Pannon GSM Tavkozlesi RT, Budapest, Hungary, was expected last week to place privately about $123 million in euro-denominated bonds it plans to use to refinance outstanding debt.
Pannon, which operates a Global System for Mobile communications 900 network, has about 450,000 customers, or about 40 percent of the current duopoly market. The carrier is owned by KPN Telecom, Tele Danmark, Telenor and Sonera.
“The entry of a third mobile competitor, Primatel, owned by a consortium formed by Vodafone (Group plc), AirTouch (Communications Inc.) and RWE (Telliance)…is expected to stimulate overall demand … [which] should help offset any negative pricing pressures from increased competition,” said Eric de Bodard, managing director, and Helen Francis, senior analyst, of European corporate ratings for Moody’s Investors Service Ltd., London.
The agency assigned a speculative grade rating of Baa3 to the senior notes, due 2004, which are guaranteed by Pannon GSM and issued by its subsidiary, Pannon Finance BV.
Although telecommunications regulations in Hungary are in a state of flux, the Moody’s analysts said, “It is our understanding the government intends there will be three digital cellular operators … ultimately with equal frequency in the GSM 900 and 1800 bands … [This] will give [Pannon] scope to plan its strategic response to competition.”
Primatel, the newcomer, recently was awarded a GSM 900 license.
Francis and de Bodard also said they expected Hungary to reduce its interconnection tariffs within two years to meet European Union criteria, a decrease that should ultimately benefit all mobile operators in that country.
Churn rates are quite high in Hungary compared with other EU countries the analysts noted.
“[This] has been partly due to significant competition in handset subsidies and partly due to fraud, aided by (Hungary’s) legal environment, which does not currently allow credit checking,” they said.
A third carrier competitor could cause continued upward pressure on churn rates. However, Pannon and Westel, the largest wireless operator in Hungary, have addressed the churn problem through prepaid services and recently introduced churn prevention and customer loyalty programs, de Bodard and Francis said.
