April 2000

Central and Eastern European Countries Synthesis of Master Reports

Synoptic Tables - April 2000 (135 ko)

1. Introduction

The liberalisation process and the emergence of a multitude of new technologies should lead to a major transformation of the Central and Eastern European telecommunications landscape. Alternative infrastructure liberalisation will play a key role in the shaping of the future telecommunications industry. Newcomers will be able to compete with incumbent operators

The liberalisation process has begun in most countries, and therefore alternative infrastructures have been authorised to provide those services already liberalised. The process should be completed between 2002 and 2006, depending on the country involved.

As far as supply is concerned, the ability of alternative infrastructure owners to bring about the rapid modernisation of their networks and to propose a diversified provision of services will be an important condition of the development of the sector. The regulatory conditions, into which are integrated the principles of the Acquis Communautaire, should facilitate the process.

As far as demand is concerned, new operators (such as mobile operators and ISPs), the principal potential users of alternative infrastructures, whose needs have not always been met, should see the development of competition in a very positive light.

Moreover, the liberalisation of alternative infrastructures should favour the development of the information society, given the multiple side-effects, in particular the more rapid expansion of new communication and information technologies.

The purpose of this document is to provide a broad perspective of the alternative networks in Central and Eastern European countries, with particular emphasis on the regulatory background and the positioning of incumbent or potential players.

This document is based on the contributions of the national contractors to the ESIS II project.

2. Definition

In this report, alternative networks are defined as those infrastructures owned and operated by public players (e.g. utility companies: electricity and gas suppliers, pipelines, highways, railways, …) or private companies (such as banks, …), that have the potential to be used for the construction of telecommunications networks and the provision of services.

Alternative networks were developed by companies for whom telecommunications are essential and whom, in general, public telecommunications networks were not able to provide with all the services they needed (performance, confidentiality, competitive tariffs, customised functionalities, …). They are usually reserved for the specific needs of their owners.

Today, telecommunications liberalisation, together with a growing demand for communications capacity is driving a large number of infrastructure owners to prepare an entry strategy into the telecoms market. They will then be able to make available a package of services, from rights of ways to the supply of additional capacity or that of services with greater added value.

3. The interaction between business and regulatory issues: an overall context favourable to the emergence of alternative infrastructures

3.1 The regulatory background

3.1.1 A return to the Acquis communautaire

The introduction of competition into a market previously dominated by one operator usually requires the implementation of a set of rules or regulations to promote newcomers and to prevent abuse by the dominant operator. The European Union is playing an important role in the introduction of competition through the set of Directives it has adopted.

The adaptation and implementation of the European directives constitutes a major priority for Central and Eastern European countries.

Key elements in the EU-driven alternative infrastructures process are :

• An end to monopolies by a specific deadline,
• The establishment of a framework for a competitive market. In particular, the establishment of an adapted licensing regime
• The development of open access to networks, the requirement being that every telecommunications operator should be entitled to access infrastructures on a fair and equal basis, at a reasonable price.

3.1.2 National policies

The process of opening up alternative infrastructures is proceeding at various, very different, paces, in the different countries studied.

Some countries, such as Poland, the Czech Republic, Slovenia and Hungary, are experiencing a very advanced stage of effective liberalisation. The imminent liberalisation of telecommunications (2001 and 2002), sustained economic growth, the growing demand for additional capacity from new operators (above all, Internet access providers and mobile operators), are the reasons behind the more active position of alternative infrastructure owners.

However in other countries, such as Albania, Bosnia and Herzegovina, the Republic of Macedonia and Romania, the process is developing at a much slower pace.

The table below provides provides an overview of alternative infrastructure regimes across Central and Eastern European countries.

Table 1 : Alternative infrastructure regulatory regimes in 1999

4. Attitude of incumbent operators towards alternative network providers

Incumbent operators benefit from major competitive advantages compared with the new players, especially as regards the range and quality of their networks and a direct link with users (local loop). They may use these advantages to try to slow down the deregulation process by erecting some barriers to entry.

