January 2000

Romania Update memo

The following report outlines new developments in the past three months and the state of on-going developments.

General Background

One of the main regulatory decisions regards the national primary heath insurance system which is headed towards full privatization starting this year.

The contractual terms of the privatization of RomTelecom, still holding a monopolistic position in phone communications, led to public concern and eventually to a public investigation of the privatization process.

1. Regulatory framework

The Government, or the Ministries, tried to solve current problems by adopting a series of orders. The areas targeted are: granting broadcasting licenses, modification of the level of taxes for authorization and licensing in the domain of audio-visual and satellite communications and financing of the R&D base of the National Computer Network.

No important laws regarding the IT sector were adopted by the parliament.

Sergiu Iliescu, president of the National Agency for Communications and Informatics (NACI), has announced several plans. The agency plans to turn the General Communication Department (GCD) into an independent agency for telecommunication regulations. The role of GCD will be that of a watchdog for telecommunications and the radio-electric spectrum. The project should be operational by the end of 2000 and will benefit from a 30 million USD loan from the World Bank.

The privatization of the National Radio-Telecommunications Company is also envisaged, as well as the creation of an agency for data protection. The consultants who will prepare the company for privatization will be contracted only after the first quarter of 2000. This will make the sell-off of radio-communications take longer.

2. Public telecommunications

Even if the deadline for liberalization of the public telecommunication network is set for January 1^st, 2003, some companies seem to be preparing to enter this market. One of these contenders is the Romanian National Railroad Society (NRS- SNCFR), which will build an internal communication structure, based on fiber optic technologies provided under contract by Siemens.

The RomTelecom operator (fully privatized), being in a monopolist position, increased the tariffs on October 1^st by almost 8%. As a result of widespread criticism in media, the Romanian Senate established, by the Decision no. 21 of October 11, 1999, a commission to investigate the privatization of RomTelecom and the consequences for the economy and national security.This led the company to announce a new position in mid-December. Mr. Vassilios Tsakoniatis, general director of RomTelecom, maintains that there will be no new increase at the beginning of 2000. This position will be justified by the necessity to increase the utilisation level of the network. If the measures will prove successful, the next increases will be lower than expected.

At the same time new measures were announced, such as a cut of 50% in connection taxes and providing the first 200m of line for free (in the case of new connections). All these measures are part of a plan to increase phone traffic.

The main priority of the company is to increase the degree of digitalization of the lines. During 1999, 350,000 digital lines were installed and 150,000 analog lines were converted to digital. The total amount of investment was545 million USD. Until 2003, the Company plans to invest 2.7 billion USD, leading to a yearly investment rate of 500 million USD.

A major telecom deal was set with Alcatel, Ericsson and Siemens. According to Vassilios Tsakoniatis, general director of Romtelecom, the agreement with the three firms could eventually reach more than 500 million USD. The participation of the three providers (Alcatel/Ericsson/Siemens) will be distributed 26%/43%/30%.

Among the projects for 2000 are the extension of the services provided and the launch of the Cosmorom DCS 1800 mobile phone system. The network will be operational at the end of February and will benefit from investments of 200 miilion USD. Until 2002 the service will have national coverage.

The competition in mobile communications allowed the lowering of rates, reaching levels as low as 4USD /month and a variety of rate patterns to choose from.

3. Internet

The World Bank is investigating the potential in the developing communications market in Romania. According to Varadarajan Atur, senior financial analyst with the World Bank's energy and telecommunications department, the bank is in the preliminary stages of examination.This may lead to further development of Internet connections, discouraged at this time by the telecom network (both the quality and the prices).Estimation shows that for every dollar paid to the Internet service provider, RomTelecom receives three dollars!

The regulations have been relaxed in the field of the Internet but strong demand from the public (mainly in the age group of 15-35 years) has caused increased competition on the ISP market.The cost of an hour on the Internet is half as much now as it was a year ago. The prices of the ISPs are, on average, 0.6UDS/hour for dial-up customers.The same competition between ISPs has led to the declaration of increased numbers of users, just to gain the confidence of the public.

The major ISPs are: Arexim, DNT, EU Net, FX, ITC, Kappa, RDS, PC Net, RNC, Soft Net.

4. IT regulations

The IT area is regarded by the public authorities as an important sector. The Presidency, the Government and Parliamentary representatives re-new their commitment to the promotion of IT with various public events.

Thus far ANCI has finalised the second version of the draft law for IT (including the observations from the European Commission - DG XIII)- the "Code for Information Technologies Development and Use" which has been waiting to be debated by Parliament since March 1999.

