July 2000

Cyprus Update Memo

The following report outlines new developments in the past three months and the state of on-going developments.

I. Introduction

The following document summarizes the historical and current developments in Existing Major Network Facilities in Public Utilities, focusing on the plans of the Electricity Authority of Cyprus (E.A.C.) for the enhancement of their alternative network. As mentioned in the previous reports, no other public utility organization is currently involved in the development or usage of an alternative telecommunications network.

There has been no major development in the period between April and June 2000, other than the continued progress of phase 2 of the Electricity Authority of Cyprus (EAC) alternative network project, which includes the integration of fiber optics to all new transmission lines to be constructed, and which is scheduled to be completed by the end of 2002.

II. The interaction between business and regulatory constraints

1.1 The regulatory background and developments.

Currently, the Cyprus Telecommunications Authority is by law the sole provider of telecommunications facilities and services (Telecommunications Service Law cap.302 of 1954). Therefore, at the moment there is no legal framework or regulatory authority for the application of transmission infrastructure or "alternative networks" owned by public utilities to Information Society.

1.2. Business Constraints and entry barriers

Given the legal impediments which currently exist with regards to the commercial exploitation of any alternative networks, no organization was found to have consciously developed alternative networks on a commercial basis. Nevertheless, the anticipated liberalization of telecommunications services, as well as the liberalization of data transmission services provide the opportunity in the future for organizations other than the historical operator (CYTA) to do so.

The only organization with an extensive alternative network is the Electricity Authority of Cyprus (EAC) which currently employs its own fiber-optic technology internal telecommunications network for voice communication and data acquisition and other internal needs of the organization.

It is not anticipated that the commercial exploitation of this alternative network by the EAC would meet with serious entry barriers in a liberalized telecommunications market. This is partly because the network has been developed over a number of years, which means that a large part of infrastructural investment has already been made and fiber-optic technology is already being implemented. In addition, ever increasing production volumes and advancing technology in fiber-optics, have brought the cost of adoption down substantially. Moreover the specific benefits offered by fiber-optic technology, namely more rapid transmission of information with greater security, immunity to all forms of electromagnetic interference, and fewer losses (meaning that boosting is not needed by regenerators), should allow such an alternative network to offer services at competitive rates and function with a minimum level of operational costs.

In addition, it should be noted that there is a number of large companies and industries which would benefit from using such an effective modern alternative network, particularly in the financial sector, the oil refineries, and specific government organizations. Demand is therefore expected to be high.

1.3 Attitude of the incumbent operator towards alternative network providers

Historically, the Cyprus Telecommunications Authority has developed close working links with the main alternative network provider, the EAC. . The Cyprus telecommunications Authority positioned itself in a sympathetic way towards the alternative network of the E.A.C, even though no cooperation in this particular field has been reported

However, in view of liberalization, CYTA is enhancing its strategic position in telecommunications markets by developing significant activities abroad (besides offering a wide range of telecommunications services and facilities in the local market). In particular, CYTA participates in sub-marine cable systems such as :

• The Sea-ME-WE 3 submarine cable system which stretches from the Far East to Northern Europe, involving 33 countries, offering enormous channel capacity
• The LEV submarine cable system which will link Israel and Italy via Cyprus. The system belongs to MED-1 in which CYTA is a shareholder.
• The Black Sea Fiber Optic Cable System (BSFOCS) which will link the countries of the Black Sea (Bulgaria, Ukraine, Georgia, Russia). CYTA, together with the Greek Telecommunications Organization (OTE) have been the main participants in the preparation of the specifications, the evaluation of tenders for the project and the carrying out of the relevant negotiations.

1.4 On-going regulatory developments concerning alternative networks

A law on the setting up and the operation of an independent Regulatory Authority is currently under review. Regulatory developments concerning alternative networks would be expected to take place following the set-up of such a relevant authority.

2. Inventory of the major "public" utilities with a potential for use in I.S. applications

Currently, there are only three public services networks in Cyprus : the Cyprus Telecommunications Authority ; the Cyprus Electricity Authority ; and the Waters Development Department. Reportedly, the Waters Development Department neither has nor plans to develop any alternative networks.

