April 2000

Romania Master Report

1. Background

The most important alternative networks can be split in two major groups: electric and gas networks, the communication network of the State Railways (one group) and cable TV, satellite and radio-communication networks (the other group).

In Romania the role of alternative networks has traditionally been rather limited. In spite of late liberalization and competition in the telecommunication market the demand for services provided through alternative networks belonging to the first group has been low. Especially now, when there are mobile phone service providers capable to cover the needs in this area, we do not expect to see an increased interest in alternative networks with respect to telephone services.

Even the identification of alternative networks belonging to the first group that could be used by telecommunication operators is rather difficult to perform. Most of these networks have been built for internal use of the owners only. Through their own networks the companies seek for better efficiency. In some cases they attempt to provide new services to their own customers. Most of the owners of alternative networks belonging to the first group have been rather passive in marketing their network capacity perhaps because of the fact that all of them are state owned companies, placed in a monopolist position.

Especially at local level, the interest in cable TV networks supplementary services is expected to increase due to growing competition between operators and service providers. In addition, the owners of these alternative networks are increasingly willing to get more revenues from their networks.

In Romania, the energy, gas and oil sectors, as well as the State Railways, are on a process of restructuring and reorganization.

This makes more difficult to characterize these alternative networks and to obtain data about them.

However, we can see that there is a concern towards these aspects and an interest to promote the appropriate legislative measures covering this field.

The major strategies to be pursued in 1999 and 2000 aim at ensuring the industry's stability by stopping the decline and contributing to re-launching economic growth.

The state-owned companies were reorganized as companies and national companies.

The main measures to be taken are:

• Continuing the restructuring and reorganization of the resulted companies and national companies;
• Reducing and eliminating the state subsidies;
• Encouraging the productive activities by reducing and eliminating the cross subsidies.

2. Different types of alternative networks

2.1. The electric power sector

Regia Autonoma RENEL is reorganized in new companies:

• Electrical National Company CONEL SA, the successor of the basic activities of RENEL and in the same time the unique shareholder of three companies:
• SC Hidroelectrica SA (production of hydroelectric power);
• SC Termoelectrica SA (production of thermoelectric power);
• SC Electrica SA (distribution of electric power);
• National Company Nuclearelectrica SA (nuclear power);
• National Company for Nuclear Activities.

The principles of restructuring the electricity sector to be undertaken by the Government are:

• Summary of the strategy elaborated by the Ministry of Industry and Commerce of Romania maintaining the state monopoly only for the transportation of energy in the national grid and for the local distribution of electric and thermal energy;
• Promoting the energy law, which will create the necessary legal and institutional framework in the field;
• Creating a new independent authority for establishing and monitoring the implementation of the rules of organization and functioning of the energy market.

Recently CONEL announced a 170 mil. USD investment project for telecommunication network development and the intention to enter (in a joint venture with The Romanian National Railroad Telecommunications Agency - ATCFR), in the telecommunications market, as a RomTelecom challenger, since 1^st January 2003.

2.2. The natural gas sector

The state owned company Regia Autonoma ROMGAZ was transformed in the National Company of Natural Gas ROMGAZ SA with three branches:

• exploitation,
• production and
• storage of the natural gas,

as well as two commercial companies for distribution. The creation of the holding-type structure is considered to respond to the necessities of the free market.

For the necessary measures to be undertaken in a short period of time, the short-term program provides for the following main priorities:

Phase I - 1999

• improving the legal and institutional framework by means of the new laws for natural gas and setting up the new national regulatory authority in the natural gas sector;
• concession of various assets of public interest in the natural gas sector;
• improving the tariffs system and eliminating the cross subsidies;
• continuing to implement the restructuring projects funded by World Bank and EBRD credits:
• modernization of the gas transportation system by implementing the SCADA system and telecommunications;
• improvement the gas pipeline network by replacing 500 km of used pipelines;
• modernization of the underground gas storage capacities;

Phase II - 2000

• completing the implementation of the technological restructuring projects launched with World Bank and EBRD financial contribution;
• privatizing the commercial companies resulted from the restructuring process.

2.3. The oil extraction and processing sector

The first phase of the restructuring process in this sector consisted in setting up the National Company of Crude Oil PETROM SA, from the state-owned company PETROM RA (the extraction sector) and the Romanian Company of Crude Oil (the processing sector).

Starting in 1999, PETROM SA has launched a vast restructuring program with the following major objectives:

• launching an "aggressive" policy of exploration at high depth;
• continuing the modernization in the crude oil sector paying attention to reductions in costs and to the improvement of processing levels;
• continuing the privatization process by attracting more foreign investors;
• improving the infrastructure by constructing new storage capacities for crude oil and oil products in accordance with the EU regulations on stocks.

