Questions have been raised over Deutsche Telekom's approach to the problems its latest acquisition is facing.
The Slovak Anti-Monopoly Office (PMÚ) ruled February 22 that ST had to remove a series of 'filters' it had placed on lines used by its clients exclusively for data transfers. The filters, which limited the frequencies the lines could carry, meant that high-frequency Internet access became virtually impossible; to have the filters removed, customers had to pay ST to install a 'digital circuit' at almost twice the price of the original line.
The PMÚ fined ST 10 million Slovak crowns ($213,000) and ordered the filters be removed within 15 days of its decision. But Internet providers say the filters have not yet been removed, and have asked the PMÚ to investigate hitting ST with yet another fine.
The dispute has once again excited debate over the role that ST is playing in the country's evolution towards an 'information society'. Critics say ST's policy of charging an incremental 'pulse rate' for local calls, rather than a flat rate, has put the cost of using the Internet out of reach for most Slovaks, and thus is holding back the development of information technology skills.
The fact that ST's apparent defiance of the PMÚ is continuing after a 51% share in the firm was bought by Deutsche Telekom last summer has also raised eyebrows over the ability of state organs effectively to regulate powerful and aggressive foreign investors.
These, however, are not questions which ST is willing to deal with at length. When asked if the firm would remove the filters, ST spokeswoman Gabriela Nemkyová said March 19: "Slovak Telecom considers the decision of the Anti-Monopoly Office as legally binding, and we have already begun fulfilling it [the requirements of the decision]. As far as certain aspects of the decision are concerned, we are still inspecting them, and considering what our next steps will be."
Deutsche Telekom's role
The Association of Internet Providers (API) filed its complaint against ST March 13 after discovering that the monopoly had not removed the filters.
"According to random checks carried out by several Internet providers throughout Slovakia on March 12, it was confirmed that ST has not dismantled the filters," said API board of directors' head Ján Vigaš. "The frequency filters are still there. ST's refusal to respect the [PMÚ] verdict is causing increasing damage not only to Internet providers, but also to end users."
The Anti-Monopoly Office (pictured above) has ruled twice against ST. It now has another complaint to handle.
photo. Ján Svrček
"We did not expect that a company like Deutsche Telekom would come into Slovakia and just ignore the law and the decisions of the PMÚ," added API member Marian Durkovič. "This is a big surprise. They have to respect the law here, and we will focus all our energy on forcing them to recognise the existing laws and regulations."
Telecoms insiders said that Deutsche Telekom's uncooperative approach to the PMÚ was both curious and unprecedented; some added, however, that its actions were not entirely unexpected.
"If I were in their shoes... I don't know if I'm surprised," said Dag Ole Storrosten, Managing Director of Internet Provider Nextra, who has worked in the telecom sector in various European cities as well as the US. "They would like to challenge rulings and test the limits, they are checking what reactions will come.
"It's not an easy process when an incumbent [i.e. ST] is defending its interests, although I have never seen this type of reaction [refusing to follow the PMÚ's decision] before," he said. "Most incumbents try to prolong [the issuance of] decisions, but then they act accordingly once the decision has been issued."
Boris Kostík, a telecom analyst with Bratislava brokerage house Slávia Capital, said: "ST should remove the filters. It's quite strange that they haven't, and I don't know what their [Deutsche Telekom's] aims are. But since Deutsche Telekom is the majority owner, they are responsible for accepting the decision. What they are doing is not correct."
PMÚ Director Peter Cech added that since the privatisation of ST, he had been disappointed with the lack of "a more active approach" by the foreign investor.
"Let me just say that since the fusion occurred, we are not quite clear on [ST's] internal structure. Before it was clear," Cech said. "It seems to us that some of the problems that exist now were inherited from the previous era, when ST didn't have Deutsche Telekom. We expected to see a certain change in attitude.
"We would have expected a more active approach by the foreign investor," he continued. "We hope [this more active approach will come]. But I still miss identifiable activity - if something has happened or not, what stage it's at, it they've done everything they were supposed to, if all posts have been filled and so on. That is of course an internal company matter, but it seems to us there could be more activity from their side."
