October 1999

Estonia Update Memo

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

There are two main tendencies that characterise Estonian alternative communication network market (enterprises not specialised in public telecommunication, but that are still important in telecommunication service market):

• When speaking of proceedings within the telecommunications sector, there have been no developments of major consideration initiated by companies providing public utilities (energy company Eesti Energia AS; water supply company AS Eesti Veevärk; railway company AS Eesti Raudtee; gas company AS Eesti Gaas).
• The cable TV market is becoming more organised and the competition is growing tougher at Internet service market.

1. Legal Background

The issues related to Cable Distribution Act that took force on June 1, 1999 (State Gazette, 1999, 25, 364) are the main factors influencing development of alternative communication networks. The law referred to is supposed to regulate the conditions set for establishing and operating cable communication networks and requirements to cable network operators providing the public with cable network and telecommunication services.

In accordance with the law the owner of a network must have a cable television licence in order to own, establish and operate a cable television network. The requirements set to the owner of a cable television network are the following:

• The entrepreneur must be registered in Estonian Business Register and match the requirements established with § 8 of Cable Network Law;
• The entrepreneur must apply the Estonian National Communications Board (Sideamet) before September 1, 1999:
• For a cable TV network licence in case of acting in accordance to a contract won at a public competition organised by a local authority and concluded before September 1, 1999;
• For a temporary fixed term licence to continue operating a cable television network established before June 1, 1999.
• The entrepreneur must participate in a public competition organised by the Estonian National Communications Board to apply for cable television network licence;
• Estonian National Communications Board will issue a cable television networks licence valid for 10 years to the winner of the competition.

Cable Distribution Act (§ 12) will establish conditional local monopoly (only one cable television company can act within one region):

(1) The operating regions for cable television networks to be established on a territory of a local authority will be defined by the Council of the local authority, while the territory of the local authority must be delimited as a single cable television network area or it must be divided into several cable television network areas considering the number of potential subscribers and pursuing the objective to secure cable network on the territory of the local authority as a whole.

Thus, the cable communication network is becoming more organised – licences must be applied for establishing new networks and continuing to operate existing networks. The law commits the National Communications Board to execute the supervision over fulfilment of the Cable Distribution Act and related legal acts.

The Cable Distribution Act will eliminate the opportunity for dominant telephone operators taking control over Estonian market of cable television:

§ 8. Owner of a cable television network

(1) The owner of a cable television network can solely be an entrepreneur registered in Estonian Business Register holding a cable television licence issued in accordance to the present law.

(2) The owner of a cable television network must not be a trading company holding more than 40 % of turnover of telephone services referred to in § 12 of the present law or have any economical interest related to such a trading company.

(3) Economical interest within the context of section 2 of the present article of the present law will mean:

1. Being a part of the same affiliated group or
2. Partial or complete coincidence of the shareholders or owners directly or through the third parties or holding a share exceeding 2 % in another enterprise either directly or through the shareholders or owners or the third parties.
3. The circle of parties holding a share in a company holding a cable television network and their partnership in any third enterprises must be transparent.

As the major partner (60%) in a cable television company Starman holding 26% of cable television market appears to be a Swedish company Telia also holding a substantial interest (24,5%) in AS Eesti Telekom further operation of Starman at cable television market should be legally ruled out.

In March this year Starman applied to the Estonian Legal Chancellor with a plea to reconsider the articles of the Cable Distribution Act regulating the property relations that supposedly are in conflict with the Constitution and Agreement of Association concluded with the European Union.

In case Starman will be issued a temporary licence the cable television company can operate the existing network. Still, Starman can not exceed its network as for that it must participate in competitions held by local authorities, that will be ruled out because of partnership held by Telia.

2. Changes in Institutional Structure

During the period under review some changes of ownership relations have taken place. The number of customers being a part of a network held by one or another operator has also been specified.