2.4. The railway sector

The Romanian National Railroad Telecommunications Agency (ATCFR), born on 1^st November 1998 operates a national telecommunications network used by Romanian National Railroad Society. This agency has built a fiber optic network (about 4000km, 20 mono-mode fiber optic, 5 rings), a digital transmissions network with SDH network elements and an ISDN telephony network.

An announcement was made in the mass-media an August 1999 about a new contract of the Romanian National Railroad Society (NRS- SNCFR) with Siemens (12.3 mil. USD) to build an internal communication structure that will provide also alternative communication services.

2.5. Public Administration

The Romanian Public Function Ministry and National Agency for Communications and Informatics (ANCI) intend to develop, starting with year 2000, a data-voice network for public administration. The preliminary study and the project were made between November 1999 and February 2000 by a foreign company. The network building is scheduled to start at the half of the year and it will continue for about one year and a half. The estimated cost for this network is 50 million USD.

This network will link all public administration institution in Bucharest and all over the country and permits to the government to use data and voice transmissions for about 10 years without modifying anything in the network topology.

2.6. Cable TV

Discretely launched in the early '90s, at the limit between technological and commercial experiment, cable television (CATV) constitutes in many experts' opinion, one of the private industries of maximum success in post-December Romania.

Having the advantage of a relatively simple legislative background, which has appeared at the right time, without much bureaucracy, this industry has known an exceptional evolution which surprised the specialists in the field all over Europe.

Quantitatively, the figures characterizing this activity are the only ones that statistically place Romania on positions of note within the general European context. Thus, according to a study drawn up by IMAS company at the beginning of 1999, out of 6.9 million homes having a TV set emphasized in the study, 50.3% are connected to a cable television network, so about 3.45 million subscribers, while the number of households under a cable network is estimated at over 5.5 million. These figures place us on a very honorable sixth place in Europe, after Germany, Belgium, Holland, Switzerland, Sweden, Poland, but before countries with an old tradition in the field as France, Great Britain, Denmark or the Czech Republic.

It must be emphasized the merit of the Romanian private industry which using 80% local capital, has succeeded in investing over 100 million USD in this industry and in promoting Romania on a noteworthy position in this branch of communication.

Besides the previously mentioned arguments, another explanation of the industry success is a commercial demand which went beyond our hopes, as well as the prices practiced both at the installation charge level and the monthly subscription. With a national average of about 2.8-3USD for a 24-26 programs set, among which we find well-known pan-European programs of great success, the Romanian CATV offer is at a minimum European level. For instance: France - 30USD, Germany - 18 USD, Poland - 11 USD, Hungary - 7 USD.

The situation is technically at a satisfactory level. More than 20% of the networks have a bandwidth of minimum 450MHz, and 5% of these ones are already over 720MHz. Unfortunately, only approximately 10% of the networks are bi-directional, allowing data transmissions.

At a percentage of 97% air built, the networks are easily vulnerable, both at unauthorized human intervention and bad weather, having unfavorable consequences on functioning reliably and implicitly at high quality. This is an endangering factor for the strategic value of communication infrastructures that CATV offers to the community.

The lack of dialogue of many local administrations, the lack of constructive co-operation in promoting normative regulations concerning the construction of solid, reliable and well protected lines of urban and interurban long-distance communications have postponed the valorization of the potential already existing in the CATV industry. The Romanian community could have been much more advantaged if this domain had been well supported in point of legislation and financially favored with advantageous credits. A solid, flexible communication infrastructure is a catalyst for economic and cultural developments.

Unfortunately, the private, investing, technical and human effort allowing over 1000 towns in Romania to be perfectly covered by coaxial cable networks, does not have the best success premises at the beginning of the 3^rd millennium.

The above-mentioned elements represent only a stage, a pioneer's work. For these networks to become real alternative communication networks, it is necessary a set of conditions and premises which are fulfilled to a small extent for the time being.

Though an important number of operators, which cumulated represents about 55-60% of the present market, seem to have understood the requirements of the communication and multimedia operator in the 3^rd millennium and are ready to run the risks and to assume the actions necessary to obtain this position, face a series of factors rather unfavorable, which undoubtedly make difficult this thing.

