An interview with Mr Zabulis was agreed upon back in late February, when leadership of TeliaSonera – Omintel's main shareholder – expressed concern over situation in the Baltics, especially Lithuania. That was a clear hint that of all the companies within the group, Omnitel was having the toughest time.
A veritable slap in the face was last year's figures. The company has almost 2 million clients – in a country of 3 million – and only made 555 million litas (161 m euros). If it does not sound so bad, one has to recall that in 2008, the boom year, Omnitel reported takings of 977 million litas and has seen it decreasing ever since.
During an hour-long conversation, the president of Omintel talked about the company's finances, immediate plans and challenges, as well as the future of mobile internet and telecommunication.
- TeliaSonera leaders were critical of their companies' performance in the Baltic region. They took an especially dim view of Omnitel. Why was your company singled out?
- Perhaps the biggest difference between the Nordic and Baltic states is that smart trends reached Scandinavia much earlier. In the biggest Nordic cities – Copenhagen, Stockholm, Helsinki, Oslo – penetration of smartphones is very high. I'd risk to assume that as many as 50 percent of Stockholm residents carry around smartphones, readily use various apps and mobile data. People truly employ their phones.
Lithuania boasts one of the most modern infrastructure, yet most of the bandwidth is used for downloading movies.
We have pushed the “get smart” wave in the Baltic market quite hard. Trends are optimistic; for instance, of all the phones sold by Omnitel last year, 60 percent were smart. However, smartphone employment in Lithuania is still meager, since perhaps not all people see the point in using popular apps on their phones or tablet computers. It simply takes time for people to get used to it, to get their hands in.
The Baltic states, and Lithuania in particular, are doing worse also because the drop in GDP during the recession was sharp, almost 25 percent. In Lithuania, the crisis started about 9 months later than in Latvia or Estonia. Having entered the crisis later, it took longer for Lithuanians to get out of it as well. The third difference is that Lithuanians are much more perceptive of the lowest price than Latvians or Estonians, not to mention Scandinavians. If we look at the ads, the rather aggressive insistence on the lowest price, we see that people take pricing very seriously, often too seriously. Our wish is to make them use mobile solutions to make life easier, to increase business efficiency. That, too, probably takes time.
- Which business area was hardest-hit by the recession?
- Earnings from voice communication services and text messages decreased most. Texting is being replaced by e-messaging – the trend is obvious and there is no way around it.
As for voice communication, there has been 20-40 percent decrease in inter-network connection rates over the last year. That means that our takings were about 5-10 percent lower. Certainly, the shareholders realize the reasons behind it, but, within bigger picture, these drops are rather notable and jarring. I still think we were right in lowering the inter-network connection rates, since they were much too big.
Looking at other countries, one sees significant growth in smartphone sales and mobile data use. In 2011, comparing to 2010, Omnitel earned 32 percent more from mobile data, yet the proportion between voice communication and mobile data use is such that the increase in the latter was not sufficient to make up for the decrease in the former.
Investments into network also made an impact. We have already invested a total of 440 million litas into 3G network facilities, 118 million last year alone.
- Have changes in prices had any effect on service use?
- People have gotten used to package pricing. That is, they get a package of calls and text messages to all networks for a fixed price, so they do not have to worry about whom they call, as they know how many minutes they have left.
During the entire recession period, there has been no decrease in service use, it remained stable or even edged up. However, due to drop in rates, service providers receive less income.
- Which areas were most heavily invested in last year?
- We invested considerably into both 3G and 4G networks. We've also directed money towards consumer education – we didn't push smartphones or stress the price. In effect, all the three major providers (i.e., Omnitel, Bite, and Tele2) offer same price, but we do not want to cheapen ourselves, in the widest sense of the term. We put more emphasis on certain value that a person could get from using a smartphone. Of course, miracles do not happen, but we believe that Lithuania will “get smart” and stay that way.
In a sense, our investment benefits the entire industry. Just look at the AppCamp that Omnitel has held several times already – applications produced there are not property of Omnitel. Clients of any service provider can use them.
- What is the task that shareholders presented you with this year?
- Exactly a year ago, I said it would be great if our drop in 2011 were confined to the adjustment due to lowered inter-network rates. The drop was somewhat bigger, because voice communication earnings went down quicker that we'd anticipated.
The plan for this year is to achieve completely stable gross earnings. Doubtlessly, certain corrections in voice communication are possible and there is no way around it, but the drop should be compensated by earnings from mobile data service.
- How do you expect to increase mobile data earnings?
- Many people want to get a smartphone but haven't considered using mobile data. Our goal is to make them use smartphones not only for making calls, but also have a package that the client might perceive as an added value to be used for various applications and solutions, making many tasks much simpler.
At the moment, an average client downloads and uploads around 250-300 MB of data monthly. But judging by the trends, this can top 1 GB in several years time.
- What is the initial performance of 4G? Is your investment paying off, are people getting interested?
- The number of users is not huge at the moment, but there is interest, definitely. I can give you an example. When 4G was launched in Sweden over a year ago, the same shareholders used to ask about the number of users; but now they quit talking about figures as this process is already far beyond counting numbers.
We have very specific promises from almost all producers that first shipments of 4G devices will reach us by the second quarter.
We've only just started the process, installing the technology into the entire network. Interest is great, but one needs appropriate phones and modems to operate within new frequency range than we have today.
- Producers have already offered 4G phones and tablets. Is it known when these will reach Lithuania?
- We have very specific promises from almost all producers that first shipments will reach us by the second quarter. We've negotiated to get the devices for testing as soon as they appear.
- Is there any chance that mobile users will get unlimited data in the future?
- Lithuania boasts one of the most modern infrastructure, yet most of the bandwidth is used for downloading movies. Service providers have not probably build networks and invested money so people can pump films. Service providers want it to be used for wider range of services. We try to understand client behaviour and put together packages, based on the price of downloading 1 GB of data. At the moment it costs around 7-10 euros. 4G network is much more capacious, so the price should drop.
In 2011, Omnitel earned 555 million litas – 46 million less than in 2010.
In 2011, the company invested 118 million litas or 108 percent more than a year before. The bulk of the investment went into mobile internet business as well as smart content and app market education.
In 2011, Omnitel EBITDA margin was 28 percent (33 percent in 2010).
As of late 2011, Omnitel had 1,990 thousand subscribers.
What's the use of smartphones?
If one asked a person in Lithuania, Sweden, and Finland what he or she uses smartphones for, it is very likely that a Lithuanian would say s/he reads emails, a Swede browses social networks or plays games, and a Fin – checks his or her schedule and listens to music at the same time. Such are the conclusions from a Trends poll carried out by TeliaSonera in several countries of the region.
In Lithuania – much like in Latvia and Estonia – 54-56 percent of respondents use schedule planners, calendars, email applications and other utilities on their smartphones. 18-27 percent use them for entertainment, according to the Trends poll.
Meanwhile, the majority of smartphone users in Sweden, Norway, and Denmark prefer social networks, music, video streaming and other types of entertainment – 48-53 percent used those as opposed to 27-29 percent opting for something more practical. Fins use both equally – 43-45 percent each.
In Lithuania, mobile phones for entertainment are most often employed by teens under 17. People of 18-24 years of age pay similar attention to entertainment and practical services. 43,8 percent said they use their phones for entertainment more while 40,1 percent prefer using it for work.