July 1999

Estonia Master Report

The role of alternative networks in Estonia has been minor. It follows from the fact that during 1940 - 1991 Estonia was part of the Soviet Union and the national communications networks were part of the Soviet networks. Also, the prices for telecommunication services were fixed by the State. There was no possibility to build and operate alternative networks. After regaining independence on August 20, 1991 Estonian telecommunication market started to develop rapidly and by year 2001 (with the ending of the special rights granted to AS Eesti Telefon) there should be a totally liberalised market. Operating in telecommunication market (incl. operating alternative network) is at the present moment discouraged both by existing legislation and by rapid technological advancements causing enterprises to be on awaiting position as the positive and negative aspects of the technology they are operating and development trends are not clear.

Still, with this report the following public utilities providing enterprises that are or could be active in telecommunications sector are covered:

• energy utility Eesti Energia AS;
• water utility AS Eesti Veevärk;
• railway company AS Eesti Raudtee;
• gas utility AS Eesti Gaas;
• cable television operators.

1. The interaction between business and regulatory constraints

1.1 The regulatory background

Telecommunications are regulated in Estonia at the moment by the Communications Law of the Republic of Estonia (State Gazette [Riigi Teataja], RT, 1991 [year], 3 [number], 49 [article]) adopted in 1991. The law aims to determine the rights and duties of juridical and private entities in Estonia in owning, using and commanding communications equipment and networks, operating communications networks, also establishing the general principles of responsibility in case of violating the applicable laws. The Act in its essence is not adequate for the needs developing information society. The term "alternative networks" is not explicitly stated in the act, although the act regulates the field. The main related paragraphs would be the following (the translations of the legislative acts used in this document are unofficial):

Paragraph 3. The Definition of Networks
(2) Communications network (also radio and television network) is a system consisting of communications equipment, tools, lines, buildings, stations and junctions through which messages are inserted, transmitted and delivered.
(3) Local communications network is a communications network ensuring communications within an administration territory a county or a national city.
(4) General use communications network is a network that is used by its owner to offer communication services or is rented out to be used by other juridical entities.
(5) Single communications network is a communications network made up of national communications network and the networks of private and juridical entities connected to it.

There is also Cable Distribution Act to regulate the terms of deployment and conditions of operation of cable networks, and on the provision of cable television services and telecommunications services by cable operators. Cable Distribution Act was enforced starting June 1, 1999.The following definitions are used in the Act:

Paragraph 2. Cable Distribution and Cable Distribution Network.
(1) Cable distribution in terms of the present act is the transmission of television and radio programs to subscribers via cable distribution networks.
(2) Cable distribution network in terms of the present act is the system of technical means to transmit programs to subscribers.

By the Cable Distribution Act, a transmission can be termed cable distribution only when business transaction takes place between two parties – the provider and the client. If the programs are received for individual’s own purpose (there is no client and business transaction) then the term individual receiving is used. Cable distribution is divided into cable television if there is large network (there are two or more amplifiers and/or transformation tracts) and collective antenna system if there is small network (less than two amplifiers and/or transformation tracts). As collective antenna systems are mainly in-house networks and thus are not important as public alternative networks, the following report concentrates on cable television market.

The Act also regulates the provision of telecommunication services via cable networks. The definition of telecommunication service is as follows:

1) Telecommunication service is a service the content of which is entirely or mostly the transmission of signals via telecommunication network and establishment of connection between the end-points of the network.
(2) Telephone service is a telecommunication service, which enables the user an access to telephone network and the real-time voice transmission between the destinations of the network.

The overall developments of Estonian telecommunications policy are oriented towards liberalisation. This means the end of the Concession Agreement (http://www.telekom.ee/concession_agreement.htm) signed between the Government of the Republic of Estonia (http://www.riik.ee) and Estonian Telephone Company Limited (ETC Ltd., http://www.telekom.ee). The Concession Agreement signed in 1992 granted exclusive rights to ETC for eight years (until 01.01.2001) to provide basic services (local, national and international switched fixed voice telephony services, telex and telegraphic services, their installation and interconnection to them).

1.2 Business constraints and entry barriers

One of the main entry barriers that discourages free operating in telecommunications market (including provision of telecom services through alternative networks) is the Concession Agreement signed between the Government of Estonia and Estonian Telephone Company. According to the agreement the latter can be the only provider of basic services from 1992 to 01.01.2001.

