Bulgaria drops to 14th position, from 13th position, in BMI's Q213 Risk/Reward Ratings for Central and Eastern Europe in this quarter's update to our telecoms market report. The country continues to score below average in all four of our ratings category, with the Industry Rewards category, which has the biggest weighting, accounting for its lowest score.

Bulgaria's score in the Industry Rewards category fell by 2.5pts to 35 this quarter. The country's underperformance compared to many of its neighbours is partly due to its relatively low market weighted average ARPU, which is now less than US$10. Furthermore, Bulgaria is expected to experience one of the slowest mobile subscription growths in the region over the next five years considering that its penetration rate was more than 160% as of September 2012. There is a risk of inactive SIM discounting, which could greatly reduce the number of subscribers. There are also further cuts to interconnection rates proposed in 2013 and the entry of a fourth mobile operator, which we expect to drive down ARPUs. That said, there are signs that development of the broadband segment, both mobile and fixed, with Mobiltel reporting strong growth in dedicated mobile broadband subscriptions and the potential sale of Vivacom likely to bring in expertise and investment.

Bulgaria's Country Rewards score remains below the regional average at 39. BMI expects Bulgaria's economic growth to be weighed down by significantly weaker aggregate demand in the eurozone and persistent concerns over the eurozone debt crisis. We believe that the slowdown in external demand will weigh on Bulgarian exports, which, when combined with only moderate growth in household spending, will feed through to lower real GDP growth in 2012.

Bulgaria's Industry Risks rating remains at 70, below the regional average, although, for the first time in a number of years, there is potential for this score to be upgraded depending on how the regulator tackles a number of important issues. In recent months the CRC has moved to lower maximum retail prices in fixed and mobile services, as well as awarding a fourth mobile licence to boost competition. We therefore consider the regulator to have demonstrated a determination to further liberalise the telecoms sector, building on the introduction of mobile termination rate (MTR) cuts at the start of 2009. We await confirmation of the MTR glide path for 2012 to 2013, which is currently under consideration by the European Commission.

Bulgaria's fiscal consolidation efforts appear to be yielding positive results in terms of bringing down the country's budget deficit. BMI's Country Risk team expects Bulgaria to remain one of the EU's star fiscal performers in 2013. We forecast a fiscal deficit of 1.4% of GDP in 2013 and expect the national debt to continue falling from the current level of 17.8% of GDP to 12.6% by 2020. Although this has constrained private consumption, which is now a key part of our ratings methodology, we expect expenditure growth to pick up ahead of the 2013 parliamentary elections as the ruling GERB party seeks to boost flagging support. Spending has been restrained since the global financial crisis, with growth up 3.6% y-o-y in the year to November 2012, but the 2013 budget contains several crowd-pleasing spending increases. The government plans to hike pensions by 9.3%, the minimum wage by 7.0% and army salaries by 9.0%. On the political front, we view the ruling Citizens for Bulgaria's European Development (GERB) as the most likely winners at the parliamentary elections in mid-2013. Although support for the party has been flagging, GERB still leads in the polls and is likely to benefit from increased government spending, coupled with a pick-up in the economy ahead of the elections. However, regardless of who wins the election, Bulgaria will continue to struggle with high levels of corruption.

This article is tagged to:
Sector: Telecommunications
Geography: Bulgaria, Bulgaria, Bulgaria, Bulgaria

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