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FRANCE TELECOM, SIX SLOVAK PARTNERS TO RUN PHONE SERVICE

SlovTel wins GSM license

The French-Slovak concern SlovTel won the international tender for one of the two licenses to provide digital mobile radio-telephone services using the GSM (Groupe Speciale Mobile) network in Slovakia. The second license is almost certain to go to a joint stock company formed by the owners of EuroTel Bratislava. The result of the tender, announced last February, was disclosed by the Ministry of Transport, Post and Telecommunications (MDPT) on July 24. Thirty-five percent of SlovTel is held by a subsidiary of the French telecom company France Telecom Mobiles International. The biggest Slovak shareholder is Hanco of Bratislava. Other shareholders are Slovenský plynarensky priemysel (Slovak Gas Company), Slovenské elektrárne (Slovak Electricity Company) and the three regional electricity suppliers.

The French-Slovak concern SlovTel won the international tender for one of the two licenses to provide digital mobile radio-telephone services using the GSM (Groupe Speciale Mobile) network in Slovakia. The second license is almost certain to go to a joint stock company formed by the owners of EuroTel Bratislava.

The result of the tender, announced last February, was disclosed by the Ministry of Transport, Post and Telecommunications (MDPT) on July 24. Thirty-five percent of SlovTel is held by a subsidiary of the French telecom company France Telecom Mobiles International. The biggest Slovak shareholder is Hanco of Bratislava. Other shareholders are Slovenský plynarensky priemysel (Slovak Gas Company), Slovenské elektrárne (Slovak Electricity Company) and the three regional electricity suppliers.

SlovTel beat out the only other competitor for the license, a Slovak-Norwegian consortium named Digifon and composed of Norwegian telecom operator Telenor and the Slovak companies VSŽ, The Computer Company, Slovak Railways (ŽSR), Tesla Liptovský Hrádok and Ekomet.

Weighing the bids

According to the ministry's announcement this past spring, the GSM network operator has to adhere to the following conditions to receive a license: its foreign ownership share cannot exceed 40 percent, trial operation of the network must commence at least in Bratislava by the end of this year, and at least 85 percent of the Slovak population must be covered by the GSM network within three years. Moreover, during the first year of operation, the operator may not subsidize the cost of telephones, as is normal in neighboring countries. The license's $8 million (240 million Sk) pricetag is one of the lowest in Europe. The new owners will settle this amount within 15 days of the deal's signing, which should take place by the end of August.

In its assessment of the two bids, a commission made up of representatives of the Cabinet, MDPT, and the ministries of finance and economy, drew heavily on a report by the Finnish consultant Omnitele. The criteria according to which SlovTel and Digifon were compared were divided into three areas - tariff breakdown, extent and quality of coverage, and involvement of Slovak investors and companies in the network's construction.

SlovTel's plan of attack

While experts estimated the investment necessary for building the GSM network to range from 3 to 5 billion Sk, SlovTel officials pegged the figure closer to 6 billion Sk. Slovakia's mountainous terrain will force both companies to create a dense network of around 500 base stations to ensure a high quality signal, and this number exceeds the figure quoted in investment estimates. Nevertheless, SlovTel representatives consistently promised the lowest fees in Europe for its services, dividing the tariff scale into three bands according to the time the customer uses the system. The first tier includes businesses using more than 250 minutes monthly, the second is for those using around 120 minutes each month, and the third for non-business users who make calls amounting to about 50 minutes each month.

SlovTel plans to reach 90 percent of the Slovak population by September 1997, with operation commencing in Bratislava, Košice and Banská Bystrica by the end of this year, the firm's officials said. The company expects 11-percent penetration into the Slovak GSM mobile telephone market within 10 years, meaning that the two operators would have a total of around 550,000 customers. Company managers expect that between 30 and 40 percent of SlovTel's clients will come from the non-business sector and do not regard the current analog NMT-450 network run by EuroTel as serious competition.

Breaking the monopoly chain

According to MDPT, the granting of two licenses for the GSM network should break the monopoly held by the analog operator, EuroTel. This Slovak-American concern has provided quality services, but at much higher prices than in surrounding countries (see chart). Since word of the GSM tender broke out, prices have drifted downwards. Compared to the GSM network, analog is less safe, offers fewer services and the mobile telephones themselves are costlier.

EuroTel's twin owners - Slovak Telecommunications (ST) with 51 percent holding and the American consortium Atlantic West BV (US West and Bell Atlantic) with 49 percent -paid for part of the GSM license when EuroTel was established in 1991. But the GSM license could not be granted at that time, because frequencies in the 900 MHz band (which are used for this type of mobile telephone) were still being used for non-civilian purposes.

The firm also had to meet another criterion if it wanted the GSM license: the Slovak partner had to own 60 percent of the company. What followed were long negotiations, the result being that both owners have decided that the current EuroTel company will remain intact, and a new stock company will be formed to operate the GSM network.

Yet the haggling drags on, as there is disagreement about decision-making power in the new company. Despite its minority position, the American partner is pushing for equal powers for both parties. The same problem has arisen in EuroTel itself. ST claims that its decision-making is restricted, despite its majority holding in the operation. The American side points to the original agreement from 1991 and Slovakia's promise that it would honor all obligations of the former Czechoslovak Federation, including the conditions for granting the GSM license, which at that time did not require any change in EuroTel's ownership ratio. The Ministry of Transport, Post and Telecommunications insists that until EuroTel's owners meet the license conditions, they will not be able to run the GSM network.

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