Thus, the operator concentration, a process characterizing, at a world level, the entire communication industry, is delayed by the lack of capital (the 7 years of industry were not enough to this effect, not only for the pioneers in the field), as well as a great breaking up of the market (today there are on the market over 500 companies involved and over 1,250 networks out of which 4 have over 50,000 subscribers.

It should be noted that the legislation in the field initially simple and covering is today obsolete and ambiguous.

The modification of the Audiovisual Law, which is still a project, has been discussed for almost 2 years and the Telecommunication Law applies to the cable as far as the Audiovisual Law does not regulate it.

This double legislative dependence leaves fundamental things uncovered in both in laws.

Moreover, the approval procedure of CATV networks was complicated by O.M.315/97, the most notable result being the delay of the approval process.

However, the double regulation (audiovisual and communication) is complete when talking about setting up taxes. In this respect, the cable has the highest values for audiovisual taxes of annual license, as well as an important position regarding the spectrum monitoring tax (established by O.M.315/97).

Thus, from APRCC estimations, the cable industry pays in to the State Budget approximately 130 thousand million ROL income taxes, 5 thousand million ROL license taxes, plus 8 thousand million ROL spectrum monitoring tax, to say nothing about other sources (royalties tax, national insurance etc.).

A lot of cable TV companies do not obey the Competition Law regarding concentrations, being liable to penalties. Moreover, the regulations concerning data broadcasting are only in a provisional stage, and fixed voice telephony is RomTelecom monopoly. Other services with added value are prohibited because of the high prices they imply, or at least, they cannot have a short-and-medium-term solid commercial basis.

The great investments for modernizing the present networks (estimated at approximately 200 million USD) to make them compatible with the 3^rd millennium technology are still restrainedly made not only from the lack of resources, but because of the absence of protection by franchises, given to the licensees. Thus, the operators willing to invest are not certain that another operator could not operate with much lower costs a rudimentary network superposed on his activity area, which under precarious economic conditions of the country can affect an important share of the market.

Nevertheless, the private effort of integrating CATV networks in the information highways continues.

Several modernizing projects and gradual increase of network technical parameters are under development and the figures initially presented will be undoubtedly improved up to the end of 1999.

But it is absolutely necessary that the regulating authorities (National Audiovisual Commission - CAN, ANCI) should really start a serious professional dialogue with the private cable industry and not only a formal one, as, at the best, we have recorded so far.

A clear and simple regulation of these networks from the part of the regulating authorities (National Audiovisual Commission - CAN, ANCI) is required by the CATV operators.

2.7. Mobile Telecommunications Networks

In Romania the mobile telecommunications era starts in 1991, with the analogical system called NMT-450 (Nordic Mobile Communications) and continues in 1996 with first two GSM-900 networks.

2.7.1. NMT-450 Network

The NMT-450 mobile telecommunications operator, former Telefonica Romania, a join venture between RomTelecom and Telefonica Spain, starts in 1991 the first Romanian mobile communications network. In 1997 this network has about 18.500 customers.

In 1997 Telefonica Romania changes his name in Telemobil and his shareholders became RDT Holding – 95%, RomTelecom – 2.5%, National Radio-Communications Company – 2.5%.

This new formula company introduced in the 1999, for the first time in the world, a new technology, called LEMS (Low Emission Mobile System) – based on Ericsson Equipments and handsets - and launched a new brand name, SunTel, to face the offensive of the digital GSM system.

2.7.2. GSM-900 Networks

The GSM mobile telecom network was started in Romania in 1996, when two consortia earned a 10-year GSM-900 license: MobiFon and MobilRom, added to the old NMT-450 operator, Telefonica Romania.

Since 1996 the GSM mobile network has one of the fastest evolutions in Romanian economy, the number of customers grew up from about 50.000 in later 1996 to about 1.350.000 at the end of 1999.

These two consortia include one of the major telecommunications operators in the world:

MobiFon: Telesystem International Wireless Inc. Canada - 60%, AirTouch Europe (an AirTouch Communications USA Division), Logic Telecom, Ana Electronic, ISAF SA, Romanian Mail Company and Romanian Investment Fund.

MobilRom: France Telecom Mobiles International - 51%, Media Pro Group - 30%, Computerland - 10%, Tomen Telecom Project Romania and Alcatel Network Systems Romania (an Alcatel France Division).

Since late 1999 the new structure of shareholders is: France Telecom Group - 67%, American Investment Group and Societe Generale - 14.28%, MMR Group (Media Pro, MBL Computers and Radcom) – 9.52%, Tomen Company Japan – 5.1%, Alcatel NV – 2.86%.

In 1998 these companies offered, for the first time in Romania, data transmissions services like facsimile transmissions, e-mail and Internet access using the access to the mobile GSM network.

