November 2000

Central and Eastern European Countries Synthesis of Update Memos

Synoptic Tables - October 2000

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. New entrants will be able to compete with incumbent operators

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.

As far as demand is concerned, new operators (such as mobile operators and ISPs), main potential users of alternative infrastructures, whose needs have not always been met, should see the development of competition in a very positive light. Indeed, the development of competition in the field of alternative infrastructures should result in a number of positive effects : improvement of networks quality, reduction of prices, etc.

The telecommunications liberalisation has begun in most countries, and therefore alternative infrastructures have been authorised to provide those services already liberalised : most of the time data and Internet access services. The process should be completed between 2001 and 2006, timetable of the liberalisation of the telecommunications sector over the region.

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 quality increase of networks, the prices decrease, etc.

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

The two first parts of the synthesis remind our definition of alternative infrastructures and national contexts. The third part provides a summary of developments that have taken place during the last three months in Central and Eastern European countries.

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.

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 kept for the specific needs of their owners.

Our definition of alternative networks also includes telecommunications infrastructures operated by new entrants in competition with incumbent operators such as cable networks, new wireline and wireless networks.

Today, telecommunications liberalisation in several countries, together with a growing demand for communications capacity emanating from ISPs, mobile operators, etc. could drive infrastructure owners to prepare an entry strategy into the telecom market. Nevertheless, these players are waiting for high quality networks and services. It is clear from reading national reports that the real development of an alternative infrastructures supply will necessitate considerable preliminary investment in order networks to be upgraded. This, in addition to the need for a regulatory opening and public enterprises statutory changes.

3. Countries contexts overview

The alternative infrastructures liberalisation is being implemented 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. This is mainly due to the facts that they take part to the first wave of countries to integrate the European Union, to the imminent liberalisation of telecommunications (2001 and 2002), a steady economic growth, to 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 the most isolated and the less profitable areas.

4. New developments between July and September 2000

Several recurrent issues are identified within the whole of the Central and Eastern European Countries. These issues were more or less critical depending on the countries over the past 3 months. There are tackled below :

4.1 Regulatory, legislation and licenses attribution : the regulatory field is still extremely dynamic due to the telecom markets deregulation, leading to the countries regulatory reorganising and to licenses attributions. See these points below :

• About the countries reorganising regulatory : In Estonia a possible alteration of the cable distribution act is being discussed. Hungary has seen important restructuring concerning its regulatory authority and also significant progress about the digital signature agreement project.
• About Licenses attributions a lot of countries acted on this issue :

• Fixed voice licenses : 3 countrywide wireless local loop licenses have been issued in Czech Republic, this indicates the involvement of the country towards liberalisation.
• Mobile telecommunications services : New GSM 900 licenses are yet being in the way to be attributed in Bulgaria (second license) and Lithuania (3^rd license). UMTS Licenses are also in the process of being tendered in Poland (5 licenses having to be attributed by 1^st semester 2002) and the Czech Republic (4 licenses available by January 2000).
• TV and Radio licenses attribution : Licenses are under the way of being issued concerning Bulgaria and Lithuania.
• Cable licenses attribution : one license for telecommunications services through cable TV has been issued in Poland.

4.2 Changes into national players structures : Some reshaping occurred during the last period concerning the whole of "possible telecommunications operators" (getting specific or not telecom networks).

• About telecom operators : Privatisation was stopped concerning the incumbent in Bulgaria.
• About others potential telecom operators : Estonia has seen some purchasing intentions concerning shares of its main cable TV (AS Starman Kaabeltelevisoon), also some candidates interested by its Estonian Railway Company privatisation (candidates are Raudtee Erastamise Rahva AS (RER), CSX Estonia ApS, Baltic Rail Services OÜ and SJ International). In Lithuania, the Lithuania’s Energy company should be restructured and privatised, National railways and Radio communications networks having to be updated. 3 majors cable TV players acquired by UPC are being restructuring with a common management. Slovenia saw last September commercial TV stations POP TV and A KANAL join together, so the national TV Slovenia got a very strong commercial competitor.

