July 1999

Central and Eastern European Countries Synthesis of Master Reports

1. The regulatory aspects

Observation of the regulatory regimes in Central and Eastern European countries shows that Poland and Estonia are the most liberalised. Whilst the full liberalisation of these markets is planned for 2001, alternative telecommunications infrastructures* are not yet liberalised for the provision of authorised services : data, Internet access, mobile telephony. It appears that this early liberalisation attracted private and foreign investors, which without doubt had a strong leverage effect on data and Internet market growth. Furthermore, the opening of cable TV networks for the provision of telecommunications services is a major step towards liberalisation. One can note that the provision of telecommunications services via cable TV networks is also authorised in Latvia.

Alternative Networks remain closed in the other countries, even for liberalised services such as data and Internet. Nevertheless, their opening is planned in new telecommunications laws currently being drafted, or in the process of adoption in most of the countries.

It is worth noting that leased lines remain under the monopoly of the historical operator in nearly all the countries. Slovenia is an exception as the provision of leased lines for Internet backbones is authorised. Furthermore, licences have been granted to alternative infrastructures owners (electricity utility Eles, RTV Slovenija – Transmitter & Communications Department – and four cable TV operators), but none of them have started providing services on a commercial basis yet.

Alternative infrastructures opening process is low and difficult. Indeed, potential new entrants face a lot of difficulties : financial, regulatory, strategic, etc. Furthermore, they want to prevent historical operators from creating barriers to entry, which can be for example,

• refusal to provide connection to their network
• refusal to sell certain services to their competitors, such as leased lines
• dumping. Indeed, earnings from activities under monopoly could enable them to subsidise the provision of liberalised and growing services, such as Internet access. They could then supply these services at very low (anti-competitive) tariffs,

In another way, the historical operators also express their fears. Because of their mission of "public service", they must meet a lot of requirements. We can cite the delivery of voice services at moderate tariffs or the delivery of voice service all over the territory in the framework of "universal access" provision. Usually, to meet these requirements, historical operators cross subsidise international and long distance voice services (high tariff), and local voice services and connections (low tariff). These differences are important entry opportunities for new entrants. Consequently, historical operators do not want the new entrants to take the more profitable customers, i.e. enterprises with international and long distance telecommunications needs. Because they do not have the same constraints as the historical operators, they can provide international voice services, or growing services such as Internet access, with very strong tariff reductions.

That is why the new regulatory regimes must take into account the interests of all the actors : historical operators, new entrants, end-users.

The table below presents the different regulatory regimes of alternative infrastructures in the Central and Eastern European countries.

Alternative infrastructures regulatory regimes in 1999

KEY:

2. The Actors

The involvement of the owners of alternative networks will depend on regulatory regimes. It will also depend on telecommunications market perspectives. One can note that potential demand for quality telecommunications services and networks is high. Indeed, as outlined in the national reports, the quality of telecommunications services is weak in a lot of countries, as well as the coverage of the networks. For example, it is worth noting that the average penetration rate of telephone lines (or telephony density) was equal to 20 per 100 inhabitants in CEE in 1998, the sample of countries including Albania, Estonia, Latvia, Lithuania, Poland, Romania, and Slovenia. We can note huge differences between the countries : a rate of 5 % in Albania, 22% in Poland and between 30 and 40% in Lithuania, Estonia, Latvia and Slovenia. Despite these differences, the average telephony density in Central and Eastern Europe remains far below the one in the European Union : 50 lines per 100 inhabitants in 1998, with rates equal or superior to 60 lines in several countries.

This is a result of a number of different factors including the shortage of investment and the absence of modernisation policies before 1990. In a lot of countries, the whole telecommunications industry is still suffering from important financial shortages.

The failure of public networks is painful for the population and for enterprises. It has appeared to curb social and the economic development in an important way.

One can note that since the 90s, enterprises, in particular multi-national companies establishing in Central and Eastern Europe, have resorted to private telecommunications networks based on VSAT and radio technologies. Private networks were essential to enable communications between the subsidiaries and the mother company, as well as to ensure communications between offices located in CEECs. Private networks enable voice services and data services such as electronic data transfers (used by automotive companies and spare parts companies for example), broadcast and multi-broadcast of high volume files (image transfer), for which VSAT technology is very well adapted. This means that telecommunications are vital for the functioning of more and more enterprises. They are part of the means of production. The importance of telecommunications is getting a new dimension with the improvement of Internet and e-mail. The national reports highlight that the modernisation of telecommunications networks is one of the main priorities of all the Central and Eastern countries.

In another way, the development of private networks shows that there is potential demand for high and differentiated telecommunications services.

The context of several countries is presented below.

• Poland

It is worth noting that new, strong private operators exist in Poland. For example, Netia holding (Telia 33.24%, American shareholders 43.2%, Israeli shareholders 16%, and Polish shareholders 7.6%) is a major shareholder in several local operators. It should become a major player.

One must note that domestic long distance operators must be 51 % Polish-owned until 2003. This requirement is in fact a basic requirement in plenty of countries and does not constitute an important barrier to entry.

Several utilities are up grading their networks, but have not yet made plans dealing with the provision of network services to tiers.

• Estonia

Estonia is another market oriented towards liberalisation. Alternative infrastructures are liberalised for the provision of authorised services : data, Internet, mobile.

The electricity utility Eesti Energia is up grading its network to provide high volume services such as image transfer, video; It has no long run plans, but co-operation with major telecommunications operators could be considered.

The Estonian railways are offering microwave network services to mobile operators.

The most widespread provision of telecommunications services is foreseen to be that provided by cable operators (cable TV networks are able to provide telecommunications services).

We can cite Levicom Broadband, subsidiary of Netcom AB, which participates in two cable operators and an important ISP. It has further plans.

Tallinna Kaabeltelevisiooni is going to offer Internet services, and plans to provide voice services after the monopoly of the historic operator is removed.

Telia AB which is a major shareholder in the cable TV operator Starman. Telia might have important ambitions in the Estonian market. Starman is the biggest operator in the market with 25% share of the market. Starman uses both 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).

• Lithuania

Alternative networks for public use can be developed on radio and satellite technologies. Cable TV networks are opened.

Taide, subsidiary of the Norway operator Telenor provides Internet access services.

There are 51 cable operators operating in all the cities of Lithuania, but few are planning any involvement in telecommunications.

• Latvia

The Lattelekom monopoly could be shortened to 2002-2003, instead of 2013. This would accelerate the liberalisation of alternative infrastructures.

The electricity utility Latvenergo is planning to offer telecommunications services to third parties. It is implementing fibre optic in its network. The up-grade should be complete by 2002.

The Latvian railways are also planning to up grade their network.

In other countries such as Romania and Bosnia & Herzegovina the priorities are the rebuilding of networks. Utility companies are under-going a process of restructuring and their involvement in the telecommunications market will not begin for many years.

In Romania, the cable TV networks are widely deployed, nevertheless, an important up-grade would be needed in the perspective of the provision of telecommunications services.