OTEGLOBE: Banking on the Balkans

01 April 2011 | Kavit Majithia


Operating in a struggling economy in a market that appears to be losing revenue, Kavit Majithia analyses OTEGLOBE’s operations in Greece, the Balkans and south eastern Europe.

Given its geographical position in Europe, the Greek incumbent OTE Group has tended to follow a growth strategy that centres on investments in the Balkans and central and eastern Europe. These investments come from a long history of Greek enterprises investing in the region, and with the Greek economy again set to shrink a further 3% according to market watchers following the country’s economic crash last year, it is no surprise that the company continues to focus operations in other markets. OTE Group, 30% owned by Deutsche Telekom, announced in February 2011 that it will cut 120 jobs in the group’s largest domestic mobile unit Cosmote as part of a €32 million cost reduction programme, as operators again face another difficult year.

OTEGLOBE’s operations

It is the group’s wholesale and international subsidiary OTEGLOBE that is growing, while its parent company continues to struggle in its home market. OTEGLOBE claims to be the only backbone provider in the region that offers four different routes for data traffic through its TransBalkan Network (TBN), linking Greece to the west and its Greece Western Europe Network (GWEN), which goes through Italy and is composed of four network rings. To expand its network interface further and given its geographical position, there are plans to handle traffic through India and the Middle East. The company also has a prominent voice business and claims to handle over 3 billion minutes yearly, with bilateral agreements with over 150 carriers. As a member of the i3 forum, OTEGLOBE also has a commitment to promote interconnection with over 30 carriers to construct a business model for voice that will emerge from old IP technologies.

“We are very well positioned to handle data traffic to and from the Middle East because we are nearest to the region,” says Dino Andreou, CEO at OTEGLOBE. “We are far better positioned than Italy and France, and considering most networks go through these regions and through the Mediterranean, it is imperative we capitalise on our geographical position to capture part of the vast amount of traffic to pass through Greece and western Europe.”

Investment in the Balkans

With investments reaching up to €100 million through network development alone, OTEGLOBE does not appear to be part of a company that is attempting to reduce costs. Continued investments in its TBN and GWEN networks have meant the company has also upgraded to softswitch technology on its IP and MPLS networks. OTEGLOBE, however, maintains a full commitment to align itself across its parent company’s existing footprint, which has been developing over the past four years. OTE Group maintains an incumbent position in Romania with a 54% stake in Romtelecom and a leadership position in Serbia with Telekom Srbija; and with 1.8 million and 4 million subscribers in Albania and Bulgaria respectively it is no surprise that its international wholesale arm has a distinct commitment in the region.

“OTE Group invested heavily in the region 10 years ago so we have been established there for a long time,” says Ioannis Konstantinidis, COO at OTEGLOBE. “Following OTE Group’s corporate footprint, we invested in our first network passing through Italy to serve the Olympic Games in 2004 and three years ago we developed the TBN. The Balkans region has proved a natural territory for Greek companies, and we are working with at least seven companies at the moment that are essential to our network expansion. Not only nationally but internationally, we are following the route of OTE Group’s expansion.”

OTEGLOBE also provides numerous links with a range of submarine cables crossing through Italy, the Balkans, Albania and three direct cross-border links to Turkey going through the Mediterranean. Its Chania landing station, located in the island of Crete, provides a landing point for a range of submarine cables including SEA-ME-WE 3 and will provide another point when the construction of the new Silphium cable, announced in June 2010 by OTEGLOBE and the Libyan International Telecommunications Company, is completed in Q3 2011. The Silphium cable will further consolidate OTEGLOBE’s position as a telecoms hub in the Mediterranean but Andreouconcedes there is a great need to provide alternative solutions that bypass this particular route.

“We aim to provide an alternative option as most carriers realise the importance of diversity,” he says. “There are so many cables passing through the same route and there have been cases of big cable cuts in SE-ME-WE 3 and 4 which have a big effect on services that are using this connectivity. All new cables seem to follow the same route, and while these cables address the need for capacity and system diversity, the cables do not address geographical diversity which is key. This creates an opportunity for us to either offer new solutions in the Mediterranean or totally bypass it by offering alternative, fully terrestrial solutions.”

The importance of Turkey Both Andreou and Konstantinidis identified Turkey as one of the the most important regions in their operations, considering huge penetration and significant cross-border interconnection into the country, with OTEGLOBE’s competitors in the Balkans region identifying the same opportunities.

