July 2000

Central and Eastern European Countries Synthesis of Update Memos

Synoptic Tables - July 2000

I. 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.

Telecommunications liberalisation has begun in most countries, and therefore alternative infrastructures have been authorised to provide those services already liberalised : normally data services. The process should be completed between 2001 and 2006, depending on the country involved.

The liberalisation of alternative infrastructures should favour the development of the information society, given the multiple side-effects : the development and diversification of the offer, the increase in the quality of networks, the decrease in prices , etc.

The purpose of this document is to provide a synthesis of developments that took place between April and July 2000 in the field of alternative infrastructures.

This document is based on the contributions of the national contractors to the ESIS II project. For more information, please see national reports or the master synthesis.

1. 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 way to the supply of additional capacity or other services with greater added value.

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

2.1 The regulatory background

2.1.1 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 enabling the development of a fair competition,
• The obligation of interconnection for dominant operators, the requirement being that every telecommunications operator should be entitled to access infrastructures on a fair and equal basis, at fair prices. The technical and financial catalogues of interconnection of the dominant operators must be approved by the national regulatory entities.
• The liberalisation of alternative infrastructures

2.1.2 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, Estonia and Hungary, are experiencing a very advanced stage of effective liberalisation. The fact that they constitute the first wave of countries to integrate with the European Union, 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.

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

It is interesting to note that the provision of rural telephony has been liberalised in several countries where the lack of infrastructures is very important, in Albania for example, but also for a few years in Poland. The objective is to enable a quicker development of telecommunications in areas the most remote and the less profitable.

Development indicators of telecoms markets

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

Alternative infrastructure regulatory regimes in 1999

2.2 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. European directives and regulations in all liberalised markets 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… Regulation must details clearly the concrete technical and financial interconnection conditions,
• 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.

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

3. New developments between April and July 2000

Several countries including Poland, Hungary, Bulgaria, the Czech Republic and Lithuania, have seen a large number of developments: the issuing of new long-distance operator licences, preparation of invitations to tender for the issue of licences for UMTS (Universal Mobile Telecommunications System – the third generation of mobile systems) by 2001, the continuing privatisation of historic monopoly operators (in Bulgaria and Poland), and the restructuring of national utility companies. In the Czech Republic, Hungary and Slovenia new competitors have expressed the fact that the current complex and expensive licensing procedures and the absence of fair regulation of interconnection with the incumbent operator are genuine barriers to market entry.

In other countries, such as Albania, Bosnia-Herzegovina and the Republic of Macedonia, the market remains closed and few changes have taken place. It is worth noting an important privatisation project in Bosnia & Herzegovina (cf below).

Last developments (April – July 2000) in the field of alternative infrastructures in Central and Eastern European countries

Key to graph

Below, we summarise the new developments which have taken place during the past three months in each country:

Albania, Bosnia-Herzegovina, Republic of Macedonia: still no alternative players emerging

In Albania, the regulatory framework remains an enormous barrier to the creation of alternative networks. Indeed, Albtelecom has a state monopoly over public telecommunications. Nevertheless, different regulatory developments could facilitate the emergence of additional players in the market:

• the Telecommunications Regulatory Entity (TRE) is preparing the procedures and basic regulations relating to the opening up of rural telephony to competition. The liberalisation of rural telephony is often used to enable more rapid development of telecommunications infrastructures. It is interesting to note that, since March 1998, Albapost, which operates postal services, has been reselling telephony services in rural areas. This is done under an exclusive rights agreement with Albtelecom.
• the National Radio and Television Council will be granting licences to private radio and television station operators. The new companies will not be allowed to provide telecommunications services, but the liberalisation of this sector is aimed at creating a new environment in which the new enterprises may become potential players in the telecoms sector in the medium term.

The regulatory situation explains why no companies are currently preparing a strategy to enter the Albanian market.

In Bosnia-Herzegovina the market is still very closed and alternative infrastructures are not allowed. Nevertheless, an important privatisation project is planned by the government of the Serbian Republic. This project is intended to play an integral role in economic recovery. Indeed, the privatisation of major companies could be a first step towards the involvement of new players in the telecoms industry. What is more, the adoption of the ‘Law on foreign investment and concessions’, under which foreign companies may invest in Bosnia, could facilitate rapid developments.

There have been no significant changes in the Republic of Macedonia. The historic operator has a monopoly on virtually all fixed voice telephony services, telegraphy, telex, public payphone services and leased lines until 31 December 2005. When it comes to Macedonia’s major public utilities developing infrastructures which might be used by IS applications, so far the Macedonian Railways, the Electric Power Company of Macedonia and Makpetrol-TEAS (established by the country’s leading oil company) have established their own telecommunications networks. It is interesting to note that the Macedonian Railways received a grant from the American Trade and Development Agency (TDA), particularly aimed at helping them upgrade their information and telecommunications infrastructure (see the US TDA Grant entry in the ESIS II database).