The Division of Estonian Cable Television Market between Different Operators (as in August, 1999)*

Source of Information: Estonian Association of Cable Networks
* In accordance to some data the total number of customers almost reaches 200 000, 110 000 of which are customers from Tallinn.
** Telia InfoMedia AB is held by Swedish public telecommunication affiliated company Telia AB.
*** Levicom Broadband Ltd., on its turn, is held by a leading Scandinavian telecommunication affiliated company Netcom AB (trademark Tele2),
**** Operators operating on local capital

When speaking in turns of size, the most important actors at Estonian market listed by size are:

1-2. Starman Cable Television and STV
3. Levicom Broadband
4. Telset
5. Nom
6. K-Võrgud

The previous review expressed an opinion that some of the smaller operators financed by the local capital (for example, K-Networks, RHR Group, Nom, many operators operating within the limits of one town/township) won’t be able to survive in the toughening competition, and this has been confirmed by now. Starman Cable Television took over Antenna3 in summer of 1999.

3. Programs Aimed at the Public Sector

3.1. Public Institution Network "EEBone"

One of the initiatives aimed at moving Estonia closer to the information society is a national program called PeaTee ("EEBone") aimed at the public sector. The program was initiated by The Department of State Information Systems of the State Chancellery (Riigikantselei Riigi Infosüsteemide Osakond).

The purpose of the project is to:

• Even out regional inequality;
• Quicken and simplify the utilisation of communication networks within national institutions or their subsidiaries located in rural areas;
• To cut down national expenditures on communication network facilities;
• To secure a continuously good technical level of information networks used by public institutions.

EEBone is based on using Internet TCP/IP technologies. It is based on routing technology and is capable of making use of different technologies (TDM, Frame Relay, ATM) and speeds (64 kbit/s to 155 Mbit/s) for network facilities. The communication speed for final consumers may be up to 8Mbit/s, in certain cases even up to 155 Mbit/s. EEBone itself (network, Internet communication, and administration) is financed on a central basis – the final consumer does not have to pay for making use of the network. The connection to the EEBone and communication maintenance parameters must be determined and paid for by the participating institution.

At the moment (03.09.99) 330 central government organisations have been connected to EEBone.

3.2. County Level Communication Network program "Village Road"

County level communication network program "Village Road" ("KülaTee") is a information technology program selected by the Government of the Republic of Estonia (Vabariigi Valitsus) as a program to be given special attention in 2000 and 2001. The program was initiated as a result of a co-operative effort by county governments, The Department of State Information Systems of the State Chancellery and Estonian Informatics Centre (Eesti Informaatikakeskus).

The purpose of the Village Road is to develop communication network facilities in rural areas. Within the framework of the program special attention is given to local authorities.

Working groups formed within the framework of the "Village Road" will develop an organisational scheme aimed at solving communication network problems – co-operation of different interested parties will be enhanced, the opportunities and means will be utilised more efficiently. Establishment of communication infrastructures will be organised via specially ordered services, while the final consumer is expected to pay for the service.

4. Further Development

As the monopoly of Estonian Telephone Ltd. will come to an end on 01.01.2001, the competition will grow tougher at Estonian telecommunication market. The toughening competition is characterised for example by the following developments:

• AS Eesti Telefon (Estonian Telephone Ltd.) gave all pupils entering Grade 8 this year Internet connection packages enabling them to establish an Internet connection via telephone network making use of a modem or ISDN-equipment.

• Levicom BroadBand will start to offer an Internet free of charge access service since September 6. The purpose is to win over customers and be prepared for termination of special privileges of Estonian Telephone Ltd. on 01.01.2001. TELE2 intends to provide its customers with a telephone service in the future.

• The Ministry of Transport and Communications gave Uninet Andmeside (Uninet Communications), the local subsidiary of a Finnish communication company Finnet International (the biggest Estonian communication network company based on private capital Unineti Andmeside AS, presently holding a market share of approximately 25%) a permission to sink undersea optical cables between Tallinn and Helsinki. In accordance with a new cable communication licence since January 1, 2001 telephone calls, etc. can be forwarded by this channel in addition to electronic messages.