4.3 Level of entry barriers : a lot of conflicts have taken place in the Czech Republic between the historic operator and ISPs regarding interconnection prices. In Hungary Cost-based network connection fees have to be adopted by September-October 2000 in order to perform license-obligated telecommunications services at the beginning of 2001. At last in Poland the 3 long distance operators are in dispute with the incumbent concerning interconnection fees.

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

5. Summary per country

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

Czech Republic, Hungary, Poland and Slovenia : High level of entry barriers mainly due to conflicts with incumbents

The CZECH REPUBLIC has seen very important developments during the last three months.

Regulatory, legislation and licenses attribution :

• The most important regulatory event during the third quarter of year 2000 was the enactment of the new Act on telecommunications (Act 151/2000 Coll.), on July 1^st, 2000. This new Act opens the telecommunications market by January 1^st, at least in the sense that new operators can enter the market and start offering their services. According to available information, the following operators applied for licenses: Aliatel, GTS, Contactel and UPC (Kabel Plus and Kabel Net). According to the new Act on telecommunications, the Czech Telecommunications Office transforms itself into an independent regulatory body. Previously it was a part of the Ministry of transport and telecommunications. Now, its president is appointed by the government.
• Voice Licenses attributions : On September 8^th, the steering committee of the tender and the Czech Telecommunications Office, which opened a public tender for 3 countrywide licenses for FWA (Fixed Wireless Access) Networks, declared the following winners of the tender: BroadNet Czech, a.s., (70% owned by BroadNet Europe, 20% by InWay, 10% Telekomunikacni montaze), GiTy | STAR ONE, a.s. (50,1% GiTy, 49,9% STAR ONE), NEXTRA Wireless s.r.o. (fully owned by Nextra Czech Republic, a part of the Telenor AS holding).
• About UMTS Licenses attributions : In July 2000, following a public debate, the Ministry of Transport and Telecommunications proposed the government to award 3 UMTS licenses to the 3 current mobile operators, for an administratively set price. The Ministry announced that frequencies for 4 UMTS operators will be available by January 1st, 2002.
• About Cable TV legislation : In September, the Office for the protection of competition (Antimonopoly Office) opened investigations in the field of cable television, where UPC holds a significant share of the market (after the acquisition of Kabel Plus, Kabel Net and Dattel). Possible results may include regulating the price of cable TV services and changing the legislation due to the intent of cable operators to enter the telecommunications market.

GPRS implementation

Both the two biggest Czech mobile providers (Eurotel and Radiomobil) are working on the implementation of GPRS in its mobile networks. During the third quarter of 2000, final test are underway. A rollout is expected for the fourth quarter of year 2000.

Changes into national players structures :

• Cable TV players configuration Following its acquisition of three major Czech cable operators (Kabel Plus, Kabel Net and DattelKabel) by UPC (United Pan-Europe Communications N.V. (UPC)], Kabel Plus will be renamed to UPC Czech Republic a.s., and the two other companies will retain their individual names (but will share a common management, personnel and services).
• At the end of 1999, the power-generation company CEZ had established a daughter joint-stock company CEZTel, to operate the digital communication network built during the nineties for the needs of the power engineering sector. On April 13^th, 2000, CEZ Board of Directors decided to invest assets in CEZTel and started searching for a strategic partner. In July it was announced that Vivendi was selected as the strategic partner, and CEZ wants to sell him 66 percent of CEZTel. The ministry of Industry and Trade (MPO, Ministerstvo prumyslu a obchodu) objects such a sell-out, arguing that it would diminish the value of CEZ as a whole in its future privatization. The Ministry of Transport and Communications (MDS, ministerstvo Dopravy a Spoju) is in favor of selling CEZTel separately.

