11 Jan 2010Latvia Broadband Overview

The liberalisation of the telecommunications sector in Latvia started in 2003, when the incumbent Lattelecom lost its monopoly in the fixed telecommunications market. The market is now open to competition but Lattelecom still has a large share, and has been attempting to further increase this share through acquisitions. In summer 2007, the operator spent more than LVL 10 million (EUR 14 million) on the purchase of small ISPs in an effort to increase its control over the market. In 2007, another major development was the entry of mobile operators into Internet market. They pose a significant competitive threat, especially as around 40 per cent of Latvian households use only mobile communications.

In 2008 broadband penetration growth slowed down and was lower than the EU average. This followed a promising increase during 2007, but the reduced growth was mainly due to the economic downturn. Latvia expects a further decline in its economic fortunes in 2009, but unlike other industries, the telecoms sector is expected to do relatively well due to the increasing demand for most telecoms services.

Broadband services are widely available in Latvia, especially in urban areas. Broadband services are so popular they account for almost all Internet subscriptions. In 2009, Latvia ranked the fourth in Europe in terms of Broadband Quality Scores which assesses countries’ readiness for next-generation web applications and services. These services include transmitting and broadcast streaming IPTV and HD TV, large scale file sharing and video conferences. However, broadband quality and availability is much higher in the capital city Riga compared with rural areas where it is poor or non-existent.

Latvia’s wholesale broadband market is at a very early stage of development. So far the number of lines offered via bitstream, local loop unbundling and resale has been very low, due to the regulator’s failure to establish an efficient wholesale market.

As of November 2008, 51 per cent of Lattelecom's shares belong to the Republic of Latvia with the other 49 per cent belonging to TeliaSonera. Latvian government has been trying to privatise the incumbent since September 2007, when it was announced that the Blackstone Group was to become a majority (51 per cent) shareholder in the company. The company’s management was supposed to gain a 49 per cent stake in the telco. As part of the deal, TeliaSonera hoped to gain overall control of the leading Latvian mobile operator Latvijas Mobilais Telefons (LMT) in which Lattelecom owns a 23 per cent stake. In February 2008, TeliaSonera indicated an interest to acquire 51 per cent of the shares in Lattelecom from the state including Lattelecom's 23 per cent stake and the state’s 28 per cent stake in LMT.

In April 2008 the Latvian government decided that the 49 per cent held in Lattelecom by TeliaSonera will be parked with the Latvian State Radio and Television Centre (LSRTC) until it is bought by, most likely, Blackstone. However, Blackstone is likely to demand that the government does not use its remaining 51 per cent majority to influence company strategy and operations. TeliaSonera will then buy the rest of the shares in LMT held by Lattelecom and the state and as result will own 100 per cent of LMT. However, it is unlikely that the government will pass final approval of privatisation before 2009 or even 2010, when the elections will take place.

Lattelecom started offering broadband services in 2003. At the end of June 2009, the incumbent owned 94 per cent of fixed telephone lines and held around 5 per cent of the pay television market in Latvia.

Currently there are three mobile operators in Latvia, namely LMT, Tele2 and BITE Latvija. LMT was founded in 1992 as the first mobile operator in the country. In August 2006, LMT started offering HSDPA-based services with speeds up to 3.6 Mbps. Tele2 entered the market following the acquisition of Latvian mobile operator Baltkom GSM in 2000. Tele2 offers 3G wireless Internet access with download speeds of up to 3.6 Mbps. BITE Latvija won the tender for the third UMTS/GSM communications license in Latvia in March 2005. Together with BITE Lietuva it belongs to the BITE Group which is owned by Mid Europa Partners. Despite being the most recent entrant, BITE Latvija was the first mobile operator in Latvia to offer mobile broadband with speeds of up to 7.2 Mbps.

The mobile broadband segment has high growth potential since the penetration rate is only 8 per cent compared to the EU average of 13 per cent (January 2009 data). Latvia also has the lowest penetration rate for connections using dedicated data cards/modems (0.4 per cent compared to the EU average of 2.8 per cent). However, in recent months mobile network operators saw a significant growth in the usage of data services, following the introduction of flat rates with unlimited consumption. Mobile TV contributes to this trend as it is available to 3G users in Latvia.

The wireless broadband market will also face competition from alternative technologies such as WiMAX. In 2008, Latvian State Radio and Television Centre deployed a trial mobile WiMAX network in Riga.