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INVESTMENT LEADERS - INTERVIEW WITH THE CEO AND CHAIRMAN OF THE BOARD OF SLOVAK TELEKOM

Miroslav Majoroš: "We accept market regulation, but it must be effective and support business development"

Miroslav Majoroš was born in Fiľakovo in 1959, and holds a degree from the Slovak University of Technology in Bratislava. He served as the director of STV and CEO of IBM Czech and Slovak Republic, and since January 2003 has been the CEO of Slovak Telekom.
photo: Courtesy of Slovak Telekom

The Slovak Spectator (TSS): You just had a fine of Sk80 million confirmed by the Anti-Monopoly Office, following a fine last year of Sk890 million. What is your view of regulation in Slovakia?

Miroslav Majoroš (MM): We received the fine from the Anti-monopoly Office, which is a general regulatory authority and administers ex ante all business in Slovakia. The fine was issued on the basis of things that had already happened. We were in a certain tender, which we won, and another participant in the tender accused us of illegal practices. The Office upheld their complaint and levied a fine on us. It goes without saying that we don't agree, and will almost certainly challenge this decision in court. I don't want to say more about it in light of this fact, but it stems from a single business event concerning a single large client. It has nothing to do with ordinary customers.


TSS: But it wasn't the first time Slovak Telekom has been fined. What is at stake in these cases? Is the fault on the side of the company, or of the regulator?

MM: As I was beginning to say, the Antimonopoly Office is one of several regulators in Slovakia, and it fined us for an event that had already happened. The other case you mentioned, the fine of Sk890 million, was in connection with a failure to provide its competitors, the alternative phone operators, and in particular Internet service providers, with access to local loops from 1999 to 2002, in effect before the law requiring us to provide such access was approved and came into force. This was a decision by the Telecom Office, which creates the regulatory framework and the environment on the market, and which through its decisions defines how we and other market players should act. This case clearly shows the lack of clarity in the powers of both authorities and creates a lot of confusion for the regulated companies. We occasionally appeal Telecom Office decisions, but I can't remember ever having taken them to court, and occasionally the Office itself changed its approach.

I believe that the Telecom Office has two problems, and I say this very openly. The first is that it takes a very mechanical approach to implementing standard and general European Union laws in Slovakia, even though the market here is different from that in Hungary, Germany or Great Britain. The second problem is that unfortunately, the Telecom Office is very under-financed, which is reflected in the quality of its legal statements and its decisions. As you can imagine, Slovak Telekom is capable of employing top quality lawyers who perform competent analyses of Telecom Office decisions, and we often find in these analyses that the Office makes formal mistakes that you don't often find at this level. I can't fault the Telecom Office for these mistakes, and we are often quite happy to find them there, but it's a real pity that communication with the Telecom Office is often not on a professional level.


TSS: Is the problem more in the quality of people or of legislation?

MM: Both. EU legislation has been very mechanically adopted into Slovak law. But legislation is one thing, and the concrete judgment of a concrete case is another. This is where the Telecom Office has problems. As for the Antimonopoly Office, I sometimes get the feeling from their decisions that they clearly intend to harm us. I believe the Telecom Office simply doesn't have the human capital to formulate some of its decisions in a way that we would be able to abide by them. Occasionally we receive decisions from which it is clear what the regulator wanted to say, but it is formulated in a way that it is not unequivocally clear, and we are not absolutely certain what we are supposed to do.

Regulation in Slovakia is rather unique, such as in the strange status of the Antimonopoly Office, which has taken many very controversial decisions in the telecom sector and others. I would call these decision more communicating with the public than supporting competition and the development of the market. Just because the public thinks something is expensive, I don't think the regulator should be making decisions to curry favour with the public. I don't know whether someone at the Office has political ambitions, but that's the way it seems to me.


TSS: The position of the alternative telecom operators in Slovakia is that Slovak Telekom as the dominant player needs to be regulated.

MM: I agree with them. If Slovak Telekom wasn't regulated I wouldn't work here. There would be no need for a manager like me if the company had a 100 percent market share and its customers were hostages to it. And Jan [ST Corporate Communication Director Ján Kondáš] probably wouldn't work here either, because there wouldn't be anything to explain to journalists or the public at large. I believe that it is in the interest of this institution as well that there be competition on the market, and at the time this was not possible to achieve without regulation and breaking ST's monopoly, which is what happened. At the moment, we have legislation in place that ensures free enterprise in all segments of the telecom market.

Unfortunately, no amount of regulation or legislation will force companies to do business in a market that has a downward trend, such as is the case with fixed-line telephony. Our fixed line business is falling 10 percent a year, in line with a Europe-wide trend. Logically, few businesses will get into this market at the moment, especially given the costs of doing so. Even though in accordance with the law we offer some operators our lines to do business on, it still requires a heavy investment. On the other hand, the data market has been liberalized since the beginning of the 1990s, and there is strong competition. You can now get Internet in a variety of ways - cable, wireless, DSL, WiMax.

So I would make some distinctions here. Of course, we are a major market player, but the market itself, not legislation or regulation, is what determines how competition develops.


TSS: In the given situation, what should be the role of market regulators in Slovakia?