Bulgaria and Poland: OTE/KPN and France Telecom have taken strategic equity stakes in the historic monopoly operators

In Bulgaria, several developments which have taken place indicate the country’s move towards liberalisation. In April 2000, negotiations were successfully completed between the Bulgarian government and the consortium consisting of Greek operator OTE and Dutch operator KPN, to acquire 51% of state-owned operator BTC. Experts are now working on the documents related to the sale.

In addition, the first private national TV station – the Balkan News Corporation, financed by Rupert Murdoch – was launched in June 2000. The station had been awarded a licence several months previously. According to experts, the launch of the first national private television station marks the start of genuine competition in the commercial TV market. The Bulgarian government is also due to issue a second national television broadcasting licence and is currently examining the applications. The decision should be taken by the end of 2000.

In Poland, after several months of discussion, the government finally chose the France Telecom/Kulczyk consortium as the strategic investor in the incumbent operator TPSA (for more information, please see the national report).

On April 2000, the Ministry of Post and Telecommunications announced its main objectives: support the increase of competition and the development of ISPs, and creating regulations to deal with voice-over-IP services. In addition, the ministry announced it was going to launch an invitation to tender for UMTS at the beginning of 2001.

The market is becoming increasingly liberalised. Three operators – Netia, NG Koleje Telekomunikacja and Niezalezny Operator Miedzystrefowy – were awarded long-distance operator licences in May 2000.

Estonia and Lithuania : rapid developments of the markets

In Estonia, several important developments have taken place, including the launch of invitations to tender for cable television licenses in several cities. The case of voice-over-IP company Supertel OY is also particularly interesting. In 1999, Supertel Eesti OY began providing long-distance voice-over-IP services. However, according to current national regulations the incumbent operator, Estonian Telephone Company, refused to give the company access to the national telecommunications network. The case is currently being argued in court. When it comes to public utilities, the Estonian Energy Company clearly signalled its potential entry into the telecoms market. The Estonian Railway Company has also been earmarked for partial privatisation (66%) in the future.

Also in Estonia, alternative operator AS Comtrade has formed a partnership with cable operators Starman and STV to provide high-speed Internet access over cable since July 2000.

A number of events have also taken place during the last three months in Lithuania. These include the launch of new services by mobile operators, planned privatisation of Lietuvos Energija and developments by players in the Internet industry:

• Bite GSM (which holds 40% of the mobile market) began providing Internet services via its GSM network in June. And Omnitel, another mobile operator, is developing electronic banking services to be delivered via its GSM network. One of Omnitel’s customers is the bank Snoras, for which it is already operating services including iBankas and GSM-Bankas.
• Comliet, a mobile telephony subsidiary of the historic operator Lithuania Telekomas, is implementing microwave infrastructures in rural areas without fixed connections. Comliet has signed a 7.5 million euro contract with Nokia for wireless provisioning.
• Preparations are under way for the future privatisation of Lietuvos Energija: the restructuring and partial privatisation of the company could take place in the second half of 2000. Lietuvos Energija is developing fibre-optic lines between major cities, which means it could become one of the historic operator’s main competitors.

It is interesting to note that further developments of cable TV infrastructures have also taken place during the last three months. These include extension of cable networks and upgrades to enable Internet provisioning. This means that most of cable companies are now capable of providing Internet access.

Czech Republic, Hungary, Slovenia: close to liberalisation, competitors are criticising the licencing and interconnection procedures, which constitute real barriers to market entry

The Czech Republic has seen very important developments during the last three months.

The new Telecommunications Act was approved by parliament during the second quarter of 2000 and comes into force on 1 July 2000. The new Act ends the historic operator’s monopoly on voice services (other services are already liberalised). Nevertheless, a significant barrier to entry will exist for another two years as the local loop remains closed, so new entrants will not be able to offer services to end-users through carrier selection. The residential market also remains totally closed for new entrants. In fact, the new Telecommunications Act only requires the incumbent operator to offer call-by-call carrier selection by mid-2002, and carrier pre-selection by the end of 2002. However, it is possible that this situation may evolve very rapidly under pressure from competitors, particularly since the situation is not in-line with European directives (which state that incumbent operator must provide its competitors with interconnection services). This means is likely that the appropriate measures will soon be taken to enable effective competition.

In May 2000, the Czech Telecommunications Office published a draft new numbering plan, aimed at preparing for liberalisation of the telecommunications market, harmonising it with EU requirements and preparing it for new entrants. The new numbering plan comes into force on 1 July 2000 (at the same time as the new Telecommunications Act), and will result in widespread renumbering of almost all phone lines (fixed and mobile). Czech Telecom had already started renumbering certain public services (mainly information services), using short number sequences, in May 2000.