Although the provision of basic services (local, national and international switched fixed voice telephony services, telex and telegraphic services, their installation and interconnection to them) is the monopoly right of Estonian Telephone Company, non-basic telecommunication services (e.g. mobile and data communication, paging services, satellite communication or values-added services) can be offered freely. There is only licence needed for building and operating networks and/or if there is interconnection to the PSTN. There is competition in all of these liberalised markets.

Among other aspects the Concession Agreement states:

The concession holder shall, on terms and conditions to be agreed between the concession holder and the party interested in interconnection, allow, facilitate and effect the interconnection to its network of the Basic Services and systems of other telecommunications operators, according to the Telecommunications Act of the Republic of Estonia, and established international standards. (§ 4.12 Concession Agreement)

The Cable Distribution Act, which recently came into force, prohibits the operation of telephone operators (owning remarkable market share in telephone market) in the cable television market:

Paragraph 8. The Owner of the Cable Television Network

(1) The owner of the cable television network can be an entrepreneur subscribed to the Estonian Business Register and to whom a licence to operate in the cable television market has been issued.

(2) The owner of a cable television network can not be business entity or an entity related to it through business interest that is offering telecommunication services and owns more that 40% of the overall market share in telephony market.

(3) The business interests defined in the current paragraph's subsection 2 cover the following:
1. belonging to the same corporation or
2. partial of full overlap of stockholders directly or through third parties or
3. having a share more than 2 percent in another enterprise directly, through share- or stockholders or third parties.
4. The circle of the people having a share in the enterprise owning cable TV networks and their ownership of other enterprises has to be transparent.

One of the companies has problems with fulfilling these aspects, as it is active both in the cable distribution and telephony market.

Juridical entities may construct and operate common communication networks in accordance with the Communications Law and with a licence obtained from the Ministry of Transport and Communications. Private entities may own communication equipment and networks for personal use (§8)

The construction, establishment, owning and use of radio transmission equipment is regulated by the Communications Act as follows:

Juridical and private entities are allowed to construct, establish, own and use radio transmission equipment with a licence issued according to the conditions determined by the Government of the Republic of Estonia.

More precise regulation (concerning the frequencies of radio equipment etc) is established by the Government of the Republic.

According to the Cable Distribution Act, a national licence is required to construct and operate a cable TV network:

(1) Cable television network licence is a licence issued by the National Communications Board which gives its owner a right to establish, own and use a cable television network in terms prescribed in the licence.

(2) ) Cable television network licence is issued for 10 years

(3) ) Cable television network licence is not transferable…

(§9)The enterprise must also have a special licence to offer telecommunication services, which require national licence, via cable TV networks (§ 9). However, the provision of many communications services is limited by the Concession Agreement. The provision of Internet services and packet communication services is not restricted by the Concession Agreement and can be offered freely.

Thus, is a company owning alternative networks wants to offer telecommunication services, (according to the Communication Law) it has to have a licence for establishing common networks. In case a national licence is required to offer telecommunication services, a company must have that as well. Currently, the provision of many telecommunication services is an exclusive right of the Estonian Telephone Company. The liberalization of markets takes place on 1 January 2001. If an owner of alternative network wants to offer telecommunication services to some other enterprise (i.e. mobile telephone operator), no licence is required.

1.3 Attitude of the incumbent operator towards alternative network providers

According to the expert opinion from the Estonian Telephone Company the role of alternative networks in the voice telephony market is low. Monopoly status to offer international phone calls is protected by the Concession Agreement. Situation on data communication market is different - ETC has been operating in competitive environment but still holds one of the leading positions among different service sectors.

Public utilities providers (Eesti Energia AS, AS Eesti Gaas, and AS Eesti Raudtee) use mainly corporate networks for internal communication. ETC does not have any official data at the moment that considering their plans to enter the telecommunication market after the end of Concession Agreement. Potential competing forces are foreign investors/operators that could be interested in the Estonian market after the end of the Concession Agreement.

Main competition is believed by ETC to take place in the international long-distance calls area. There could be also increased competition in the data communication market.

At the present moment there is a company Supertel OY operating in Estonian market. It offers international long-distance call via data communication and ETC considers it as violation of the Concession Agreement. Concerning the activities of Supertel OY, ETC has turned to the official representative of the State in the area of Concession Agreement. The Ministry of Transport and Communications has prohibited the activities of Supertel OY.

