DEUTSCHE TELEKOM SAYS IT MAY MEET ONLY 80 PER CENT OF INVESTMENT COMMITMENT BY 2004 DEADLINE

ST owner reconsiders investment pledge

LESS THAN a month before the fixed-line monopoly of Slovak Telecom (ST) is cancelled, the majority owner of the country's dominant public telephone operator has said it will not fully meet investment obligations next year because it had overestimated growth in the Slovak fixed-line market.
When it closed its billion-euro acquisition of a 51 per cent stake in ST in the summer of 2000, German giant Deutsche Telekom (DT) pledged to invest another billion euro into the carrier by January 2004.
Although DT has already injected 580 million euro into ST and its mobile telecom subsidiary Eurotel, company officials now say slow growth in the Slovak market and troubles with telecoms globally may prevent them from reaching more than 80 per cent of their commitment by next year's deadline.

LESS THAN a month before the fixed-line monopoly of Slovak Telecom (ST) is cancelled, the majority owner of the country's dominant public telephone operator has said it will not fully meet investment obligations next year because it had overestimated growth in the Slovak fixed-line market.

When it closed its billion-euro acquisition of a 51 per cent stake in ST in the summer of 2000, German giant Deutsche Telekom (DT) pledged to invest another billion euro into the carrier by January 2004.

Although DT has already injected 580 million euro into ST and its mobile telecom subsidiary Eurotel, company officials now say slow growth in the Slovak market and troubles with telecoms globally may prevent them from reaching more than 80 per cent of their commitment by next year's deadline.

The investor maintains that the original privatisation contract allows them to adjust investment obligations based on market developments. According to ST officials, market growth as stipulated in the agreement had been overestimated by as much as 30 per cent.

"In the [privatisation] contract there are provisions that if predicted market conditions are not fulfilled, we will again discuss the matter in good faith. That is how we will remedy the situation," said ST executive director Mark von Lillienskiold.

The comments, which first appeared in the December 2 issue of the Financial Times daily, have rankled some Slovak government officials, who say that while there are still 13 months before the deadline, the commitments must be met.

Slovak Transport, Post and Telecom Minister Pavol Prokopovič expressed doubts in mid-November that DT would be able to meet commitments, but he has so far not pressed the issue.

"Thus far, we have not received any official statement, so I will not react. The agreement is valid and the deadline has not been missed so far, so I have no reason to react," said Prokopovič, adding that he was expecting DT to initiate further negotiations.

Under the privatisation deal, DT is obliged to complete the digitalisation of Slovakia's entire phone network, as well as connect all Slovak schools to the Internet by January 2004.

However, Europe's largest telecom operator is coming to the end of a difficult year. In November, DT reported a 24.5 billion euro loss for the first nine months of 2002, largely stemming from write-offs in its mobile telephone division.

This loss, which limits DT's investment potential, combined with an increasingly competitive Slovak telecom market, means that ST's market share is not expected to grow as dramatically as DT had hoped.

"At the current time, it is already clear that the entire investment amount will not be fulfilled," said Branislav Opaterný, state secretary from the Telecom Ministry.

"Investments into ST have not been sufficient and DT is late with them. In a few months the situation could come to a head," he said.

While negotiations between DT and the Slovak government are expected to finish by the end of December, Opaterný said that the ministry would try to work around any investment shortfall if required to do so.

"We will try to look for supplementary solutions related to a further widening of Internet use for the public and in schools," he said.

Although ST will not have to fully open its local end-user lines to competition until the end of 2003, Slovakia's regulatory Telecom Office (TÚ) has already started handing out fixed-line licenses to some of the 13 companies that had applied.

Besides fixed-line and data competition, ST faces rapidly growing competition from mobile telephone sevice provider Orange. Together, Orange and Eurotel have 2.6 million customers, just over half of the population. At the end of 2001, ST reported 1.6 million telephone, ISDN and public telephone booth connections.

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