Other important developments concern the future issue of wireless local loop licences. As in almost all European Union countries, several months ago the Czech Telecommunications Office opened a public tender for three licences in the 26 GHz band (also known as FWA – fixed wireless access). These licences will cover the building and operation of countrywide P-MP (point-to-multipoint) access networks and will be issued in accordance with the new Telecommunications Act initially for twenty years but with the possibility of further extension. The tender will be based on a ‘beauty contest’ (a set of criteria will be evaluated), and the price of the licences is fixed at 150 million CZK (about 4.2 million ECU). Current operators of countrywide mobile and fixed public voice networks (and companies owned by them) are excluded from this tender. The issue of these licences will represent a vital step towards the genuine opening up of the market to competition.

Another key event, in accordance with the European timetable related to the introduction of UMTS services, is the Ministry of Transport and Telecommunications’ proposal to sell three UMTS licences to the current mobile operators (EuroTel, Radiomobil and Cesky Mobil) for a fixed price, established by the government to cover administrative costs and include a surcharge. A public tender based on a ‘beauty contest’ would only be instigated if one of the current operators were not be willing or able to accept the new licence. The proposal also states that further licences could be issued in the future, if there are enough available frequencies and sufficient market demand.

Last but not least, a large number of new entrants have come into the market, so that the Czech Republic is now amongst the most open and dynamic telecommunications markets in Central and Eastern Europe. It is attractive to foreign operators. So, for instance, during the second quarter of 2000 UUNET Czech Republic (a wholly-owned subsidiary of UUNET/ MCI WorldCom) entered the Czech market to offer IP-based services, mainly to companies. In May 2000, Deutsche Telekom won a public tender and became the strategic partner of Pragonet, acquiring 51% of its shares for $25 million. Pragonet is a metropolitan network founded by the City of Prague in 1996, which runs optical cables in the tunnels of Prague's subway and on surface in adjacent premises. And GTS, an alternative telecommunications operator (owned by Global Telesystems Inc.) offering voice, data and Internet services, announced in June 2000 that it intends to invest CZK3 billion (approximately 84 million ECU) over the next three years in its infrastructure and technology in the Czech Republic.

In Hungary, the most significant occurance during the past three months has been the important challenge of current alternative telecoms operators to voice service regulations. The incumbent operator Matav is due to lose its monopoly on voice services by 1 January 2002. However, the current Telecommunications Act does not include any regulations to deal with network access conditions, such as the technical and financial conditions for interconnection. As in the Czech Republic, this constitutes a critical barrier to any new entrant. Several potential competitors (GTS, Novacom, Pan Tel, UPC, Vivendi, Antenna Hungaria, British Telecom, Pannon GSM and Vodafone) have been expounding the need for clarification of interconnection arrangements to enable the genuine development of competition. Notably, Matav itself has recently signed two contracts, one with Ericsson and the other with Nortel Networks, for the provision of private network data communications solutions.

In Slovenia, one of the main events has been the claim of several alternative infrastructure providers, cable TV operators and ISPs that the complexity and cost of the current licensing procedures represent genuine business barriers to the development of competition for liberalised services.

Amongst the future competitors in the telecoms market, Telemach (owned by Slovene Railways, and the city authorities in Ljubljana, Materline, Gorenje, Eon and so on) is actively investing on a very large scale, to expand its network.

Latvia: the new government has reaffirmed its commitment to promote the information society

In Latvia, there have been important governmental changes during the last three months. In the ‘Declaration on the intended activities of cabinet ministers’, the new cabinet explained its stance regarding telecoms and information technologies. The main points were:

• the end of Lattelekom’s monopoly in 2003 and the willingness to promote effective competition in the telecoms sector

• accelerated liberalisation of the wireless communications market

• promotion of Internet development in Latvia.

Romania: the national electricity company has benefited from an international loan. It has also announced a major project to modernise its telecoms infrastructures.

In Romania there were no regulatory developments during the last three months. The incumbent operator, RomTelecom has a monopoly on telephony services and the provision of leased lines until 1 January 2003. The most significant developments have involved major utility companies involved in significant restructuring and modernisation projects. Most of these projects are supported by loans from international organisations such as the World Bank and EBRD. The upgrading of telecommunications networks and development of ad hoc strategies are part of the global restructuring process. The national electricity company, Conel, has announced a $170 million investment programme to upgrade its network. The company has also announced its intention to establish a joint venture with the national railways, to enter the telecoms market in the medium term.

Central and Eastern European Main Alternative Actors

Synoptic Tables - July 2000