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Ministry bares teeth in defence of ST monopoly

Two recent challenges to the monopoly position enjoyed by state telecom firm Slovenské Telekomunikácie (ST) have been slapped down by the Ministry of Telecommunications. Despite shrill objections from some of the challengers, telecom analysts have praised the ministry's bulldog tactics as protecting the value of one of the nation's most precious remaining state properties.
According to a 1997 government document on the liberalisation of telecom infrastructure and services, ST has a legal monopoly on all basic voice telephony services in the country which is guaranteed until the end of the year 2002. The monopoly promises to keep ST an interesting target for foreign investors while the government prepares to sell off a chunk of ST shares by the summer.


Switchboard staff at state telecom operator Slovenské Telekomunikácie (ST) may have something to fear from an investor - ST had only 92 lines per employee, less than half the average at western telecom firms. Investor entry may thus well be accompanied by staff cuts.
photo: TASR

Two recent challenges to the monopoly position enjoyed by state telecom firm Slovenské Telekomunikácie (ST) have been slapped down by the Ministry of Telecommunications. Despite shrill objections from some of the challengers, telecom analysts have praised the ministry's bulldog tactics as protecting the value of one of the nation's most precious remaining state properties.

According to a 1997 government document on the liberalisation of telecom infrastructure and services, ST has a legal monopoly on all basic voice telephony services in the country which is guaranteed until the end of the year 2002. The monopoly promises to keep ST an interesting target for foreign investors while the government prepares to sell off a chunk of ST shares by the summer.

"The monopoly position of ST is its one big advantage concerning the entry of a possible foreign investor," said Boris Kostík, a research and sales analyst with Slávia Capital brokers in Bratislava. Kostík explained that in return for market security, a potential investor would give ST two main commodities - money for restructuring and technical know-how. "If ST had either of those, it wouldn't need an investor at all," he said.

No quarter given

The ministry was recently called on to defend this monopoly when Globtel GSM, a French-owned GSM provider, launched an offer of cheap international calls on February 23. The Globtel service used the Internet as its medium of transmission, and the firm argued that it did not contravene the ST monopoly law because it was not voice signals that were being transmitted, but digital signals. Nevertheless, ST requested that the ministry cancel the cut-rate service, which the ministry duly did on March 1.

Stanislav Vanek, director of the Telecommunications Regulatory Department at the ministry supported ST's objections with the argument that "it doesn't matter what form the transmission occurs in, the important thing is that what enters the process and what comes out of it is voice."

Vanek added that "it is pleasant that there is an effort to create a more competitive environment in Slovak telecom services, but the existing legislation clearly states who has the monopoly here."

Internet follies

Shortly after the Globtel challenge, a group of Slovak Internet providers began complaining that ST was using its exclusive position on the telecom market to unfair advantage.

The focus of the providers' discontent was ST's new Internet service, which is called ST OnLine Start. This service uses one universal user name and password, allowing any ST customer to hook up to the Internet without identification and pay only the cost of a local telephone connection.

Normally, Internet providers charge their customers flat monthly rates of at least 500 Slovak crowns ($12) a month for access to the Internet.

"Through this [new programme], ST established itself as a monopoly in data services as well," said Ján Vigaš, executive director of Isternet, one of the founding members of the Association of Internet Providers (API), the body which started the campaign against the ST on February 25.

Vigaš explained that in comparison to ST OnLine Start, other Internet providers are about twice as expensive, since their clients have to pay both provider fees as well as ST transmission fees for the use of the telephone lines.

However, the ministry backed ST in this case as well. Vanek said that if providers felt discriminated against, "they are entitled to build their own net of fixed telephone lines [for Internet purposes]," adding that although the costs would be prohibitive, the option remained. "That's why we can't talk about ST's having a monopoly in this field, we must speak instead of their dominant position," he said.

Vanek defended ST's monopoly position as a lure for foreign investors, and added that the ministry would guard this monopoly jealously since any investor would have only three years to prepare ST to meet the competition on January 1, 2003. The Ministry plans to have a new investor in place from the beginning of the year 2000.

Making up for flaws

According to Slávia Capital's Kostík, ST's monopoly position offers added value to investors without incurring expense on the side of the state. The added value was vital, Kostík explained, since ST was not such an attractive property when judged on the criteria normally used to settle the worth of a telecom firm. "These criteria are mainly the firm's penetration rate, the number of lines per employee and the rate of digitalisation," Kostík said.

A look at the figures reveals just how far behind its western counterparts ST really is. ST's penetration rate in 1997 was 25.88%, while the rate in developed countries is 54%. In the same year, ST reported 92 lines per employee, which is less than half the average in western countries. The only somewhat positive figure is the rate of digitalisation, which represents 50.6% of all ST lines. The average in central European countries is 58.33%.

Kostík said that investors would also be interested in how the company has been developing its services and whether it has kept pace with telecom firms in neighboring countries. "One positive step ST has made was cutting the time on its waiting list for a fixed line from eight months to a few weeks," he said.

ST has also been active in the mobile phone network, where it owns 60% of the EuroTel company, which provides NMT and GSM services. "All these new services, including the new Internet service, will raise the market price of ST," said Kostík.

The ministry's Vanek said that the ST privatisation process will start with the selection of an advisor by the end of March. A public tender for ST will be launched by the end of June. "The new partner will be on board from the beginning of the new millennium," he said, adding that the state will keep a majority stake in ST, probably around 50.5%, allowing the company to increase its basic capital to the fullest extent possible.

Although Vanek didn't reveal the names of top investor candidates, Kostík mentioned Deutsche Telecom, French Telecom, and AT&T as the most eligible partners. "These companies have already experienced restructuring in European telecommunications systems, which is a prerequisite for winning the tender," said Kostík.

Nor would Vanek comment on how much ST might eventually be sold for, saying that the advisor would settle the matter in due course. "Nobody can tell the price right away, because it needs deep analysis," he said.

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