Concerning entry barriers :

• Entry barrier due to several conflicts between the incumbent and new entrants relatives to the points below :

• Disagreements on special Internet tariff (Internet2000) to users dialing from CT's network to their ISP located in GTS networks. The Czech Telecommunication Office (as the regulator) decided in may 1999 that Internet access must be a part of interconnection agreements between the two companies.
• Increase, in August 2000, with ISPs their commissions from the traffic their customers generate.

Delays to publish the referential proposal enacted by the new Act on telecommunications.

In HUNGARY, significant changes happened mainly concerning the regulatory issues :

Concerning interconnection costs for the use of the historic operator ‘s network :

Starting in 2001 in Hungary cost-based network connection fees will have to be adopted in the realm of license-obligated telecommunications services. The proposition is planned to be completed by September-October 2000. The realization of the project is currently under way at three levels (expert committee, project development and supervision committee).

Regulatory, legislation and licenses attribution :

• About the new ITCO : The section heads of the Information Technology Commissioner's Office were appointed effective from August 1. The eleven-member National Telecommunications and Information Technology Council (NHIT) is the body that gives opinions and proposals to the cabinet in the field of tasks relating to information technology and telecommunications.
• About the Digital signature : The preliminary plan of the law on electronic signatures and documents was expected to come before the cabinet in the beginning of September. If the preliminary plans are accepted, the draft bill can be completed by the end of the year.

Changes into national players structures :

About the incumbent operator shareholders structure : The principal shareholders of MATÁV as of June 30, 2000 were The Ministry of Transport, Telecommunications, and Water Management (the holder of the Golden Share) and MagyarCom, owned by Deutsche Telekom AG and SBC (59.49%), while 40.51% of the shares are in public circulation.

In POLAND, the France Telecom/Kulczyk Holdings consortium signed an agreement the 25 July 2000 after completing negotiations to buy 35% of the incumbent operator Telekomunikacja Polska S.A.

Regulatory, legislation and licenses attribution :

• Concerning the UMTS technology : on 1 September Minister Tomasz Szyszko presented a draft call for tender for the Universal Mobile Telecommunication System UMTS, the third generation mobile telecom services. The deadline for consultancy was 15 of September 2000. The objective of the UMTS tender is to select 5 operators. Licences that will be valid for 15 years from between the 1^st january and the 31^st march 2002. One of 5 planned UMTS licenses will be sold to TPSA. (Centertel, the mobile operator, is owed by TPSA and France Telecom).
• About long distance operator licenses disputes : It is probable the three operators – Netia, NG Koleje Telekomunikacja and Niezalezny Operator Miedzystrefowy which were awarded long-distance operator licences in May 2000 will not start offering services until the end of year 2000. There is no satisfactory solution to the disputes of interconnection financial agreements and technical issues of connection points with the incumbent operator TPSA. The two long-distance operators, Netia 1 and NG KT, even expressed possibility that they cannot take their licenses if situation is not improved.
• About telecommunications over cable PTK Polska Telewizja Kablowa Sp z o.o ( The Polish Cable Television) has got a license for the deployment and use of telecommunications networks. This license is for broadband data transmission services through nationwide cable TV networks. The service will start in December 2000 in Warsaw and Cracow.

In SLOVENIA, a few changes only occurred :

Level of entry barriers : entry barriers continue to be high due to exclusive rights for the construction and management of the public telecommunications network intended for the prevision of public telecommunications. Internet has been granted to Telekom Slovenia until 31^st December 2000, the alternative infrastructure may only be used for a limited set of commercial services (a license is also required).

Changes into national players structures : In September commercial TV stations POP TV and A KANAL joined together, so the national TV Slovenia got a very strong commercial competitor.
ARNES has started to use the ELES network.
Company EON was sold completely to foreign investors.

Bulgaria and Lithuania : Significant steps ahead about licenses attributions

In BULGARIA, several developments which have taken place indicate the country’s move towards liberalisation.