1.4 On-going regulatory developments concerning alternative networks

The overall developments of Estonian telecommunications policy are oriented towards liberalisation. This means the end (January 1, 2001) of the Concession Agreement signed between the Government of the Republic of Estonia and Estonian Telephone Company. With this the provision of basic as well as non-basic services will be free and Estonian telecommunication market will be in line with the demands of the European Union.

Riigikogu is at the present moment reading the Draft Telecommunications Act that is in line with the European Union legislation and starts to regulate the liberalised market. With the law the special rights of ETC will not be prolonged.

With the enforcement of the new Telecommunication Act, the Estonian National Communications Board (NCB), which was founded on August 1, will replace the Ministry of Transport and Communications as the national regulatory authority.

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

2.1 Types of companies offering networks

According to the Business Register (01.04.98) there were 81 enterprises active in the communications area. 69 of them were operating in the telecommunication market and 12 in the postal services market. 90.1% of the enterprises were owned by private sector, 3.7% by the state and 6.2% by foreign enterprises. There are several other enterprises that are or could be active providers of telecommunication services although telecommunications are not their main activity. For the following analysis, the providers of so called alternative networks are divided into two.

2.1.1 Public utilities and their networks

• Eesti Energia AS is an unique power company in the world, because it uses oil shale as the principal fuel. The company is unique also in the local context since Eesti Energia produces 97 % of Estonia’s electrical energy and with about 8000 employees is a major employer in the country. The length of airlines is 117 221 kilometres and cable lines 6 000 kilometres.

Key objectives of Eesti Energia are:

• control and monitoring of a joint parallel operation of power plants, the national grid and distribution networks that comprise the power system of Estonia
• reliable operation and optimisation of the power system of Estonia
• co-ordination of technical co-operation with power systems of other countries.

There is a special department that is dealing with communication networks which was established already in 1949. The corporate network covers the whole Estonian territory connecting all major energy objects – electrical stations, management centres, etc. There are analogue channels (n x 64 kbit, n x 2Mbit), radio links (2, 15, 18 GHz), optical cables as well as radio communication networks used.

The networks of the company are mainly used for corporate purposes. The usage area covers the telephony inside the company with connection to the public network of Estonian Telephone Company (29 digital stations) and data communication. The latter is used for operative data communication and to transmit the commercial data as well as to connect the computers of the company.

In the short-run, there are plans to develop image transfer services for operative management, security control and videoconferencing. Long-run plans are not clear at the moment but co-operation with major telecommunication operators could be considered.

• AS Eesti Gaas (http://www.gaas.ee) is a joint stock company owned by the Russian OAO Gazprom, the German Ruhrgas AG - two of the largest gas companies in Europe-, the state of Estonia and small shareholders comprising private and legal persons. The activities of AS Eesti Gaas focus on the purchase, sales and pipeline transportation of natural gas. In addition, the company deals with gas system construction, gas meter verification and the training of gas-related specialists. The goal of Eesti Gaas is to provide the clients with stable and secure natural gas supplies in the Republic of Estonia. The turnover of the company was 639,4 million kroons (about 41 million Euros) in 1998.

The customers of Eesti Gaas and its subsidiaries include 141,948 residential clients, 615 commercial and public institutions, 173 industrial consumers, 60 district heat generators and 4 heat and power co-generators. The company manages 848 km of transmission pipes, 27 gas distribution plants, 2 gas measuring stations and 1243 km of gas distribution pipelines. There are 515 workers employed right now in Eesti Gaas.

Corporate communication network was established during the Soviet period, when installing a communication cable along with a gas pipe was very common. Today the network is used for internal telephony and data communication with gas distribution centres.

There has been no strategic decision made what to do with the communication lines in the future. In the sections, where the company does not use the full capabilities of the network, they are willing to rent it out. On the other hand, they rent some channels themselves from the Estonian Telephone Company, because for example in Tallinn, they do not have their own network.

• By January 1998, the Ministry of Transport and Communications has given out a licence to manage railway transport for 8 companies. The biggest railway companies that are owned 100% by the state are AS Eesti Raudtee (Estonian Railways) (mainly export, import and transit trade, international and Tallinn area passenger carriage) and Edelaraudtee AS (intrastate passenger and goods carriage). Eesti Raudtee is a manager of the state owned railway tracks and the turnover of the company was 1 051 million kroons (67 million Euros) in 1997. There are 5700 people employed in 62 railway stations.

The field of information and communication technology is especially important for operative communications, but also for connecting to the inter-company data communications network extending to the whole country.

For corporate communications, both analog and digital transmission is used. As channels, backbones (copper and optics) and radio transmissions are used. There also exists a connection to the general network of the Estonian Telephone Company.

