July 1999

Central and Eastern European Countries Synthesis of Master Reports

Introduction:

The Central and Eastern European Countries are progressively liberalising their telecommunications sector. This current process of liberalisation includes several steps :

• draft of new telecommunications laws
• privatisation of the historic operator
• gradual liberalisation of services and infrastructures
• full liberalisation of the market

However, it is clear that the evolution towards liberalisation is not homogenous amongst the countries. Indeed, some countries remain relatively closed today, such as Albania and Bosnia & Herzegovina, that have known several years of war.

Others, such as Poland or the Baltic countries are now deeply involved in liberalisation. For these countries, the liberalisation of the telecommunications sector is part of a global economic and political project which includes:

• a set of economic reforms targeting the introduction of economic market principles and economic recovery. In most cases, the reforms include the transformation of State-enterprises into private (semi-private) enterprises in a set of sectors, incentives to promote foreign direct investment, etc.

• the objective of joining the European Union, most of the Eastern countries are to become member of the EU. A first set of countries should join the EU by 2000, while a second set of countries should join the EU a few years later. It is clear that the process of integration includes the transposition of the key principles contained in EU directives. New regulatory frameworks for telecommunications and competition are part of the requirements of EU directives.

1. New telecommunications laws

Most Central and Eastern European countries have issued or are preparing new telecommunications laws. These include a wide range of provisions aimed at full harmonisation with EU telecommunications directives. Amongst them, we can note :

• the privatisation of the national operator
• the separation between the regulatory and the operating functions
• a commitment to full liberalisation in the medium term

Furthermore, the transposition of the EU principles in the field of telecommunications requires the development of new regulatory frameworks regarding a wide set of aspects and new concepts. Indeed, the new regulations must deal with conditions of privatisation of the historic operators, with conditions of liberalisation of telecommunications fields, with the control of telecommunications tariffs, with universal access to telecommunications services, etc. Beyond the existing EU regulatory frameworks, specific regulation has to be drafted regarding new sectors that are very important to economic development, for example the Internet. It is clear that the objective of promoting the Internet will accelerate the liberalisation process within Eastern and Central European Countries.

Table 1 : Historic operators status and regulatory overview in the Central and Eastern European Countries.

Latvia : Tilts Communications is owned by Sonera (Finland) (90%) and the World Bank (10%)

2. Privatisation of historic operators

All the countries studied in the survey have begun in-depth reforms of the status of the historical operator. Usually, the processes of privatisation follow two main steps :

• firstly, the transformation of the state enterprise or ministry entity into a limited company, which remains 100 % state-owned

• secondly the partial privatisation of the limited company. Privatisation is seen as a preferential means to transform company management methods, to bring capital and know-how, to accelerate the introduction of new technologies and to modernise national telecommunications networks.

Table 1 above shows that nearly all the countries have not yet started to privatise the historical operator; the State retaining a stake of varying importance according to the country concerned.

The continuing nature of the privatisation process enables western telecommunication operators to take a strong position or to reinforce their presence in Eastern and Central Europe.

• Indeed, it is interesting to note the strong flow of capital from the Nordic countries, Sweden and Finland, into Eastern operators, for example :

• Telia (Sweden) and Sonera (Finland) participating in Estonian Telecom Ltd
• Telia and Sonera participating in Lithuania Telekomas
• Sonera participating in Lattelekom
• Telia participating in a new telecommunications operator in Poland, Netia Holding

• It is also worth noting the participation of OTE Telecom (Greece) in Rom Telecom.

These actions reflect historical and geographical proximities. It is clear that these new entrants in the Eastern markets aim to position themselves globally. Indeed, alongside the process of privatisation, they work with operators present in various fields : Internet, Data, cable, mobile, etc. Thus, they extend their European outreach in a set of sectors. One could see these new trans-regional operators as forerunners of a new type of European telecommunications actor.

3. The liberalisation of services and infrastructures

3.1 Mobile services

As in the European Union, the mobile sector has been the testing ground for competition in the Central and Eastern European countries. Indeed, in most of the countries the mobile sector has been liberalised for several years and several mobile competitors exist in each market. The need to compensate for the absence of fixed networks and the bad quality of existing fixed services explains this early liberalisation.

As mentioned above, one can note the important presence the Nordic operators in the liberalised mobile operators, thus prolonging the existing presence, in the field of data and cable networks, of the historic operator.

Table 2. Competition situation in telecommunications

3.2 Data and Internet access services

Data and Internet access services are liberalised in nearly all the Central and Eastern European countries. The booming market for Internet services has attracted an important number of Internet service providers (ISP). For example, there are about 150 ISP in Poland, 9 major ISP in Estonia, over 20 major ISP in Romania, 23 ISP in Latvia, … The players are both national or international. It is probable that certain ISP will impose themselves in the future, as was the case in the EU.

The explosion of the Internet market should accelerate the process of network liberalisation. In countries like Poland or Estonia, leased lines and cable TV networks are liberalised for the provision of Internet backbones. However, in a lot of other countries, leased lines and alternative infrastructures remain under the monopoly of the historic operator.

3.3 Fixed public voice services and infrastructures

In the European Union, fixed public voice services and infrastructures were liberalised in 1998 (Portugal and Ireland having a delay, 2000, as well as Greece, 2003). The full liberalisation of the market in the Central and Eastern European countries is occurring with a relatively short time delay, 3 years (2001) and 5 years (2003).

However, in countries like Albania and Poland, fixed public voice network operators are authorised in rural areas in order to guarantee universal access to basic services to the more remote populations.

It is worth noting that national long distance and international public voice services should be partially liberalised in Poland as soon as the second half of 1999.

Timetable of the liberalisation of fixed public voice services and networks