A few tendencies observed in liberalised markets can be highlighted :

• The "refusal" to provide interconnection to their network. The regulations state that interconnection is obligatory. However, operators can impose high interconnection charges, or only provide a restricted service, preventing competitors from providing a high quality service, or delay the effective implementation of interconnection…
• The refusal to sell certain services to their competitors, such as leased lines,
• The use of dumping. Indeed, earnings from activities under monopoly can enable them to subsidise the provision of services under competition, such as Internet access or mobile services, which are then provided at very low rates.

On the other hand, incumbent operators are also expressing their fears. Because of their "public service mission" they have a lot of constraints that newcomers do not have. Indeed, incumbent operators may also be less competitive in certain markets than new players.

Among incumbent operators’ constraints can be cited the obligation to deliver public voice service throughout the territory at a moderate tariff within the framework of universal service provision. Usually, to meet this requirement, incumbent operators cross-subsidise international and long distance services (high tariff), and local services (low tariff). These tariff differences represent important entry opportunities for new players. Newcomers usually target profitable markets i.e. markets of companies with international communication needs. Because they do not have the same constraints as incumbent operators, they can provide international voice services with major tariff reductions.

That is why the new regulatory regimes must take into account the interests of all players: incumbent operators, newcomers and end-users.

5. A potentially important demand for alternative infrastructures … but the need for high quality services

Mobile operators, Internet access providers and large companies may represent an important demand for alternative networks. In fact, the introduction of competition should result in a number of important advantages for users: a reduction in network costs and greater independence in relation to incumbent operators.

Nevertheless, these players are waiting for high quality networks and services. It is clear from reading the national reports that the real development of a supply of alternative infrastructures will necessitate considerable preliminary investment in order for networks to be upgraded.

6. Overview of players and strategies

6.1 Overview of players

The supply of alternative infrastructures is still emerging. Liberalisation of markets is just beginning, a huge amount of investment is needed to upgrade infrastructures, structural reforms are still awaited (certain public enterprises need statutory changes), all of which means that the development of an alternative supply will take some time.

One can find important national developments in the national reports available on ESIS II web site.

Owners of alternative infrastructures may be distributed in 3 categories present on the following geographical segments :

• local,
• regional,
• national.

The table below presents main actors present in Central and Central Eastern countries :

Table 2 : Alternative actors matrix

A reading of national reports makes it clear that different markets are developing at different speeds. The following groups of countries may be identified :

1. Czech Republic, Hungary, Poland, Slovenia : multiple actors in emergence

Favorable factors, such as the close liberalisation of the sector, lead an various actors to position as potential future alternative networks providers. Actors belong to various sectors.

• In the Czech Republic, the cable-operators Kabel Plus and Kabel Net are planing the development of a multi-services offer in the near future. Ceske Railways created a subsidiary dedicated to telecommunications. The Pragua Tub, Pragonet, is also to become a main alternative actor.
• In Hungary, Hungarian Eurotel (380-km long distance optical cable) appears as one of the main alternative operators, the American cable operator UPC, is also very active.
• In Poland, an important number of alternative actors are positioning. They are present on the local segment (as Netia holding), as well as the regional and national segments (Polish railways, Tel-energo, …). Energy supply and railways privatisation is scheduled by mid-term.
• In Slovenia, the power company Eles and the Slovene railways received a license to provide leased lines, an important number of cable operators were also licensed to provide telecommunications services.

2. Bulgaria, Estonia, Latvia, Lithuania, Republic of Macedonia, Romania : a slower involvement of potential actors

• In Bulgaria, key players are Internet services providers. Some cable operators provide Internet access, but have not yet elaborated further plan regarding a telecommunication offer. Most of public utilities are in a restructuring phase and have no plan regarding the telecommunications sector.
• In Estonia, key actors are mainly cable operators. Levicom Broadband, Tallinna Kaabeltelevisioon, Eesti Telekom and Starman should enter the telecommunications market by short term. Some utilities are planning to up-grade their network, but have not yet elaborated any plan regarding telecommunications business.
• In Latvia, Latvenergo and Latvian Railways are to up-grade their networks.
• In Lithuania, there are an important number of cable operators, but few are yet planning to provide telecommunications services.
• In Republic of Macedonia, Makpetrol is the Macedonian Oil Company’s telecommunications subsidiary. Makpetrol is yet providing services to large companies.
• In Romania, the power company Conel and the Romanian National Railroad Agency plan to establish a joint venture to compete with Rom Telecom.