MM: In the first place, regulation should help the market and competition develop, and should not help one business at the expense of another. That's not regulation, it's state-supported lobbying. I also think regulation should secure for customers the widest possible choice of services.

If any company acts destructively, especially with its pricing, then of course the regulator should act. This is all formally provided for in Slovakia, but the problem is that regulatory measures often miss their target.


TSS: How should the public interpret claims by alternative operators that Slovak Telekom is acting destructively and preventing them from developing?

MM: We are preventing them from developing by developing our own business. They had truly grown accustomed to our not having sales people, a sales network or a marketing plan. Our shareholders have decided to invest in this area, and it's a standard competition. No one can expect that Slovak Telekom as a fixed line network operator will voluntarily back down and leave the market, even though some parts of the market are in a downward trend. We have been levied almost all of the duties that can be levied within the EU and Slovakia, and we are fulfilling those duties. If other operators have a problem with us, there are various legal channels they can use, and one of those is appealing to the public and the media.

To give you an example, when we introduced DSL in 2002, we were required at the same time to publish an offer to alternative providers to use our network to offer the same service. Our market share then was about 50 percent; now it is 81 percent. Sure, we have had a marketing campaign, and we have a sales network, but every company on the market has the same conditions. One the other hand, when you take into account all of the options now available for connecting to the Internet, we have about a 45 or 46 percent market share, so customers especially in larger urban centers have a real selection of options for getting on-line. We sometimes get criticized for being the only option in smaller towns, but if it isn't a viable business for other operators, it isn't for us either. It's a very complicated situation.


TSS: It's now more than five years since Deutsche Telekom entered Slovak Telekom in 2001. How happy has DT been with its investment since then?

MM:I can only speak for myself. It's true that at the beginning the profit figures were very high, but that was because the market was less developed than it is now and competition was less strong. But even though profits have not been increasing, we have managed to consolidate the firm and significantly reduce costs. Even with falling revenues we managed to stabilize the firm very well, and we have avoided the fate that has befallen many fixed-line operators - we have avoided making a loss. We expected that this year would be the most critical and that we would come the closest to red figures, but luckily the business is developing well and our profits are higher than we expected.

This is connected to several factors. The first is that the annual decline in our fixed-line business is 8-10 percent, which is a very large number. However, we managed to launch a very good business in DSL connections and providing data services for large clients, and these services compensated to a certain extent. We have gone from 90 percent voice to the point now where our business consists of 70 percent voice and the rest is made up of other services. This shift will continue, and of course will demand major changes in the structure of our company and our workforce. When the investor entered the company, 8 percent of our employees had university degrees; now the figure is 33 percent. In 1998 we had about 15,000 employees, while at the end of this year we will have 3,600 people. We will have a lower profit than back then, but we are also investing heavily in digitalizing our infrastructure. DSL now covers about 80 percent of Slovakia. I think any investor would be satisfied with these results.


TSS: Is ST's recent history confirmation of the theory that the state makes a poor owner?

MM: I would correct that theory to say that bad states make bad owners. If the state has other interests than development, such as putting people in positions that they are not qualified for, the result can only be disorder and failure. But we shouldn't generalize, because private firms also have bad managers.

Our current ownership structure is 51 percent Deutsche Telekom and 49 percent state. In the four years I have been here, it would be difficult to say that our cooperation with the state was optimal. It was very demanding, and I think we were under fairly significant pressure from the regulators. Many times I heard people say that the state was protecting us, but what kind of protection is it when you are fined almost a billion crowns? Or when we get a number of fines and are under permanent pressure? The state didn't protect us, and even though our former ministers and members of parliament understood our problems, the minister told me several times that the Telecom Office was an independent body. And look at the mobile numbers of people at most ministries - almost everyone uses Orange [rather than ST-owned T-Com].

In terms of the development of the company, I think the state strongly advocated its own interests, such as in the project to put computers in schools, where the state worked very hard to convince the investor it made sense. But even in other cases where the state pushed through its interests, it was never at the expense of the company, and I think overall the cooperation has helped rather than hindered us. That said, I would have been happy if the minister had occasionally leaned on the regulator.


TSS: What did you think of the Construction Ministry's original idea of changing the plan for the use of over €11 billion in EU funds from 2007 to 2013, and spending less on the development of an information society?

MM: Speaking selfishly, Slovak Telekom would be happier if the state invested nothing in developing IT, because no other investors will develop, and we will have a monopoly. So I would say - keep up the good work (smiles).


TSS: And if you spoke as a Slovak citizen?

MM:I don't think any Slovak citizen can be happy with the situation. In places where there is only us with our DSL Internet service and no one else, how will these areas develop without some kind of support or development programs? At the moment every sector is dependent on IT, from industry to investors, and no one will come if the infrastructure is not there. If there is going to be a lot of money coming into this country, it has to go towards infrastructure, because without it this country can't develop. Nor will we be able to hold on to our young people without infrastructure. So while selfishly I might have welcomed the fact they did not intend to invest so much in IT and introduce competitors, in reality I didn't think it was a good step. I think it would have been a very short-sighted policy, and even in the medium term could have come back to haunt us.

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