January 2000

Czech Republic Update Memo

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

1. The interaction between business and regulatory constraints

1.1 The regulatory background

During the last quarter of 1999, no major regulatory developments concerning alternative networks occurred. The new Act on Telecommunications (that will supersede the currently valid Act 110/1964 Coll., from March 12, 1964) and provide a substantially new regulatory framework, successfully passed the first reading in the Parliament, on November 3rd.

1.2 Business constraints and entry barriers

A significant development occurred in the area of Internet Access Provision. The incumbent operator, SPT Telecom, reached an agreement with the ISP association (NIX.CZ) on two important aspects:

• new internet access tariff: SPT Telecom will offer end users a new phone tariff for dial-up access to the Internet (the tariff will be called Internet 2000, and its price level will be substantially the same as with the previous Internet99 tariff). Internet providers with more than 30 POPs will be offered country-wide local access to their networks with local calls, while the customers of ISPs with fewer POPs will be able to dial locally only in the localities when their ISP has a POP.
• revenue sharing from Internet traffic: SPT Telecom will share its revenues with ISPs. The maximum ISPs could get is around 15 percent of SPT's revenue on Internet calls, but the exact formula for calculating the shares is very complicated and favours big ISPs with large amounts of traffic. One of the conditions for revenue sharing is that the internet calls originate and end in SPT's network (calls starting or ending in alternative networks do not count).

1.3 Attitude of the incumbent operator towards alternative network providers

During the last quarter of 1999, the incumbent operator (SPT Telecom) and operators of mobile phone networks (Radiomobil, EuroTel and Cesky Mobil) opened talks concerning their interconnection tariffs. The issue was to lower currently very high tariffs when calling mobile networks from the fixed phone network (now at 10 CZK per minute, approx. 0,3 Euro). The incumbent proposed to lower the interconnection tariffs by 40 percent, but no agreement was reached and all parties announced that no changes to end-user tariffs will occur in the near future.

2. On-going regulatory developments concerning alternative networks

In December 1999, the Ministry of Transport and Telecommunications published a strategy document concerning the introduction of UMTS third generation networks. By publishing this document , the ministry wants to open public discussion on the issue of introducing UMTS, and wants to generate valuable feedback from all relevant players on the market.

On December 1^st, 1999, a new Unified rule no. 10/R/1999 issued by the Czech telecommunications Office was enacted. This unified rule sets the rules for operations in the 26 GHz band and for issuing licences in this band. The effectively usable bands are 24.5 - 26.5 GHz, and the Czech Telecommunications Office will issue licences both for Point-to-Point (P-P) and Point-to-Multipoint (P-MP), with a country-wide or regional scope.

3. Inventory of the major " public " utilities with a potential for use in IS applications:

During the last quarter of 1999, the following new operators entered the telecommunications market:

• Cesky Mobil, a consortium of Telesystem International Wireless (TIW, with 51percent of shares, the managing shareholder), Priority Telecom (a wholly owned subsidiary of United Pan-Europe Communications, UPC), and IPB (the largest private bank in the Czech Republic). Cesky Mobil obtained its license in the GSM 1800 MHz band on October 8th, and plans to start offering its services on January 8th, 2000.
  
• BroadNet Czech s.r.o., a subsidiary of Brussels based BroadNet Europe, entered the Czech telecommunications market and applied for a licence in the 26 GHz band. The new alternative operator wants to start offering high-speed access to the Internet and multimedia services, based on the Fixed Wireless Point to Multipoint Access (FWPMA) technology. In 2001, when the voice telephony market will open, Broadnet wants to offer voice services.
  
• Callino, a wholly owned subsidiary of Formus Communications, also entered the market and applied for a license in the 26 GHz band. Callino wants to offer high speed Internet access, VPN a VOIP services, and plans to use Local Multipoint Distribution System (LMDS) technology.