A YEAR ago, United Nations Secretary-General Kofi Annan told CNN that the increasing success of elections in some African countries owed a lot to the existence of mobile phones. This view does not surprise Pavol Lančarič at all. The general director of Orange Slovensko believes that people can vote with their mobile phones with a larger degree of certainty than via the internet since voters can be identified through both their SIM-card and the serial number of the phone. Yet, democratisation is also embedded in the fact that there are probably more people who have personal access to mobile phones than to the internet.
There is no hesitation when Lančarič is asked when he got his first ever mobile phone: “It was back in 1993, it was a phone with very simple functions – to make and receive calls, no short messages or images or data. Though it is true it had a roaming function, this was only to the Czech Republic, since the Eurotel company was, after the split of Czechoslovakia, divided into two companies and with a phone from Eurotel it was possible to make phone calls in both successor countries. And at that time that was fine.”
The Slovak Spectator spoke to Lančarič about the challenges the telecoms sector faces today and the specifics of the Slovak market, regulation, fibre-optic networks, the battle for customers and also the EU’s ambitions regarding broadband internet coverage.
The Slovak Spectator (TSS): What are the major challenges that the telecoms sector faces today or – more specifically – the branch of mobile telecoms technologies? How has the global economic downturn affected the mobile sector and how are financial pressures impacting mobile phone operators?
Pavol Lančarič (PL): As far as the challenges are concerned, they are posed not only by the financial downturn but by regulation as well. I must say that unfortunate and unrestrained regulation has frequently caused problems for the telecoms sector over the long-term.
There is pretty substantial market saturation and telecoms operators are finding it increasingly difficult to navigate in such a market. The challenge is to offer maximum user comfort but not at the expense of unmanageable costs for users. It might seem that these conditions are financially unmanageable, because operators too have to make a living and get paid for the outputs. Still, we think that the situation can be solved.
TSS: Consultancy firms expect 2009 to bring a growing trend of regulation for the telecoms sector. What impact might stronger regulation have on the market? What are the areas that in your opinion should be the subject of stronger regulation and what are the areas that should not be regulated at all?
PL: To be honest, I personally do not know any area with a need for regulation. I am not talking about the telecoms sector only, but about running businesses in general. Of course, this is if we do not consider standard and legal conditions a regulation, because in fact these aren’t. I really do not think that the telecoms sector, which is one of the industries with the greatest impact on the population, is a good area for regulation. Everybody wants to have access and indeed they do have access. If the population does not have access or if the services are overpriced or of low quality, then Europe would hardly have penetration exceeding 100 percent, and probably the use of mobile phones would not grow at the pace it is growing now.
If the situation was different, then perhaps some form of regulation would be desirable. But under the current conditions it seems to me like trying to break through an open door.
Brussels is asking whether there are any technical obstacles to transferring a call from Helsinki to Lisbon for example. Well, there are no obstacles. However, there are certain costs that the operators have to cover.
The truth is that these issues, the roaming price pressures, do not impact us Slovak operators as negatively as they impact for example Spanish, Cypriot, French or Italian operators; i.e. operators in countries dependent on tourism and where, for example, during July and August the number of people in the country might be 30 percent higher than during the rest of the year.
The operator builds its capacities in a way that it can serve the summer season. But it suddenly turns out that the operator has practically no chance to charge more for capacity used only for a limited time during the year compared to what it can charge for the use of its network during the whole year.
If this happened in other businesses, it would cause a problem. Does this mean, for example, that summer yachts can charge only the same amount as ferries which function throughout the year. Why? The user value of the service is different. Of course, it is good if roaming prices fall, but they should not fall under such influences.
TSS: During 2009, customers will tend to move from the trendiest technologies to services that are offered at the best price, according to a study prepared by the consultancy firm Deloitte for the telecoms sector. How might this changing trend affect the telecom sector? In which area is the biggest fight for customers taking place today?
PL: The crisis is still going on but it certainly won’t last 100 years. It’s one thing. But yes, if a sector is not making money, the tendency to invest will decline. In telecoms services, we have climbed to a certain level and there is huge interest in existing services. Where will we move from this point? Upward or downward? If it was up to me, I would say we need to upgrade. Paradoxically, it is possible to do this even in a situation of simultaneously dropping prices for particular types of services. Of course, not without limits. I do not think that in 2015 we should be recalling how perfect phones were in 2009. Things should work simultaneously, just as they do for example in air transportation. You have low cost flights. Some like it and use it, but then why should anyone prevent you from flying business class if you are able to pay for it?