“Competition in the Balkans is very tough because most global players have developed infrastructure in the region," adds Konstantinidis. "It is clear that these companies are targetting promising developing economies like Turkey."

Turk Telekom’s acquisition of PanTel in October 2010 could have a significant knock-on effect for OTEGLOBE, considering PanTel’s 2,000km fibre network in Turkey and its open accessibility into the Turkish market as a result of acquisition. According to Jon Hjembo, analyst at TeleGeography, this alternative solution provides easier accessibility between Europe and the Middle East, but Istanbul and Turkey may only prove an important backhaul destination for traffic heading east, and OTEGLOBE has the opportunity to capitalise on its network position. “With data demands increasing, it is likely OTEGLOBE’s networks will always converge on major regional hubs for interconnectivity and backhaul,” Hjembo says. “I’d expect to see secondary hubs like Vienna and Budapest becoming important backhaul destinations for Balkan traffic heading west. The problem for OTEGLOBE is that many of its competitors’ subsea cables bypass Greece and head to Italy and France instead.”

Broadband in Greece

The broadband market, and the company’s initiatives in developing accessibility to mobile both in Greece and in its international operations are expected to shape developments over the coming year. OTEGLOBE says it carries over 75% of traffic from the international broadband market, and 35% of traffic from neighbouring countries, with a further significant portion coming from the SEE region.

The Greek government is also attempting to implement a National Broadband Network and announced plans in 2009 to provide fibre-to-the-home access to over two million homes in Athens, Thessaloniki and 50 other cities and towns over the next seven years. Due to Greece’s dire economic situation, network construction has been postponed until mid-2011, and much of the plan’s success is dependent on private sector support as the state has only committed €700 million to the total cost of €2.1 billion.

The need for more broadband access appears prominent in the sector, considering Greece has one of the lowest broadband penetration rates in the EU, and research firm Point Topic notes there is a big gap for alternative networks to DSL connection. A report on the country’s broadband market claims Greece is presently “the only EU country where broadband services via technologies other than DSL are almost non-existent.”

Mobile broadband, as in most markets, appears to present the biggest growth opportunity in Greece. Despite a loss of 300,000 subscribers in Q1 2010, Greece maintains one of the highest mobile broadband penetration rates in Europe with over 150%. “Despite such a high mobile penetration rate, we have room for growth for the penetration of DSL access in Greece. Cosmote is already developing LTE, while we are already rolling out VDSL,” says Konstantinidis. “We have download speeds that can reach 24Mbps presently, but in 18 months this should increase to up to 50Mbps by tapping in to DSL capacity.”

The economic crisis in Greece had a significant effect on the country’s telecoms market and on its incumbent. By Q4 2009, OTE Group suffered net losses of €30.5 million, when it was expected to make a profit of over €7.1 million and recent market reports suggest the company made a further net loss of €91.7 million in Q4 2010. OTEGLOBE, however, maintains its position as a strong regional wholesale arm of the company, given its external links that shape its business model. Andreou takes an approach that could prove further fruitful, by distancing OTEGLOBE from Greece’s problems.

“Our revenue is coming from abroad,” he says. “The economic crisis and all its side effects did not really affect us. We will continue to grow with our networks and we will grow organically.”



key facts 

History: OTEGLOBE has been operational since October 2000 and serves as the international wholesale arm of OTE Group.

Ownership: OTEGLOBE is a wholly-owned subsidiary of OTE Group, the largest telecommunications company in Greece. OTE Group is 30% owned by German incumbent Deutsche Telekom following a deal with the Greek government in July 2009, with the state retaining a 20% stake in the company.

CEO: Dino Andreou is the CEO of OTEGLOBE and Michael Tsamaz is the CEO of OTE Group.

Networks: OTEGLOBE operates two dualpath high capacity optical networks: the GWEN and the TBN, stretching from Greece to western Europe as well as an IP/MPLS network (MSP) with 14 nodes in western Europe, south eastern Europe and New York. In addition, OTEGLOBE has rights in several regional and transatlantic submarine cable systems, trans-border fibre-optic networks to all neighbouring countries and more than 150 direct bilateral routes.

Transport solutions: DWDM/SDH capacity services, Ethernet transport, IP transit, IPLC services and clear channel services.

Voice solutions: Carrier-grade VoIP, premium/standard hubbing, premium outbound and inbound voice termination.

Mobile solutions: GRX, MMS hubbing, international signalling and roaming.

Teleport solutions: Video broadcast solutions, internet transit via satellite and voice/data trunks.