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Telecom monopoly cancelled as of 2003

PARLIAMENT voted on June 20 to cancel the monopoly enjoyed by incumbent telecom services provider Slovenské telekomunikácie (ST) as of January 1, 2003.
The move will require ST to rent its 'local loop' - the physical cables connecting urban telecom hubs to household and business customers - to competitor firms, many of which plan to offer advanced data transfer services through the lines.
While the change to the nation's Telecom Law will bring market rules in line with European Union requirements, however, ST has said it will result in higher rather than lower prices for telecom services, and had lobbied for the change to be delayed for a year.

PARLIAMENT voted on June 20 to cancel the monopoly enjoyed by incumbent telecom services provider Slovenské telekomunikácie (ST) as of January 1, 2003.

The move will require ST to rent its 'local loop' - the physical cables connecting urban telecom hubs to household and business customers - to competitor firms, many of which plan to offer advanced data transfer services through the lines.

While the change to the nation's Telecom Law will bring market rules in line with European Union requirements, however, ST has said it will result in higher rather than lower prices for telecom services, and had lobbied for the change to be delayed for a year.

The firm said its competitors would use the change to try to lure away its most lucrative business customers, leaving ST with the low-return burden of domestic users.

"Alternative operators will use the new law to rent local loops from ST to pick only the most attractive corporate customers," said ST in a prepared statement.

"They will not be interested in providing services to individual households. They will be able to select the most profitable services, while ST will be left with providing less profitable or even non-profitable services."

The company will continue to have a legal duty to provide public telephone service.

ST said approval of the amendment would likely increase user prices for telecom services. Slovakia already has the highest Internet connection rate prices of the countries of the Organisation for Economic Cooperation and Development (OECD), when domestic purchasing power is taken into account.

"Unbundling [renting out] local loops would force us to speed up our price rebalancing," the firm said, referring to a policy which will increase prices for services which lose money.

ST says it provides dial-up connections to the Internet and monthly telephone services at a loss, forcing the company to cross-finance these crucial services.

"Originally, rebalancing was supposed to take place from 2000 to 2005, to make its impact socially and politically bearable," the firm said. "We wanted to avoid this, with respect to our customers. But it's not possible to have 'European' laws and 'Slovak' prices."

While cancellation of ST's monopoly in 2003 has been envisaged for years, the firm has said the law should be postponed by another year, as few customers would benefit from it now.

"The amendment is discriminatory not only for our company, but for our customers as well," said ST, which is 51 per cent owned by the German Deutsche Telecom.

However, ST's competitors, many of whom are united in the Association of Telecom Operators (ATO), said that market forces should be allowed to guide which customers they would target and which services they would offer.

"Alternative operators are naturally interested in big customers. They try to behave economically - to keep investments low and profits high," said Vladimír Ondrovič, head of the ATO.

"However, these operators will definitely also be interested in households, including all services that could be provided, like voice service and Internet."

ATO Executive Director Jiřina Perényiová added that "the successful companies will be those which are able to keep costs low and still gain profit. If ST is able to do it, they can be successful. If others do it better - so be it. It's not important to say what plans each company has and whether it will be interested in the residential sector. The most important thing is to create equal conditions for everyone, and to let the situation develop according to market forces."

Ondrovič also disputed that unbundling would disadvantage ST, saying that "unbundling is related only to local loops, which are not fully used by ST. They do not have to rent the loops which they use, and they will rent the loops at a price they agree with each company. If they can't come to an agreement, the Telecom Office [market regulator] will set the price."

Perényiová added that although ST's monopoly would be formally cancelled from the beginning of 2003, "the whole of next year will be spent preparing the conditions and solving the technical problems before renting can be realised in practice."

The government, the main backer of the change, explained that cancelling the monopoly in the long term would promote the development of more sophisticated telecom services in Slovakia that have until now been held back.

"The law should have a positive impact especially in the provision of Internet services and access to broadband multimedia services. The business sector will also be strongly influenced by the quick increase in competition in the provision of telecom services through the fixed line network," the government said in a report accompanying the law.

This opinion is shared by the wider telecom business community. "The passing of the law is a very positive step. The unbundling of the local loop is an advantage for the competition," said Dag Storrosten, head of Slovakia's second largest Internet service provider, Nextra.

Among other welcome changes, the law will increase the powers of the Telecom Office by raising the fines it can apply to companies which break the rules. The office, whose budget is paid by the Telecom Ministry, 34 per cent owners of ST, has been criticised in the past for being ineffective in enforcing the rules of the game.

Finally, the amendment puts Slovakia in the club of countries which have abandoned state telecom monopolies in favour of market conditions, a move in line with the nation's desire to enter the European Union by 2004.

"We are probably the last European country where a monopoly in voice service exists," the ATO's Ondrovič said.

"None of our neighbors has this monopoly any more."

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