Failure of the incumbent privatisation process : In the beginning of August the Bulgarian Government put an end to the negotiations with the Greek-Dutch consortium between OTE and KPN for the sale of the 51 per cent stake of the state owned incumbent operator – A new bidding is envisaged.

Regulatory, legislation and licenses attribution :

• TV and Radio licenses attribution :

• The Bulgarian Government decided to issue an additional license for the development and operation of another national television network after the launching of the first private TV in June 2000.
• Concerning regional licenses due to the big number of the handed in applications the deadline for their evaluation and classification was extended till the end of November.
• In August the Government approved the SCT proposal for issuing a new nation-wide license for a radio broadcasting for a period of 15 years. The deadline for submission of applications is 2 October.

• Second GSM License attribution : According to the previous concept, the BTC privatisation deal would have included the right to establish a second GSM network in Bulgaria. As a result of the put off the privatisation the development of second GSM network was delayed. For that reason the State Telecommunications Commission proposed to the Cabinet to open a separate competition procedure for such a license.

LITHUANIA was still yet very dynamic over the past 3 months both for the mobile market and the alternative infrastructure market.

Regulatory, legislation and licenses attribution :

For the mobile market : The Communication Department under the Ministry of Transport and Communication announced in September about the third GSM 900 operator coming soon. The tender for the third licence started in Q1 2000. Currently five proposals, received during first quarter, are valid and the winner of GSM 900 licence can be announced in the ending 2000.

New Mobile services implementation :

Operators, all mobile communication companies, currently serving more than 350 000 users, are developing new services and are widely penetrating Internet market, including mobile Internet.

On-going developments concerning alternative networks :

• Lithuania’s Energy company : Lithuania Government announced plans for restructuring and privatisation of Lietuvos Energija (Lithuania’s Energy company) in November 2000. Lietuvos Energija has installed fibber optic lines between the main cities Vilnius and Kaunas, the line Kaunas – Klaipeda is being installed. Lietuvos Energija has ambitious plans to create a fibber optic network covering all territory and connecting all major energy facilities – power stations, management and switching centres. Some data publication operators are negotiating with Lietuvos Energija agreements to set up collaborations in order to use fibber optic infrastructure in near future. In September Lithuania’s Prime Minister Mr A.Kubilius and the Prime Minister of Poland Mr J.Buzek signed an Agreement for the implementation of a Power Bridge to the West. The respective Prime Ministers signed a joint letter to the European Commission asking for financial support to realise this project.
• Lithuanian Railways : The state enterprise Lietuvos Gelezinkelis (Lithuanian Railways) has plans to develop fibber optics communications infrastructure along the main railways transport corridors. Currently, the company has about 100km optics communications infrastructure and uses for management purpose its own copper lines or leased lines from Telekomas.
• Radio communications : The State enterprise Lithuanian Radio and TV Centre - LRTC has its own radio relay infrastructure (28 radio relay stations) between the main cities, which are also available for IS applications. In 1999, LRTC announced a tender (4,5 MEUR or 15 MLt) for the implementation of SDH data communication technology. LRTC received 5 proposals; therefore the competition process was protested twice by Norway’s Company "Nera AS" (winner of the third place) during one year. The final decision for this tender is expected for October 2000.

In ESTONIA, there was a very intense activity concerning national players potential changes during the last 3 months :

Regulatory, legislation and licenses attribution :

• About telecommunications activity services licenses : By September 1, 2000 the Communications Board received applications to operate a public fixed voice telephony network from nine enterprises; altogether 26 companies applied for registration.
• About cable Television licenses : Possible alteration of the cable distribution act since according to Legal Chancellor Eerik-Juhan Truuväli the Cable Distribution Act contains aspects that favour monopolism and restrict actions, he sent an inquiry to the Parliament to alter the Act. Alteration proposals of the Act are worked upon and they will be in Parliament proceedings during 2000. Alterations are made with the purpose to bring the Telecommunications Act and the Cable Distribution Act into accordance. At the moment the activities of the National Communications Board are limited by these legal confusions as well, since based on the Cable Distribution Act the Communications Board has issued regulations which later have been declared unlawful by courts.