Since early 1999 MobilRom and MobiFon has been provided GSM access to the Internet through other major Internet Service Providers.

2.7.2.1. MobiFon

Recently, in June 1999, one of these operators, MobiFon, was the first Romanian GSM company that was awarded the license for the Internet Service Provider and launches "Xnet" as a part of a first full communication solution that belongs to a digital mobile telephony company in Romania.

With Xnet, MobiFon extends the possibility to connect to the Internet by all existent options: GSM access for about 750.000 mobile telephony users, fixed RomTelecom lines access (both regular phone and leased lines) for general public / small offices and advanced wireless radio connections for large companies and institutions.

Xnet is present in Bucharest and other 9 counties (Prahova, Brasov, Cluj, Timis, Dolj, Iasi, Bacau, Galati, Constanta) and will continue to extend its presence all over the country.

The access to the International Internet Backbone was made by its own satellite connection backed up by the terrestrial high-speed lines (fiber optic).

The services include e-mail, web site and FTP site hosting, Internet domain and subdomain registration and hosting, web page design, customized Intranet design, electronic commerce etc.

2.7.2.2. MobilRom

The other GSM operator, MobilRom, develops and and operates an interface that offers e-mail and Internet access only for mobile phone users using another’s ISP services.

Since March 2000 MobilRom is evaluating offers to become a full Internet Service Provider (ISP).

Mobil Rom’s technical director said that the company has had discussions with suppliers so that it can assess the costs and the technical feasibility. But he insisted that it was only a possible project and no decision had been taken yet as to whether to go ahead. The company's main shareholder, France Telecom, also has a stake in ISP company, Global One, which is already present in Romania.

2.7.3. DCS-1800 Network

In December 1998 RomTelecom acquired a DCS-1800 (Digital Cellular System) license and intend to introduce a new mobile communications operator, CosmoRom (100 per cent owned by RomTelecom/OTE) that it was announcing its presence on the Romanian communications market for the fall of 1999.

Starting from an investment of 60 million USD, CosmoRom intend to invest about 500 million USD in this network with an initial phase of installation that covers the cities of Bucharest, Brasov and Constanta and the roads between these three cities.

Intrarom SA, the local subsidiary of Greek company Intracom, claimed to have invested at least 9 million USD in this project.

A recent announcement made in mass-media by the marketing manager Marcela Tasci says that CosmoRom has delayed its promised December 1999 launch for the first quarter of year 2000. The reasons of this postponement are confidential. Officials refused to confirm whether the delay was caused by equipment not performing up to the expected standards.

2.8 Satellite Communications

Romanian satellite communications are operated by one public institution, National Radiocommunications Company (coordinate by National Agency for Communications and Informatics) and ten private operators (Digicom, Logic Telecom, Sumitcom Rokura etc.)

2.8.1. National Radiocommunications Company

National Radiocommunications Company has an important satellite earth station used for data communications, TV broadcasts and international phone communications (used by RomTelecom).

This company develops a national backbone using fiber optic with Points-of-Presence (PoP) in the most important cities in the country. Beginning from this PoP’s this company develops a strong and reliable infrastructure of data communications through radio technology and wired high-speed connections.

This structure will be used soon for national backbone that connects the major data networks in the country (ISP’s, institutions, large companies).

The main structure of this network is interconnected with the RomTelecom backbone, a 7000 km fiber optic ring which connects the national telecommunication company with other mobile communications operators: MobiFon, MobilRom, Telefonica Romania and with other major backbones that cross through Romania (KAFOS – a link between Romania, Bulgaria, Turkey and Moldavia, ITUR – between Turkey, Ukraine, Russia and Romania, BALTICA – between Baltic counties, FLAG – between Romania and Spain and TEL – a 14.000 km fiber optic cable linking Eastern and Western Europe.)

This backbone will provide complete data communication solutions such as ISDN, X.25, Frame-Relay, ATM and B-ISDN for public institutions (Internal Affairs Ministry, Public Ministry etc.) and for private companies.

2.8.2 Other Satellite Communications Operators

Since 1992 the satellite communications market was fully liberalized and many private companies (most of them foreign joint-ventures) appeared on this market as satellite operators with wide territorial coverage.

Most of the private satellite operators offers data communications services for general public and companies (including for other Internet Service Providers) such as Internet access using regular phone lines, leased lines, fiber optic connections, wireless radio systems (like Wave LAN) and VSAT technology connections.