Stunted Internet growth
As the battle between the API and ST continues, Internet usage in Slovakia remains low. Local providers say the roots of such low usage lie in ST's high prices.
Surveys conducted by the Focus agency in September 1998 suggested that 22.8% of Slovaks polled "do not know what the Internet is" as of, while 62.6% had "heard or read about it, but do not have access to it." Moreover, only 2.4% of respondents said they used the Internet regularly.
"Their [ST's line rental] prices are so expensive that few people in Slovakia can afford to use the Internet," said the API's Durkovič. "This hurts advertising on the Internet, and keeps usage low so that today we have the lowest penetration rate [percentage of population with Internet access - 14.5%] of all the Visegrad Four countries [the Czech Republic, Poland, Hungary and Slovakia]. Prices for Internet access are not expensive, but the lines [used for Internet access] are more expensive than in EU countries. ST is the main barrier to Slovakia's Internet growth and development. It's terrible. They are hurting the whole country."
Tibor Papp, co-founder and board member of Project Infovek, a non-profit project that aims to hook Slovak schools up to the Internet, agreed that high prices on 'the last mile' of Internet access, that directly between the customer and the local ST terminal, were to blame for the low numbers.
"ST, to say the least, is definitely hampering Internet development in Slovakia because of the high tariffs for local lines," he said. "Sooner or later, they will have to operate as a firm on an open market, but that time has not come yet."
ST's monopoly on voice services is scheduled to end January 1, 2003.
Who's the regulator?
The filters issue has again raised the question of who should regulate ST. The Telecom Office, established in spring last year to regulate the telecom market, has been inactive during the API vs. ST affair.
Some of the combatants expressed dismay that the office had not taken a greater role. "It's the role of the state to regulate monopolies," the API's Durkovič said. "We have a Telecom Office which is sitting with its legs crossed, and doing nothing while they should be assuring the country's Internet development."
But the regulation question is one that even market insiders seem unable to answer. Telecom analysts say the Telecom Office should be the regulator, but the office itself says it isn't sure, while the PMÚ insists that it has jurisdiction over the filter issue.
"The Telecom Office should regulate ST," said Slávia's Kostík. "But they were established only recently, so their activities are not coordinated with the PMÚ's. The Telecom Office will be more effective once it and the PMÚ establish their respective powers. Right now, some are saying that ST has two regulators because they [the PMÚ and the Telecom Office] are not working together. They have to clear this up before ST can be regulated more efficiently."
Nextra's Storrosten agreed. "There is no doubt that there should be a regulator making sure the market works and that the players on it follow the law. That office has already been established: the Telecom Office should define its role so it can rule the market."
But Milan Luknár, the head of the Telecom Office, himself admitted that he wasn't yet sure which responsibilities belonged to the PMÚ and which to his office. "We have to settle this, and we will meet with the PMÚ to discuss competencies before we decide on the ST matter," he said.
For PMÚ Director Cech, there is nothing to settle - his office is responsible for dealing with ST's refusal to remove the filters. "We have completely different tasks than the Telecom Office," he said March 20. "They are required to follow technical, pricing, professional and licensing issues on the telecom market, while we follow general market trends and conditions, and try to prevent certain forms of market abuse that may occur when you have a strong or dominant market force."
When asked what actions the PMÚ would employ to secure the enforcement of its future rulings, Cech said that his office's only weapon was to "repeatedly" fine the monopoly.
"We will have to wait and see what ST does," he said. "We can fine them again, but we have no other legal recourse. We have to prove that they haven't respected our decision first. We will work with providers and other parties, and then investigate. It's basically the same investigation that we did before our first decision [on September 29, 2000], we just have to go through it all again. If it checks out, they'll get another fine."
The PMÚ can issue ST a maximum fine of 10% of its revenues from the previous year, Cech said, which would theoretically allow the PMÚ to fine ST 180 million crowns. "But it's too early to say [how stiff future fines may be]. We still have to investigate to find out if they really are ignoring our order. But they can appeal to the Supreme Court, which can order us to make changes."This thing isn't over."
Additional reporting by Tom Nicholson
26. Mar 2001 at 0:00 | Chris Togneri