There are currently 2 pay TV stations (LTV and Alpha), but no cable TV station exists. Furthermore, there are no immediate or short-term future plans for the establishment of such a venture. The infrastructure for a cable TV network is existent, albeit not entirely efficient. Therefore, the potential of a cable TV network is rather limited, at least in the near future.

2.1. Types of companies offering networks : description, choice and strategies

The only public utility which operates an alternative network is the Electricity Authority of Cyprus (EAC). However, in the absence of liberalization in the field of telecommunication services and a regulatory authority, the EAC has to-date used these facilities towards its own internal communications needs and goals.

In the past, the EAC has used its own telecommunications media consisting of Power Line Carrier (an analog system which carries information by using as medium the high voltage transmission lines of EAC) ; optical fiber communication links through the use of its overhead and underground network ; and underground pilot networks.

The key aspect in the development of the "alternative" network is essentially the widespread use of optical fiber technology. The said system makes use of the Power Line Carrier network which carries information by using fiber optics communication links through the use of mainly its overhead and secondly its underground network ; and underground pilot networks.

In practice, optical fibers are helically wrapped around existing lines, are installed inside the earth conductor in the case of new overhead transmission lines, or are installed in the same trench in the case of new underground cables.

This fiber-optic technology has the key advantages of an enormous capacity for carrying information over long distances and immunity to interference. Additionally it carries the benefit of low attenuation meaning that information can be transmitted long distances without the need for boosting along the way by regenerators.

The envisioned project for the alternative network comprises 3 phases, as follows :

• Phase 1 : Integration of fiber optics in transmission lines (overhead and underground) which already form part of E.A.C.’s network.

This phase was completed at the end of 1999, with the full integration by the Authority of fiber optic cables in the 12 existing high voltage transmission lines, their total length being 222 Km.

• Phase 2 : Integration of fiber optics to all new transmission lines to be constructed. Phase 2 has already been approved by the Authority’s board of directors ;

Phase 2 is scheduled to be completed within the next 3 years (by the end of 2002), with a total length of fiber optics cable of 105 km being integrated in new transmission lines. Subsequently, the network would be in a position to face the competition emerging from the anticipated deregulation of the market.

• Phase 3 : Integration of fiber optics in existing and in new lines in such a way that an internal communication network is created. This network would interconnect the Authority’s head office, the area offices and the power stations so that the communication between each other is made possible. This network would be expandable so that at a later stage, is able to provide communications services to a much larger clientele.

The underlying objectives of the said network are to :

• Exploit a safe method of communication to be used by the Authority’s Control Center in Nicosia (the capital of Cyprus), in order to transmit signals and to receive data from Power Stations and Substations throughout Cyprus ;
• Utilize the newest and fastest communications technology available ;
• Use this network for telephony, telemetry, e-mail, Internet, and other plausible applications ;
• Create a network which would be efficient enough to be able to compete with other telecommunication networks anticipated to be developed by competitive organizations following the inevitable deregulation and liberalization of the telecommunications market

Additionally, the EAC is embarking on amore structured program of co-operation with its Greek counterpart (DEI). In the past, this has been based on mutual exchange visits of a social nature. However, meetings of a consultative nature are now being held with DEI advising EAC on privatization issues. More specifically, a two-day conference was held on September 13-14 in Nicosia with a view to inform and guide the EAC on issues relating to the liberalization of the electricity sector. DEI described their own experiences arising from the harmonization process with EU standards, environmental protection and renewable sources of energy.

In line with the Authority’s policy to regularly organize internal training and awareness programs, the EAC is also following a policy of introducing and familiarizing employees with the SCADA (System Control and Data Acquisition) installations at the three main power stations at Dhekelia, Vasikiko and Moni through organised visits.

2.2 Types of Operators Using the Networks

At the moment, the only operator using the network is the EAC organization itself.

2.3 Types of Services offered by the operators on the networks

Currently, the telecommunications network of the EAC system is being used for inter-linking the outstations (i.e. Power stations, Substations and Area Offices) with the Control Center for the transfer of large volumes of information in both directions ; carrying speech for the private telephone network as well as inter-trip signals for the electronic inter-protection of power lines and transformers of the Authority’s transmission system.

Services which could be offered comprise data transmission ; telemetry ; closed circuit TV ; fixed voice services ; mobile services ; data services ; image services ; management services ; value added services.