January 2000

Estonia Update Memo

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

The Estonian alternative communication network market (enterprises not specialised in offering public telecommunication services, but that are still potential players and are important in telecommunication services market) is characterised during the period October - December (included) 1999 as follows:

• When speaking of developments within the telecommunications sector, there have been no major developments related to 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;
• The competition is growing tougher in the Internet service market.

1. The interaction between business and regulatory constraints

1.1 The regulatory background

1.1.1 Cable Distribution Act

The main factor shaping the developments of the alternative networks market during the covered period is the enforcement of the Cable Distribution Act (Kaabelleviseadus). It regulates the terms of deployment and conditions of operation of cable networks, and the provision of cable television services and telecommunications services by cable operators. Licences to continue operating in the cable networks market or to build new networks are granted by the Estonian National Communications Board.

Currently (On December 2, 1999) the following licences have been issued:

Source: Ministry of Transport and Communications, Estonian National Communications Board

The Estonian National Communications Board issued a licence to Tallinn Cable Television (operating under trademark TELE 2) permitting to cover Tallinn City area with the cable network. The licence issued is valid for 10 years, the network has to be operational on April 27, 2001.

The other cable network operator Starman has filed a litigation suit questioning the issuing of a network licence to Tallinn Cable Television Ltd. The case is built on the fact that the competition for the licence (took place in 1992) was won by company Telag that has since been liquidated. According to Starman the company that has been liquidated can not have a legal successor and this is why the whole procedure has been questioned. The network licence of Tallinn Cable Television has been stopped until the court resolution.

1.1.2 Telecommunication Law

The Estonian Legislative body, Parliament, is reading the Telecommunication Act (Telekommunikatsiooniseadus, No 32 SE) that will regulate telecommunication within a liberal telecommunication market including the market of alternative telecommunication services. The draft has been harmonised with corresponding legal acts of the European Union and will start to regulate liberal markets of telecommunication; the exclusive rights granted to Estonian Telephone Ltd. will not be prolonged.

The second reading was interrupted on November 24. In December received suggestions for amendments were analysed; it is highly probable that the law will still be passed in the beginning of 2000.

1.2 Business constraints and entry barriers

One of the main entry barriers that discourages free operating in the telecommunications market (including provision of telecom services through alternative networks) is the Concession Agreement signed between the Government of Estonia and Estonian Telephone Company in 1992. According to the agreement the latter can be the only provider of basic services until January 1, 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 exclusive right of Estonian Telephone Company, non-basic telecommunication services (e.g. mobile and data communication, paging services, satellite communication or value-added services) can be offered freely. The licence is only needed for building and operating networks and/or if there is interconnection to the PSTN. There is competition in all of these liberalised markets.

Under article 7 of the Communication Law, a licence is required to construct and operate common communication networks in accordance with the law and with a licence obtained from the Ministry of Transport and Communications. By December 23, 1999 the Ministry of Transport and Communications had issued 106 licences to build or establish common communication networks. The number of licences also includes licences issued to operate security networks based in a radio station, radio communication networks, etc.

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

§ 8. Owner of a cable television network

(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.

As the major partner (60%) in the cable television company Starman holding 41 % of cable television market appears to be a Swedish company Telia that is also holding a substantial interest (24,5%) in AS Eesti Telekom, further operation of Starman in cable television market could 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.

If Starman is issued with 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 because of partnership held by Telia.

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

2.1 Changes in Institutional Structures

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

Source of Information: Estonian Association of Cable Networks

* According to some data the total number of customers reaches almost 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.

2.1.2 Estonian Telephone Company

In November 1999, a new unit was established in the Estonian Telephone Company. The unit concentrates on IP-services and with the establishment of such a unit Estonian Telephone hopes to extend the range of Internet services offered and strengthen its position in the Internet market.

2.1.3 AS Antenniekspert

AS Antenniekspert started in co-operation with Europe Online Networks S.A. to offer Internet Via The Sky since the first week of November. The advantage of such one-way (downlink via satellite; uplink via another channels) Internet service is its price compared to the price of two-way satellite connection. The target groups include small enterprises and private individuals. 

3. Further Developments

Competition in the Estonian telecommunications market is strengthening and it is closely related to the end of exclusive rights for Estonian Telephone Company from January 1, 2001. The following activities reflect the strengthening of competition:

• In the market of dial-up services there has been price war: in September 1999 several companies (the first one was Tele2/Levicom Broadband, then several others) offering dial-up services lowered their prices. Currently Internet connection can be established only for the price of a local telephone call.
  
• Alternative network owners are continuing their activities in the telecommunication sector. For example, from September 1999 Tele2/Levicom Broadband started to offer Internet connection via cable network in central part of Tallinn City. Starting the end of September Tele2 started to offer Internet connection to all clients (especially to business clients) in Tallinn using for that purpose the network of other companies as well. Also, Estonian Telephone Company has brought Internet telephone to the market.
  
• Price war on leased-line market: in October several companies offering leased lines (e.g. Estonian Telephone Company, Microlink, Levicom Broadband) lowered the prices substantially one after another.

Preparing for the end of the exclusive rights of Estonian Telephone Company in January 1, 2001: several companies have applied for licences to establish common communication networks. Licences are issued on the condition that even if the network is built before the end of the Concession, the services protected