Many of these private companies offers high-performance data communications services (LAN to LAN Ethernet and Token Ring connections, X25 networks, Frame-Relay, SDLC-based networks), digital TV point-to-multipoint broadcasts services and special services like Euteltracs (satellite tracking and mobile communications for ships and trucks).

There is a few companies that offer worldwide integrated services using the support of other international telecommunications companies: British Telecom/Concert, Loral Orion.

All of these data communications providers are interconnected by terrestrial high-speed line in a backbone named BUHIX, maintained by National Computer Network for Research (RNC) and National Institute for Research and Development in Informatics.

This facility links all major Internet Service Providers in Romania like RNC, KAPPANet, RoEduNet, FX, DNT, MediaSat, ITCNet, Canad Systems, Global One Communications, LOGICnet, Eastern Space Systems, Rokura, MediaFax, StarNets, MobilRom, DigiCom.

For the future these companies, both public and private, will expand its network capacity, deploy new technologies such as Frame-Relay and expand data transmissions services as soon as new legal framework appears.

2.9 Radio-Communication Networks

The radio-communication sector has a large geographic extent and offers a true infrastructure for the alternative networks in Romania.

A closer look at the radio communication networks in service in Romania will highlight the strong points of this environment, apt to play an important role in the operation of the present or future of any telecommunication network.

2.9.1 SDH Network

National Radio-Communications Company, a public company coordinated by the National Agency for Communications and Informatics (ANCI), operates the Romanian radio-communication network in addition to the operation of the biggest Romanian satellite ground station (this company own the biggest satellite dish in Romania - 32 meters diameter, located in Cheia, a Carpathians mountain resort).

These networks contain old radio-transmitters used for national radio and television programs broadcasting and telephone links.

However, in the last years it started to develop new sub-networks using the newest technologies and equipments.

Expecting the liberalization of telecommunication market (planned for January 2003), the National Radio-Communications Company started the development of many projects to reach the second position in this market (behind RomTelecom, the national Phone Company).

One of these projects is the SDH national digital radio-transmitters network, a complex network with a bandwidth of 622 Mbps STM-4.

Since 80’s, the Synchronous Digital Hierarchy provides the best platform for old services such as POTS (POTS - Plain Old Telephone System) and for new ones, such as: ISDN (ISDN - Integrated Services Digital Network), data communications (LAN, WAN, MAN), VOD (VOD - Video On Demand), ATM (ATM - Asynchronous Transfer Mode) and HDTV (HDTV - High Definition Television). SDH provides high transfer rates (10 Gbps) and a best network security using redundant routing systems.

Starting from September 1999 the National Radio-Communications Company installs in Romania one of the most important SDH (SDH - Synchronous Digital Hierarchy) radio-communication networks in Central and Eastern Europe.

Built in a period of one and a half-year as part of an 11 million USD contract with the German Company Bosch Telecom, this network is based on four backbones (organized in a star topology with Bucharest as a center):

• Bucuresti – Constanta;
• Bucuresti - Bacau - Iasi ;
• Bucuresti - Pitesti - Craiova – Timisoara;
• Bucuresti - Ploiesti - Brasov - Cluj-Napoca – Oradea;

In addition, it provides the links with major networks from Europe (based on ETSI - European Telecommunication Standard Institute standards) and from North America (SONET networks, based on ANSI - American National Standard Institute standards).

Right now the SDH network is linked to the European networks by two links: Oradea – Debretin (Hungary) and Giurgiu – Ruse (Bulgaria), but other links will be developed in short time.

The development of the Romanian SDH network was made by a task force of 180 Romanian engineers who installed 118 antennas, 8.1 Km of wave-guides and covers 1500 km, linking 43 cities (11 of them being the most important ones in Romania). Almost one half of Romanian population has now access to the SDH network services.

As for the future, this project plans to install over 1700 km of new digital radio-connections linking the corners of the star topology in a ring. This new topology will provide a better failure protection.

The national digital radio-transmitters network represents the platform for the broadcasting of national radio and television programs as well as for new services such as:

• Internet services distribution
• National data and video networks
• Telephony network for governmental and financial institutions, universities etc.
• Digital broadcasting of national radio and television programs
• Real-time banking operations
• Videoconferences
• Tele-universities

Now, the National Radio-Communications Company is in the middle of a reorganization and privatization process, planned to be finished at the end of year 2000.

After this privatization the major stockholder will be a big foreign company, a leader in communication field, giving the possibility for the National Radio-Communications Company to become the second major telecommunications operator (including for fixed - after the liberalization of the telephony market planned for January 2003) in Romania.