TSS: Has your company modified any of its services because of pressures created by the global economic downturn?
PL: As far as the structure and the quality of the services that we provide are concerned, we have not taken any steps that would degrade these services due to the crisis or anything else, and do not plan to do so. Concerning new investments, there has been some slowdown in the market and we have adjusted, since pouring money into a service or a product which has no chance to find customers with reasonable purchasing power is a waste of funds.
TSS: What was the main reason behind your decision to move part of your call centre to Banská Bystrica?
PL: The relocation of the call centre was not primarily motivated by savings efforts, or if there was such an aspect it certainly did not pertain to savings through the salaries of the employees. The main reason for dividing the call centre into two parts was the security of operation.
It is normal for operators to have their call centres divided between two locations in one city or even better, between two cities. There is a very low probability of shortage or breakdown simultaneously at two locations. Fortunately, we have managed the situation for 12.5 years with the centre in one place but we do not want to continue risking it.
We have freed some of the capacities in Banská Bystrica where we have a technical supervision centre, which means complete technical support. This is why it came as a natural choice. As far as the savings are concerned, our company has a unified wage policy and we are paying our employees the same wages regardless of whether they work in Bratislava, Košice or Banská Bystrica.
TSS: What are the specifics of the Slovak mobile market when compared to other markets? Do Slovak customers access the newest technologies and services at the same time as customers of other, let’s say Western European, markets?
PL: The quality of services provided by Slovak telecom operators is generally significantly higher than the European average. It is hard to give an exact explanation as to why this is so. I will avoid evaluating O2 because they are a young player on the market. But T-Mobile and Orange have managed the transfer of know-how from their parent companies very well. Slovaks have shown that they are skilled people when they get a chance. Once the parent companies recognised this flexibility they began pondering in what ways Slovakia could be used.
I will use an example from our main competitor: the Flarion mobile data network operated by T-Mobile was in fact launched in Slovakia first because, for Deutsche Telekom [T-Mobile’s parent company] it was advantageous to launch it in a small country and through a good firm. We are doing similar things, for example with our fibre-optic network. [Orange’s parent company] France Telecom has a strategic goal to pursue the project and where else you can effectively test such a project if not in a country where there is a high quality technical base, a firm with a good market position and, at the same time, where the country is small enough to make a substantial test investment? This is certainly the specifics of the market and I think other sectors should use this advantage as well.
Yet it is not only that Slovaks are able to access top technology at the same time as customers in other countries – they can do so even sooner. I do not know whether there is any real telecom service which is not widely accessible. I think not.
TSS: What are the ambitions of your company in the area of fibre-optic networks?
PL: France Telecom has chosen Slovakia as the only country outside France where it has actually launched a fibre-optic network project. We need to point out that this is a fibre-optic network right up to the household. Other operators are also offering fibre-optic networks, but only as a transmission network, which does not reach the client’s device. Then, of course we are trying to make, out of this huge strategic pilot project, a real business, which happens when our revenues are able to cover our expenses and after a certain time you actually see returns on your investments and even profitability.
Here the crisis has been influencing us a bit. We had hoped very much that during this calendar year we would be able to tell our shareholders that yes, the investment today has a guaranteed return. Now we are in the middle of 2009 and slightly less optimistic; it could happen that we are unable to reach this goal this year, and instead only next year.
People driven by concerns from potential job losses are more careful about incurring expenses. However, we do not consider the potential delay a tragedy. It is a normal thing in business.
TSS: In which segment do you see the toughest fight for customers in the telecoms business?
PL: The fight is raging everywhere. Slovakia is the smallest country with three operators so space is pretty limited. For example the fibre-optic network is a long-term project because it takes time before people understand its potential. However, I see great potential in mobile data.
Here we can see the effect, which has appeared in other segments of the economy as well: Slovakia was in these areas pretty undeveloped and so its move towards mobile data might now be somewhat faster than in other developed countries, at least if we talk about the percentage of people who are starting to use mobile data.
Given the purchasing power of the population here, we can say that the move towards mobile data is faster than in Europe or the United States.
TSS: The European Commission has a goal of achieving 100-percent broadband internet coverage for all EU citizens by 2010. Do you consider this ambition realistic?
