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Surprising Slovak market shows strong mobile phone sales

The success of GSM and mobile phones on the Slovak market has surprised industry analysts and the providers themselves. In Slovakia, it is illegal for GSM providers to subsidize handset prices as they do in other countries, so Slovak customers often end up paying several times the price for a similar model bought in Prague or Budapest. But high prices have yet to dampen interest.
GSM Providers Reflect
The buoyancy of Slovakia's mobile telephone market has been a source of deep satisfaction to the country's GSM providers. Globtel's General Director Bruno Duthoit said that the mobile phone penetration rate of the total Slovak population has risen from 0.5% in December, 1996 to 2% today. "The market is excellent," he said. EuroTel Director Artur Bobovnický agreed, predicting further growth for the second half of this year. "The Slovak market was always 40-60 in terms of growth [ratio]," said Bobovnický.

The success of GSM and mobile phones on the Slovak market has surprised industry analysts and the providers themselves. In Slovakia, it is illegal for GSM providers to subsidize handset prices as they do in other countries, so Slovak customers often end up paying several times the price for a similar model bought in Prague or Budapest. But high prices have yet to dampen interest.

GSM Providers Reflect

The buoyancy of Slovakia's mobile telephone market has been a source of deep satisfaction to the country's GSM providers. Globtel's General Director Bruno Duthoit said that the mobile phone penetration rate of the total Slovak population has risen from 0.5% in December, 1996 to 2% today. "The market is excellent," he said. EuroTel Director Artur Bobovnický agreed, predicting further growth for the second half of this year. "The Slovak market was always 40-60 in terms of growth [ratio]," said Bobovnický.

As the big bosses see it, Slovak consumers have airily dismissed the question of cost and focused on that of quality. "For three years, everybody has been saying that the barrier [in Slovakia] is price," Bobovnický said. "I have always heard that, and I have always believed that the barrier also includes quality and service."

Globtel distributor Jaroslav Novoveský echoed this thought. "Many of our customers are also interested just as much in design and quality," he said. And according to Novoveský several manufacturers hurt their sales early by releasing cheap models on the Slovak market that were inferior in quality.

In the same quality-over-price vein, several of the mobile phone manufacturers operating on the Slovak market report that the subsidy ban has actually helped rather than hindered sales, even though it has meant high prices.

"Subsidies influence the market negatively," said Peter Dovhun, public relations officer for Motorola. "[Slovak regulations] allow dealers to really compete. It's a matter of product quality, and not just who you made a subsidized contract with."

Ivan Motloch, a salesman with a Panasonic distributor in Bratislava, described how even normal contracts with GSM providers can have hidden drawbacks. Panasonic's exclusive contract with EuroTel, he said, "was a big mistake." "Globtel started one month before EuroTel with GSM, and when EuroTel opened, Panasonic had already missed the busiest market," he said.

Happy customers

The optimism at Globtel, EuroTel and the big handset manufacturers seems to have trickled down to the larger distributors. Boris Knopp, manager of Bratislava's main MobilTel outlet, says that his store is "the greatest GSM dealer in Slovakia," and has an 8% market share with sales of 100 to 150 pieces a month.

Eurotel's May promotion - when you could get a phone and a card for around 3,000 crowns - boosted Knopp's monthly tally to 1,000 pieces, and the aftermath has been far from a let-down. "Now it is holiday time," he said. "And people are away travelling, but making calls and talking through the telephone is still very popular in Slovakia."

Milan Arpas, owner of the Globtel outlet Don-Auto s.r.o., said that "in the beginning, we were the best for Globtel...up to May, we sold 1,000 GSM units," of which 60 to 70 percent were purchased with a handset.

"This summer is surprising for us in that people are still coming in and making contracts," he added. Arpas connects about seven people a day to Globtel GSM service, and says that phone sales continue strongly.

"Prices have started to come down," Arpas said. "For example, the Philips (FIZZ) started out around 10,000, and is now 6,000." The fact that the signal quality has greatly improved since the start of the year, he said, has also enticed people to buy GSM services, and promises to underwrite healthy mobile phone sales into the future.

Still a question

Not all dealers are making out great, though. Boris Kupica maintains a lonely vigil for EuroTel products behind the MobilTel's booth at Tesco in downtown Bratislava. Unshaven and bored, he snorts when asked about mobile phone sales. "It's dead around here," he said. "There was a boom at the beginning of the year when they introduced GSM, and again for the May EuroTel sale, but now no-one is buying. It's like the quiet after the storm."

It's sometimes rather difficult to know if GSM providers and major distributors are exulting over strong sales of handsets, or of the network systems that they use. EuroTel's Bobovnický reports that only 40% of customers who come in to subscribe actually buy a handset as well, while Globtel's DuThoit reports that "the majority of our customers bought their handsets elsewhere."

The 'gray market'

The origin of these phones purchased "elsewhere" is at first something of a mystery. Some outlets claim that people scurry across the border to Austria and the Czech Republic and pick up a subsidized unit cheaply, but Duthoit said this is hardly likely, as purchasers of such handsets are obliged to sign a contract for a minimum of eighteen months with a GSM provider to qualify for the subsidy. So, people who don't buy sets from GSM outlets must be either former NMT customers, or people who have found a deal on what one industry insider called "the gray market."

A quick peek in the pages of the advertising newspaper Avizo seems to confirm this suspicion. There are almost two pages of ads for "used" or "cheap" mobile phones, and one dealer, who spoke on condition of anonymity, confirmed that almost half of mobile phone customers in Slovakia are now obtaining second-hand or black-market handsets that have been smuggled into the country from abroad, and then sold through want-ads.

"I can get you a Sony, a Motorola, a Nokia for thirty to fifty percent of the retail [price]," one vendor laughed. "So why would you go to a dealer and pay all that tax? It's stupid."

Globtel's Duthoit suggested that strong mobile phone sales in Slovakia may have a cultural aspect.

"People here have no complex about buying a cell-phone," he said. "In France, it was not so chic to have a cell-phone, and growth was very slow. But a lot of people here saw the handset as a useful tool, so there was no psychological barrier, especially among businessmen." Still, Duthoit does not play down the relevance of cost. Even though Slovak handsets cannot be subsidized, he admitted, they are a good deal nevertheless."The industrial prices we obtained from our suppliers are equivalent to or lower than prices in France, where the market is much bigger," said Duthoit.

Whatever the case may be, it is certain that Slovak customers are not flocking to smaller GSM outlets or independent distributors. At Motloch's store, sales have plummeted from "six to ten activations a day, five months ago, to two or three a week now."

Motloch blames taxes and anti-subsidy laws, as well as the good weather, for making the market "flat". Novoveský concurs, but looks forward to next year, and the possible relaxation of subsidy rules. "Next year is an election year, and anything could happen," he said. "That's how it goes in Slovakia."

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