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EDITORIAL

Stopping ST bullying: Who's going to make them?

With 21 months to go before the Slovak telecom market is fully liberalised, an entertaining squabble has erupted between those who want to milk the monopoly enjoyed on voice services by Slovak Telecom for all it's worth, and those who want to see Slovak Telecom's bullying tactics condignly punished.
The focus of the battle is a set of filters installed by ST on its phone lines last year. These filters were not applied to regular voice lines, but rather to customers using permanently open data circuits (i.e. universities, large firms) which require much higher frequencies. These special ST customers had been using the old style 'analogue' cables (basic copper wires, as opposed to optic fibres) with special 'DSL' modems that enabled them to transmit data at high speed along the inefficient analogue lines.

With 21 months to go before the Slovak telecom market is fully liberalised, an entertaining squabble has erupted between those who want to milk the monopoly enjoyed on voice services by Slovak Telecom for all it's worth, and those who want to see Slovak Telecom's bullying tactics condignly punished.

The focus of the battle is a set of filters installed by ST on its phone lines last year. These filters were not applied to regular voice lines, but rather to customers using permanently open data circuits (i.e. universities, large firms) which require much higher frequencies. These special ST customers had been using the old style 'analogue' cables (basic copper wires, as opposed to optic fibres) with special 'DSL' modems that enabled them to transmit data at high speed along the inefficient analogue lines. After ST installed its filters, however, it became almost impossible to use the ST data lines. When users complained, ST offered them its own DSL modems - at more than twice the price of the original service. They called the higher-priced package a 'digital circuit'. Customers which used ST online services were also given a discount compared to clients using another Internet provider.

ST's motive is clear. Since a 51% stake in the firm was bought by Deutsche Telekom last year, ST has shown a much more aggressive approach to increasing its return on capital than it did when it was a state firm. As long as they are able to force people to use ST services, that's exactly what they'll do. The way ST sees it, they have until January 1, 2003 (the end of their monopoly) to make as much money as they can; the experience of other countries shows that the profitability of incumbent (former monopoly) operators tends to decline once competition is allowed on the market.

ST appears to have defied two orders by the Anti-Monopoly Office that it remove its filters on all lines. That it has been able to do so is an indictment of market regulators. With a new Telecom Office tentatively exploring its powers, and the monopoly office following a vague script against 'abuse' of market position by monopolies or dominant players, ST has no problem cocking a snook at its 'handlers' and doing as it pleases. And given the puny fines applied by the monopoly office so far (10 million crowns, or $208,000), ST may have calculated that shareholder value is maximised by paying the levies and continuing to collect the revenues from its 'digital circuits'.

But that's cold comfort to Slovakia's Internet providers, who say the issue of ST filters is a life-and-death matter: If ST can't be forced to stop discriminating against people using the services of its competitors, then Internet development as a whole will be held back in Slovakia, and the maturity of the IT market along with it.

It all boils down to the 'local loop' - the final few miles of wire which physically connect customers to the local telephone exchange, where customers are 'switched' into a network giving them access to people around the world. Most countries which have deregulated their telephone networks have insisted that the former state monopoly operator give other firms access to its local loop; the logic is not only that few firms can afford to invest in laying their own wires, but that the former monopoly can charge its competitors 'connect' fees to use the existing system. If there's any argy-bargy, the state simply reminds the incumbent that it was public money, not company funds, which built the national network. Selah.

But in Slovakia, ST is baring its teeth over local loops, refusing to allow competitors to use them even for data transfer, which was deregulated back in 1998. That may be a sensible corporate strategy, but it defies at least the spirit of the law, and means that ordinary Slovaks continue to pay exorbitant prices (higher than the EU average) for using the Internet. Such prices are unconscionable in Slovakia, where growth in Internet use has to be nurtured if the country is not to fall hopelessly out of step with the information technology times.

Thus, what is in some ways an amusing spat between a ST market bully and a horde of angry Internet Lilliputians actually has immense consequences for Slovakia's development. ST has to be stopped from flouting the rules, but while the Monopoly Office, Telecom Office and Internet providers remain incapable, one can only hope that the bully himself will grow out of it, and not pretend that shareholder value is an acceptable counterweight to national progress.

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