PL: Perhaps my answer will sound weird: I might have an ambition to own a 280-metre yacht with one side gold-plated and the other side covered in silver. I do not want to give up this ambition; I just don’t know when I will have the money or whether I will have it at all.
I really think that ambitions should be backed by money. Achieving Europe’s 100-percent broadband coverage is impossible financially and technically any sooner than a decade from now. Perhaps mobile broadband coverage could be achieved, but even then we have to face the financial issue. Even if such investments are made, these would have a purely social character, which means that we were giving coverage to someone regardless of whether the investment would promise any return.
TSS: In Slovakia about 40 percent of the population, for example, is still not interested in an internet connection. What is the reason behind this lack of interest?
PL: Part of the population lived under communism and is now reaching old age: one can hardly expect these people to change their habits or become interested in new technology. Of course there are exceptions. Then there is the fact that even those who might be interested in new technologies simply do not have the money. To become an internet user you need not only a connection but a device. We have been trying to react precisely to this aspect. This takes us back to the specifics of the market: please show me some other market where you can get a first-rate laptop for €10 per month. You won’t. Then again, this is a long-track run. For the younger generation, which is reaching its productive age now, it is a primary need.
TSS: Justice Minister Štefan Harabin earlier this year said that he considered the failure of the mobile phone operators to reimburse clients for their unused pre-paid telephone credits a violation of customers’ right to own property and use it, which is embedded in our basic human rights and freedoms. At the beginning of the year the Association of Consumers of Slovakia filed a complaint against the phone operators. Now the operators say that customers can get back their unused credit through new pre-paid credits or even in cash. How would you comment on this development?
PL: I will avoid going into theoretical or legal debates here since I am not a lawyer. I will stay in the domain of facts. In the European Union there are two countries where pre-paid credits are returned: in Germany and Austria. But then the EU has over 20 countries which simply do not do it. Doing so, however, is not a problem for us. We responded that if there is a societal need then we would do it. For me this is not a real conflict and we do not have any problem with the act of returning itself. However, I had problems with different statements about whether there is a need to prove the identity of the user or not. Here our position is very clear because if I lent you my cell phone with €300 of credit, and did so for a period of two or three days because yours did not work, I obviously did not do so in order for you to go to the operator and take the money from him and then return the phone to me empty. It is indeed necessary that the person [receiving the payment] is the owner of the phone.
TSS: You have created a Consumer Affairs Committee, which is tasked with preparing the role for an ombudsman. Is there a need for a mobile operator ombudsman?
PL: The company’s board of directors elected a committee, service on which is voluntary and unpaid, and these people have the right to elect the ombudsman. The whole issue is outside the executive management of the company. As for the reasons: we simply cannot afford to lose customers by risking their trust. Over the years we have gathered a large amount of experience. Slovak legislation is certainly not perfect, but there are things that can be treated either strictly and rigidly in line with the law and no one can reproach us for anything, or these things can be treated more softly – I would say with a more human approach, though still fair and within the framework of the law. Of course with the second approach, space opens up for subjectivity.
One needs to make a decision about when such a softer approach is justified and when it isn’t. Shall we leave it up to the manager or agent? But then, he or she might be more forthcoming to someone for example from Humenné and less so to someone from Piešťany.
So we opted to create the committee and the post of ombudsman into which someone who has already shown some results should be elected.
TSS: How has the global economic downturn affected corporate philanthropy and, for example, your CSR activities?
PL: The crisis is affecting everything. We can produce a number of slogans but in the moment there is a shortage of funds, and it does have an impact. Certainly, it does not mean that it must destroy everything. As far as our activities are concerned, back in 1998 we established the Konto Globtel. We had only been in the market for a year and a quarter and we were making a loss, but still we were trying to get involved in these activities. Naturally, we continued. There are several issues that we have devoted attention to over the long run, for example the problem of orphans and their return to normal families. We are also doing things regionally and supporting
minority groups, but our main focus is on education.
It has always been close to our heart and we have channelled the most money there because we expect that – unless we discover deposits of gold or oil in Slovakia – the only gold we will find will be in the heads of young people.
In the summer months, the Orange Foundation will begin functioning. We are cooperating with non-governmental organisations, which are helping to create selection committees to pick projects. The board will then approve their selection. So we are not operating according to a ‘you scratch my back, I’ll scratch yours’ model.