2 2016) o 43% Annual Growth: mostly access

from mobile phones

o QIII 2015: 23% growth Impact of 4G

• 46% penetration per population for active mobile broadband users(53.3% Q2 2016)

• 550 MB average download per user

32.1%34.1%

35.5%

43.6%45.8%

49.2%

53.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Celular Devices USB/Modem Penetration per population

Active users with broadband access 3G/4G and penetration per capita

Impact of OTT

Albanian MNO-s areexperiencing thedecrease in voice/SMStraffic and surge indata traffic

SMS: -12%

DATA downloaded: +148% 2014/2013+103% 2015/2014

Number of GSM users(active/SIM):

+1%/-3%

Voice calls:+ 1% 2016/2015-15% Q12016/Q12015

Number of active mobile broadband

users: +43%

Infrastructure

• Good coverage in main urban areas with optical fibers: Tirane, Durres, Vlore, Shkoder etc

• Many operators have their own urban/local FO infrastructure

• Inter-urban area only Albtelcom and ATU present

Optical Fiber in Tirana

Optical Fiber: Interurban

13

• Optical Fiber: all operators • Optical Fiber: All operators except Albtelecom and ATU

Broadband/Infrastructure Market

• Most fixed operators with their own networks Infrastructure based competition

• LLU not effective• Bitstream Access:

o Albtelecom has signed agreements with 4 operators

o End of QII_2016 approx.2400 connection

• Passive infrastructure sharing:o 924 km access to dark fiber (no change from

2014)o 61 km: access to ducts (19 km in 2014)

• AKEP approved a Regulation for passive infrastructure sharing in 2015

• MOU for co-investing was signed between three mobile operators and AKEP on December 2015.

Market Analysis 2014-2016

Broadband Access & Leased Lines

Fixed telephony

Mobile Telephony

Market 3 and 4/2014

Wholesale local access (WLA)

Wholesale central access (WCA)

Wholesale high quality

access (WHQA)

Wholesale access to passive

infrastructure network in

national level

Wholesale Local Access – 3a

Non discrimination

Transparency

Local loop access unbundling on MSAN level

Access in physic infrastructure (duct/pole for connection POI - MSAN

Price control of LLU and duct access

Vectoring for VDSL ( if it is applicable)

Wholesale Central Access – 3b

Non discrimination

Transparency of tariffs and services (their publication)

Obligation for Bitstreamaccess (Continuance of obligation of

2014 market`s analysis)

Obligation for access in duct/optic fiber in urban level

Price control of Bitstream and duct access

Wholesale High Quality Access - 4

Non discrimination

Transparency of tariffs and services (their publication)

Obligation for leased lines accessaccess (Continuance of obligation of 2014 market`s

analysis)

Obligation for leased lines access in national/interurban connection and local level (termination segment)

Price control of leased lines access

Wholesale Access in Passive Infrastructure Network in National Level

Albtelecom

& ATU

Symmetric regulation

Non discrimination

Transparency of tariffs and services (their publication)

Access on duct and optic fiber in

national/interurban connection level

Price control of duct/optic fiber

access

Market analysis (1/2014)

AKEP on October 2015 approved the final document of the "Analysis of the fixed telephony market: retail markets and wholesale markets of termination, transit and origination". AKEP decided :

Wholesale fixed call termination marketo Designation of Albtelecom and all AO as SMP o FTRs:

• from 1.01.2016 symmetric rates between Incumbent and AO and one segment (from two);

• glide path in three stages 2016-2018.

Retail market of Access (market 1/2007) and wholesale Call origination on fixed networks (market 2/2007):o no longer susceptible to ex-ante regulation (do not meet the 3 criteria

test) and no SMP operators. o fixed and mobile calls in the same market (fixed calls high degree of

substitution from mobile calls).

Market analysis( 2/2014)

4 MNOs SMP

Wholesale Mobile Call Termination

Transparency

(RIO publication)

Non-discrimination

Access

Tariff regulation

Cost orientation

Market analysis( 2/2014)

Based on the market analysis, in the recommendation ofCompetition Authority and the best practices to addressthe “Club effect”, AKEP has imposed additional measuresto reduce/eliminate behaviors with anti-competitiveeffect of discrimination in on-net/off-net.

Market analysis( 2/2014)

1. Further reduction of MTRs according to thebenchmark method, using the average MTRs inBEREC countries that have applied the ‘pure LRIC’method;

2. Internal non-discrimination in MTRs: prices forretail on-net calls not lower than off-net retail prices.

Structure of Calls Originating From Mobile Phones2013-QII 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 QIV_2014 QI_2015 QII_2015 QIII_2015 QIV_2015 QI_2016 QII_2016

93%

80%74% 69% 65% 68% 64% 61%

On net Off net Towards fixed Towards international

,