5. Information Society Umbrella Policies

The National Research, Development and Innovation Programme (RDI) (Government Order no. 562/1999) established a framework for research.

As this programme did not specifically refer to Information Society research, it was expected that the tenders from the research institutes and other companies would try to fill that gap with specific proposals. Furthermore, the National Agency of Science, Technology and Innovation (NASTI) decided to take advantage of "Horizon 2000", the research framework established 6 years ago, and to develop specific programmes, such as Microtechnologies, and, perhaps others covering the IS domain. However, the economic crisis, caused by the slow pace of reform (that ultimately led to the changing of the Prime Minister in December 1999) precluded these intentions. As economic growth is planned for the new year, it is expected that the specific R&D programmes, dedicated to the most advanced technologies, including the IS sector, will finally be launched.

6. Y2K

The measures to be taken in Romania for Y2K -related problem prevention are supervised by Government Order no. 610, July 29, 1999. Even if the level of public concern did not reach the same equivalent as in the USA, the IT professionals were preoccupied.

A series of communication actions dedicated to Y2K gathered the IT specialists from various fields. Representatives of the national Y2K committee and the United States Agency for International Development (USAID) invited firms to a workshop to consider whether business continuity would be a problem after the date rollover. With less than two months till January 1, USAID has been keen to warn companies of the need to develop and review contingency plans. Advice is to consider manual production procedures, using other systems that might be less elegant but effective enough to handle a load temporarily, or out-sources computer services until the non-compliant system can be fixed.

The IT department at the National Agency for Employment and Vocational Training, devised plans for a crisis center to handle all communications, information and reporting about the effects of the Y2K. State counsellor to the Prime Minister, Iuliu Bara, regularly updates the information about Romania’s readiness on the IY2KCC website. According to Bara the health sector is critical. The major problems Romania faces are related to the lack of awareness on the behalf of professionals from the health community that there may be potential Y2K failures in embedded systems. He claims that most government services can achieve compliance by year end and that no problems are now foreseen in Customs, finance, transport and telecommunications. Areas of water, communications, transport, health, finance and banking are low risk, because compliance has been achieved or because there was not a significant level of IT usage.

6.1. Electricity

There are fears of a potential collapse in essential services like electricity. Possible disruptions are possible in electricity distribution after Y2K, warns the British Embassy in Bucharest. A Foreign Office report states that "National Grid high-tension distribution is suspect, due to the National Dispatcher (SCADA) system in use". However it confirms that a manual back-up system is operational. The national Electricity Company has World Bank funding for Y2K correction. One of the CONEL companies, SC Hidroelectrica is improving the situation but is not highly dependent on computer systems.

No Y2K fall-out is expected at "Nuclearelectrica" Cernavoda nuclear power plant after integrated testing of the systems there. Nuclearelectrica, which runs the plant that provides for up to 12% of the country's energy needs, claims to be compliant after independent tests. The company warned that any problems would only be provoked from outside, through the power system.

6.2. Banking

After taking over Bancorex, Romanian Commercial Bank (BCR) has become the largest bank in Romania, covering around 40 per cent of the loans granted to the economy. The BCR has become Y2K compliant according to the DISC DP-2000 standard of the British Standardization Institute, announced BCR spokesman Corneliu Cojocaru. "The project started at the beginning of 1998 and tests were run until June 1999". All the clients and correspondent banks are being monitored as to their degree of compliance. A back-up plan has been set up to sustain critical systems in case of failure at the turn of the century, according to official data.

The Romanian Development Bank - Group Societe Generale finalized a program to face up to the Y2K problem, according to ‘Societe Generale's worldwide action plan'. Begun in July 1998, the project was achieved through the bank's own resources. The entire IT system, both software and hardware, was checked and the impact of various external factors analyzed, in case of electricity and telecommunications breakdown.

CEC, the Savings House, has issued a statement claiming Y2K compliance. It says the general action plan for adapting software and replacing incompatible applications has been analyzed and approved by an external auditor.

6.3. Telecommunications

Meta Group Romania was in charge with the checking of Romtelecom’s plans for Y2K. The American-owned consultancy brought in experts from its European HQ in Germany to audit Romtelecom.

6.4. Transport

Tarom (air transport company) and Bucharest-Otopeni International Airport have successfully concluded the equipment testing for Y2K. On December 6 and 7, the entire technical equipment and staff of Tarom and Otopeni have been tested for the passing in 2000 year. The systems were accorded with the British standard DISC PD 200-1, applied by International Organization of Air Transport.

7. Legislative measures in the past 6 months