About main national players structure change :

• Possible change in AS Starman Kaabeltelevisoon ownership
  According to PriceWaterhouseCoopers, the sale consultant of major shares of AS Starman Kaabeltelevisoon the sale was to take place in June/July 2000. At the moment ownership relations (Telia AB as the major shareholder of the company) prevent the company from participating in tenders for activity licences arranged by the National Communications Board. According to Starman the Swedish corporation NetCom AB (trademark TELE2) is interested in becoming the major shareholder in Starman.

• Privatisation of the Estonian Railway Company
  In April 17 the Estonian Privatisation Agency proclaimed the competition for privatisation of 66 per cent of the shares of the Estonian Railway Company (ERC); it will be held as a two-staged tender with preliminary negotiations. All four tenders were accepted into the second stage of the tender: Raudtee Erastamise Rahva AS (RER), CSX Estonia ApS, Baltic Rail Services OÜ and SJ International. The sale of shares should take place in December 2000.

About operating phone communications activity :

• Modifications in the order of dialling
  Starting August 1, all Estonian communications operators commenced using the dialling order accepted in Europe and the numeration system in accordance with international standards.

• New services Radiolinja Eesti announced of the intention to start providing satellite connection using special two-frequency telephones as the first Estonian mobile connections operator in co-operation with satellite communication services company Globalstar. The price of satellite call minute will be about 40 EEK (EUR 2.5). Modifications in prices of communication services due to new entrants coming very soon.

About alternative networks :

Radiolinja and Eesti Energia Televõrgud interconnected communications networks at the end of September 2000 Radiolinja Estonia and Eesti Energia Televõrgud announced of the intention to interconnect their telecommunications networks.

LATVIA : the new government is commited to promote the information society

Concerning entry barriers vs telecom deregulation : Latvian Government declared that all types of telecommunications activities should be liberalised by the year 2003. The Latvian governmental negotiation team has been established for discussions with TILTS Communications. Its objective - to revise the mentioned clauses and to co-ordinate competition policy in nearer future. Negotiations are going on (Privatisation Agency with Lattelekom's strategic investor Sonera) about shortening monopoly status (until 2003).

Now these negotiations between strategic investor and Privatisation Agency transfer to dispute resolution on the Court.

The development of Telecommunications technologies pointed out that the existing Latvian Telecommunications Law is out of date to day. The terms and definitions of services under exclusivity rights need to be up-date. There are many challenges for entrants to open their own business.

National players vs new entrants : Lattelekom only has the right to offer its network for public services. Nevertheless there are several institutions in the country, that potentially can become the public telecommunication network owners and offer their services after cancelling the Lattelekom's monopoly.

The names of companies offering the networks are the same: electricity company Latvenergo, rail-way company Latvian Railways, radio and TV broadcasting company State Radio and TV Centre, mobile network operators and cable TV network operators.

There are no new companies offering the network and infrastructure services.

But there are new tendencies. As a result of convergence of technologies the existing networks stands more transparent for offering a new services. It stimulates the development of new market segments and is a good opportunity for new entrants. As an example it is necessary to note the WAP services offered by mobile companies.

Albania, Bosnia-Herzegovina, Romania : almost no developments during the last three months

For Albania, the country reports that no change happened during the last period. The regulatory framework remains an enormous barrier to the creation of alternative networks (see previous quarter report for details).

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

In Bosnia-Herzegovina no change really happened over the last 3 months. The market is still very closed and alternative infrastructures are not allowed (see previous quarter report for details).

In Romania situation didn’t change since the last report.

Central and Eastern European Main Alternative Actors

Synoptic Tables - October 2000