The main thing considered in developing the communication system is its stability. It is guaranteed by the inclusion of free resources and creating a possibility for parallel usage of different communication types. Free resources are created by doubling equipment or communication channels. Both processes have already been started and being actively developed.

Also, plans are to start digitising existing channels going through communication backbones (copper), in order to create a backup solution for established radio linkages and optic cables.

In the field of telecommunications, a co-operation with other enterprises takes place in the field of renting out free channel volume (radio links to mobile phone operators) and offering telephone service (for companies closely related to Estonian Railways).

No strategic decision on what to do with the communication networks after liberalisation in co-operation with other service providers has not been made yet.

• AS Eesti Veevärk was established in 1993 by state enterprise Eesti Vesi and municipal enterprise Tartu Veevärk. Today, AS Eesti Veevärk has 33 shareholders, out of which 29 are local governments (about 0,1-4,6 % each). Other shareholders are NEFCO (11,2%), AS Tartu Veevärk (13,2%), AS Narva Vesi (13,8%) and AS Võru Vesi. The turnover of the company was 33,4 million kroons (2,1 million Euros) in 1998 and net profit was 2,4 million kroons (0,15 million Euros). The company employs 40 people.

The main fields of activity of the company are planning and managing investment projects, environmental consultations and expertise, maintenance of water and sewage pipes and professional training. The company works in a strong co-operation with smaller enterprises.

The company does not have internal communications networks, but they do have a competence to establish them since they have consulted other water companies in the field of IT and continue doing so in the future. They feel the need for internal communication networks since it would enable them to communicate with smaller costs and more operatively, but there are no concrete plans yet.

• Cable distribution

The most widespread provision of telecommunication services is foreseen to be by cable distributors. Wide-scale cable distribution started in Estonia in 1987 when Levi Kaabel (belonging to Levicom Group) established the first cable TV network in Kuressaare City that worked for business profit. There was overall rapid development in Europe in this area as it was possible with simple equipment to receive and transmit tens of programs. This development was followed in Estonia. The development of cable TV took place mainly in Western-, Middle- and Southern Estonia where only a few TV programs transmitted by local transmitters were available in contrast to Northern Estonia.

The second leap took place in 1992 when local transmitters stopped the transmission of Russian television programs. The rapid development of cable-TV networks started in Tallinn and other places in Northern Estonia where most of the Russian-speaking people live. This was also a period of piracy, as most of the established networks (including those built in Tallinn) were not technically nor judicially correctly built.

The third milestone is the approval of Cable Distribution Act in 1999 by Riigikogu, in force since June 1, 1999. This law systematises the market and establishes environment for the development.

At the present moment, there is strong competition going on in the market. There are 135 private entities out of which several invest a lot of money to improve their services. Cable TV is available to ca 30% of the population (unofficial data) and ca 50% of the homes that are in the districts covered by cable TV have connected to it. According to the data from the Ministry of Road and Telecommunications there are ca 165 000 cable TV clients in Estonia. Most of them live in Tallinn (ca 70’000 clients); others are distributed mainly between other cities.

The cable TV operators in Estonia could be divided into three groups:

• The first group (interest group) is composed of the leading telecommunication corporation Netcom AB (trademark Tele 2) in Estonia. Its subsidiary company Levicom Broadband operates fixed telecommunication network including cable TV networks in Estonia and Lithuania. Being the biggest operator of Internet services, mobile networking and second in fixed voice telephony and acting also in cable TV market, the company has similar goals for Estonia. Levicom Broadband is a holding company that owns two cable TV operators in Estonia - Tallinna Kaabeltelevisioon (65%) and Levi Kaabel (100%). It also owns Netexpress (100%) that offers connection to Internet services, and the biggest information content provider Meediamaa (100%).

Tallinna Kaabeltelevisiooni AS (TCaTV) was established in 1994. At the moment, it operates in Central City and in Õismäe offering cable TV services to 19 000 potential clients. The real number of clients is 10 000. The company offers for its clients 42 TV programs and also a movie channel TV 1000 equipped with subtitles in Estonian and Russian. The channel is transmitted from it’s own studio. There are also 13 radio programs offered.

In the near future, TcaTV is going to offer Internet services to its clients and after the end of the ETC Concession Agreement also telephony services.

At the present moment there are 15 people employed and during this year the company will merge with Levicom Broadband.

