January 2000

Central and Eastern European Countries Synthesis of Update Memos

During the last quarter (September - December 1999) many developments occurred in the Central and Eastern European countries. They were mainly concerned with the following:

• Regulatory frameworks
• Privatisation programs
• Market liberalisation

You will find below a synthesis of new developments:

1. Regulatory frameworks

Important developments concerned the adaptation of regulatory frameworks to European Directives. In Romania, the National Agency for Communication and Informatics (NACI) announced several plans. One of NACI’s major projects is the creation of an independent regulatory agency by the end of 2000. The project benefits from a loan from the World Bank.

2. Privatisation programs

Most of the Central and Eastern European countries have started to privatise incumbent operators, with governments remaining as the main shareholders. Several countries are now accelerating the process.

In Latvia, the government should sell its remaining share in Lattelekom (51%) in the near future. It is worth noting the recent developments in Poland. Indeed, a further step towards TSPA’s partial privatisation (25 - 35%) was launched in August 1999 by the Ministry of Treasury. Several operators were interested, in particular, France Telecom, Deutsche Telekom, BC, BT and NTT DoCoMo. The two potential foreign investors short-listed were France Telecom and SBC. When SBC quit the negotiations in November 1999, France Telecom remained the only candidate. On December 1999, the Ministry of Treasury indicated that France Telecom’s offer was unsatisfactory. A new call for tenders should be launched in the first quarter of 2000. It is probable that the percentage offered for the new tender will be increased to attract more foreign investors. The Czech government also announced the privatisation of its remaining 51% share in SPT Telecom in mid-2000. The Lithuanian government should sell its 35% share of Lithuania Telekomas in July 2000

3. Market liberalisation

Mobile services have been liberalised for several years in the Central and Eastern European countries. There are often at least three operators competing in local markets. The issuing of mobile licences continued during the last quarter.

We can note that in Hungary, a fourth mobile operator, the consortium Primatel (Vodafone) received a licence (GSM 900 and 1800). In the Czech Republic, a third GSM licence (GSM 1800) was issued to Czeky Mobil (a consortium owned by the Canadian Company TIW (51%), the American Company UPC and the Czech Bank IPB (49% UPC-IPB)). One can also note the launching of a new mobile operator in Lithuania, Levi & Kuto (Netcom Sweden).

It is clear that the liberalisation process leads foreign operators to position themselves in the Central and Eastern European countries. Indeed, operators present in liberalised markets (Western Europe, United-States, Asia) are facing stronger competition in those markets. Consequently, international development and the investment of capital in other operators are key elements in their growth strategies. International expansion is seen as necessary to the development of new markets. However, it is clear that investors want to benefit from wide independence when they take shares in an operator. Co-operative ventures and acquisitions are realised in all liberalised sectors (mobile, cable, multimedia, Internet) and are leading to the constitution of new trans-regional operators.