July 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 second quarter of year 2000, a major regulatory development occurred: the Parliament approved the new Telecommunications Act (superseding the currently valid Act 110/1964 Coll., from March 12, 1964). The new law (Act 151/2000 Coll.) will be enacted as of July 1st, 2000.

1.2. Business constraints and entry barriers

The new Telecommunications Act will terminate (by January 1st, 2000) the incumbent's exclusivity on voice services and will open the market to new entrants - any company will be able to apply for a licence to offer voice services (other services are already liberalised). Nevertheless, a significant entry barrier will still exist for new entrants - for two more years, they will not be able to offer their service to current customers of the incumbent through carrier selection, and will have to find other means for reaching their clients (like: building wireless local loops, laying new copper, using cable TV etc.). The reason is that the new Act on Telecommunication forces the incumbent to offer call-by-call carrier selection in its networks (not later than) by mid-2002, and carrier pre-selection (and number portability) by end of 2002. Also, local-loop unbundling is left on an agreement of both sides.

1.3. Attitude of the incumbent operator towards alternative network providers

During the second quarter of year 2000, no significant change occurred in the attitude of the incumbent towards alternative network operators.

1.4. On-going regulatory developments concerning alternative networks

In May 2000, the Czech Telecommunications Office published a draft new numbering plan, aimed at preparing the number space for liberalisation of the telecommunications market, harmonising it with EU requirements and preparing it for new entrants. The new numbering plan should become effective on July 1st, 2000 (at the same time as the new Telecommunications Act), and will result in a very extensive renumbering of almost all phone lines (fixed and mobile). The Czech Telecom already started the renumbering of certain public services (mainly information services) using short number sequences in May 2000.

On June 22nd, 2000, the Czech telecommunications Office opened a public tender for 3 licences in the 26 GHz band (also called FWA, Fixed Wireless Access). The licenses will cover the building and operation of country-wide P-MP (Point to MultiPoint) access networks, and will be issued in accordance with the new Telecommunications Act for twenty years (with possibility of prolongation). The tender will be based on a "beauty contest" (a set of criteria will be evaluated), and the price of the licences is fixed (150 million CZK, about 4,2 mil ECU). Current operators of countrywide mobile and fixed public voice networks (and companies owned by them) are excluded from this tender.

In December 1999, the Ministry of Transport and Telecommunications published a consultative document concerning the introduction of UMTS third generation networks, expecting feedback from the public. After evaluating responses (there were 13 of them) the Ministry formulated its proposal to the Government. The proposal is to sell 3 UMTS licences to the three current mobile operators (EuroTel, Radiomobil and Cesky Mobil) for a fixed price, established by the Government (covering administrative costs and including a surcharge). Only in the case when one of the current operators would not be willing to or able to accept the new licence, a public tender would be opened, and based on a "beauty contest". The proposal also states that further licences could be issued in the future, if there will be enough available frequencies and market demand.

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

During the second quarter of 2000, one new alternative operator entered the Czech market: UUNET Czech Republic (fully-owned subsidiary of UUNET, owned by MCI WorldCom). UUNET Czech Rep. wants to offer IP-based services, mainly to companies.

In May 2000, Deutsche Telekom won a public tender and became the strategic partner of Pragonet (obtaining 51 percent of its shares for $ 25 million). Pragonet is a metropolitan network founded by the City of Prague in 1996. It runs optical cables in tunnels of Prague's subway and on surface in adjacent premises.

GTS, an alternative telecommunications operator (offering voice, data and Internet services, owned by Global Telesystems Inc.) announced in June 2000 that it intends to invest CZK 3 billion (approx. ECU 84 Million) in the next three years in its infrastructure and technology in the Czech Republic.