• The second interest group on Estonian cable -TV market is Swedish national telecommunications company Telia AB (with its subsidiary company Telia InfoMedia AB), which owns 80% of the cable TV operator Starman. Being the biggest telephone communications operator in Sweden (and the strategic partner of Estonian Telecom) and one of the biggest cable-TV operators in Sweden, Telia might have the same ambitions on the Estonian market.

Starman has operated on a cable-TV market since 1992. In 1996 Telia obtained 60% of the shares of Starman and the goal of the company was set: to provide a quality cable TV service on the Estonian market and gain an important market share. Today, Starman is the biggest operator on the market with it’s 25% share of the market and operating networks in Tallinn, Kehra, Keila, Kiviõli, Kuressaare, Kuusalu, Laagri, Mõigu, Püssi and Viimsi with new networks to come. Starman has 35 000 clients, 50 employees and the turnover was 15 million kroons (about 1 million Euros) in 1998.

Starman uses bot coaxial and optical cable in its communication networks and the bandwidth of cable network is 860 MHz. Since the networks of Starman are relatively new and built with future in mind, they have not yet had to modernise them. Despite this, Starman has started to offer several new services such as film channel TV 1000 and NVOD (video-on-demand).

Although the cable network of Starman would be technically appropriate for telecommunication services, those services are not offered yet. There are plans to co-operate with companies who have more experience in the telecommunications field in the future.

• The third biggest group of cable-TV operators consists of operators based on local capital. The biggest of the are STV Kaabeltelevisioon, Telset and K-Võrgud in Tallinn, RHR Grupp in Pärnu and Antenna3 in Sillamäe. According to the opinions of telecommunication experts these companies do not position themselves as investors. Instead they see offering of cable television services only as stable revenue and these operators are not ready (there is no expertise nor strategic interest) nor able to invest into their cable network to make is in line with the Cable Distribution Act. Their readiness to develop the networks into telecommunication networks is also under question. Therefor it is expected that these companies will be bought by bigger cable TV operators.

STV Cable Television (STV) was established in 1991. The turnover of the company was 18 million kroons in 1998 and it’s services could be available for up to 93 000 flats, while the real number of clients is much lower.

Through cable modems, both data communication services (with connection to the Internet) and telephony services are offered.

Most of the cable TV operators use conventional coax networks working in 47-230 MHz frequency bands (ca 16-18 TV channels). To develop these networks into telecommunication networks with bi-directional communications, huge investments are needed and it is still technically problematic. To some extent, the existing networks could be developed to offer Internet services via cable modems.

Some cable-TV operators are using higher frequencies (up to 860 MHz) that enable to broadcast up to 50 TV channels. The topology of the network and the technology remain the same (coax cable network) but it is technically easier and less expensive to develop these networks into two-way telecommunication networks.

STV Kaabeltelevisioon, Telset and Starman Kaabeltelevisioon are using HFC-technology (Hybrid Fibre Coax) where local coax networks are connected to main stations via fibre-optic network. The technology and topology of local networks is similar to those mentioned above except in in-house networks that are developed based on star topology that enables more easily to offer to customers different packages of TV programs.

Levicom Broadband (Tallinna Kaabeltelevisioon Tallinnas and Levi Kaabel in Tartu) uses modern FTTB (Fibre-To-The-Building) network structure where every house is connected with circle topology fibre network. In-house network is star topology network, where coaxial cable with two pairs of copper lines is used to reach the clients. This enables to offer all telecommunication services. This network is ready for offering telecommunication services and it’s bandwidth is much wider compared to conventional telephone network.

2.2 Types of operators using the networks

There are no telecommunication operators that use alternative network to any remarkable extent. Even if telecommunication services are offered via alternative networks, public utilities providers have not established special telecommunication operators but operate the networks themselves as sub-units of their enterprises.

Several enterprises covered with the current survey emphasised that in the perspective the involvement of telecom operators is very likely.

2.3 Type of services offered by the operators on the networks.

At the present moment the only ones that offer Internet services via alternative networks are the cable TV operators. Although several enterprises providing public utilities have corporate networks that could be in principle used for the delivery of telecommunication services, the extent of such activities in not important at all.

Most of the cable TV operators offer services that include up to 20 TV programs. In Tallinn and in several smaller cities where the bandwidth of network is up to 860 MHz, services are offered that include up to 50 TV channels and 20 FM radio stations. The most important telecommunication service via cable distribution is Internet service. After the end of Concession Agreement the extent of offered services is very likely to increase and include the provision of telephony services.