3. Albania and Bosnia & Herzegovina : markets a still very closed

• In Albania and Bosnia & Herzegovina, markets are still very closed and few developments are foreseen in the near future.
• In Bosnia & Herzegovina, the "law on foreign investment and concessions" recently approved could be a first step towards the emergence of new actors. Nevertheless, the law contains several limitations regarding foreign investment in the telecommunications sector (foreign investors can not be major shareholders of a company, … ).

The table below provides an overview of actors positioning

Table 3 : Central and Eastern European Main Alternative Actors

7. Strategies

Alternative operators strategies mainly depend on the above mentioned factors, main elements shaping their orientations being their core competencies and the constraints on the current telecommunications business. As liberalisation of markets is just beginning, alternative operators are in the first phases of strategy elaboration. Strategies are mainly built around two major elements :

7.1 Alliances strategies

The production and sell of telecommunications networks and services imply the possession of specific expertises and ressources. Alternative infrastructures owners usually do not have the whole set of necessary competencies. Agreements between actors are truly regarded as vital to develop an activity.

Each category of actors have specific resources :

• A first category of actors have right of ways they can provide other actors with. Municipalities are included in this category. Right of ways are very valuable because they may give access to the local loop
• A second category of actors have networks infrastructures. Infrastructures may include only technical sites and tubes where operators install cables, they may include also fiber optic. Fiber optic may be sold whether "dark", or "activated". Actors are utilities, railways that have long distance infrastructures, and metro owners that have local infrastructures,
• A third category of actors includes cable-operators. Cable–operators have the main advantage to have local loop infrastructures and to be in direct relationship with customers. Cable networks offer important opportunities : up-graded networks enable the provision of high bandwitch Internet access as well as basic voice services. Cable operators are positioned on growing markets, they should be key actors in the future,
• A fourth category of actors includes national and international operators. In a partnership, they bring their technical and marketing know-how. Very large investments that would necessitate the creation of a totally new network explain that new operators associate with infrastructures owners. The opening of alternative infrastructures facilitate the establishment of new operators and stop a potential non profitable duplication of infrastructures. International operators bring in particular their global interconnections facilities,
• A fifth category of actors includes financial such as banks (bringing their funds and financial know-how to the projects), or main commercial partners as main retailers groups, … (bringing their funds, their networks of shops and an important potential of customers). For these actors, participation or diversification in a growing market (e.g. telecommunications) is part of a large strategy.

Partnerships between actors are vital to assembly the whole competencies needed to produce telecommunications services. Many examples can be found in Central and Eastern European countries where several recent partnerships where established between various actors. In Poland, a new long distance operator, the consortium NG Koleje Telekomunikacja, include Polish Railways, and National Grid (British Power Corp.). Netia, another Polish alternative operator includes the BRE bank and the electricity utility, Stoen. In Slovenia, a new consortium includes several different actors , in particular, Slovene Railways, the municipality of Ljubljana and an important cable TV operator. Foreign operators are also strongly present. In Hungary, the French operator Cegetel bought 35.5% of Hungarian Eurotel, the cable-operator UPC is also present in Hungary, Pan Tel is a consortium including in particular the Dutch operator KPN, the Hungarian operators Mav and Mov.

7.2 Products strategies

Products strategies highly both depend on alternative infrastructures owners core know-how and demand of end-users.

As far as supply is concerned, the provision of rights of ways (basically offered by municipalities or highways) only is very different from the provision of a customised telecommunications services which include important value added level. Alternative actors have to arbitrate between the costs and opportunities of developing new activities and the potential benefits.

As far as demand is concerned, both residential and companies end-users now want sophisticated services and diversified applications based on always up-dated technologies.

We think that today product positioning can be realised at different levels that include a growing part of value added :

• Right of ways and dark fiber : it is the basic offer that Municipalities and alternative infrastructures owners can consider. It is a basic carriers to carrier offer,
• Leased lines and bandwitch : this can be considered as the first step towards "service providing". This positioning enables operators to target carriers market and big accounts real time applications and dedicated networks between several locations,
• Global communications services and outsourcing : alternative operators aims at becoming full telecommunications operators. Important investments and competencies are needed to develop such an activity, the latter corresponding to an important demand from companies.

Synoptic Tables - April 2000 (135 ko)