Who's to set the telecom market forecast?

Natalya Vasilyeva, Bizness&Baltija

On January 1, 2003, The Latvian fixed-line telecommunications market will be demonopolised. Many companies declare that they wish to become competitors to the current monopoly Lattelekom. Nevertheless, the rules of the game in the free market are still unclear, because the regulatory institutions are not hurrying with dotting all their I's. And if we take into account that currently the companies Sonera and Telia have formed a powerful bloc, there is a risk that the monopoly de jure may even turn into a monopoly de facto.

Monopoly by fact

The turnover of Telia last year amounted to 5.4 billion US dollars, the profit - around 1.2 billion dollars. 30 thousand people are employed in the company.

Of course, Lattelekom is and will be one of the main players in the Latvian market. 49 percent of this company belongs to the consortium Tilts Communications, which was completely overtaken by the Finnish company Sonera last year. The company will be privatized sooner or later, and the first option, under the agreement between the Latvian

The turnover of Sonera in 2001 amounted to 1.9 billion US dollars, the profit - 356 million US dollars. More than 10 thousand people are employed in the company.

government and Tilts Communications, shall be given to an overseas investor. Moreover, the merging of Sonera and Swedish Telia has been announced recently. And it means that also the Latvian mobile communications operator, LMT, 23 percent of which is owned by Lattelekom and 24.5 percent - by Sonera, as well as 24.5 percent - by Telia, will be under the control of the Scandinavian owners. Actually, here we speak about a monopoly de jure, turning into a monopoly de facto.

For both companies, of course, it is not enough with Latvia alone - our market is too small for serious operators. Sonera and Telia has the controlling interest in Lithuanian and Estonian operators of fixed and mobile communications; last year, they smartly started to master the immense Russian market of mobile communications as well. Now they together are implementing the Russian national project Megafon, which should provide mobile communications for almost 90 percent of the population of our Eastern neighbor. They're paying attention also towards other CIS countries. Besides, Telia is actively developing its global optical network and has already laid 18 thousand km of cable network in the USA and 16 thousand km in Europe. Thus, the potential of the company is huge and it's hard to compete with such a monolith.

A weightier player, which can compete with the alliance of Sonera&Telia, is Sweden's Tele2. In Latvia, this company is known as an operator of mobile communications, but in markets of our Baltic neighbor countries, it provides also other telecommunication services: voice telephony in fixed networks, cable TV, Internet. In the previous year, the company intensified its operations in Russia by purchasing 13 operators of mobile communications AMPS, which, according to the latest Russian trend, have the right to develop GSM networks as well. "We see a huge potential for growth in Russia," the vice-president of Tele2 AB, Johnny Svedberg, announced.

Yevgeny Zurevlev, president of DataGrupa 777 The priority in the market will be given to the companies, which will be able to provide a complex service through their channels of data transfer. It must not be forgotten that there will be a tough competition in the market and only the company, which will have its own resources, will be able to control the price policy. Therefore now we invest all the available money in building our own optical fiber network. For the moment, our channels of data transfer are spread in the center of the city, and we try to connect clients to our network only. After 2003, it will be allowed to merge only private corporate networks, therefore the area of clients will significantly widen. Besides, we are negotiating with a number of Internet providers and operators of cable television. They provide a straight access to clients - "the last mile", and we offer them possibilities of new services. Such cooperation will be especially efficient in the so-called "sleeping neighborhoods".

In Estonia, where the market was demonopolised last year, Tele2 successfully offers international communication services, local communications (both local and intercity calls), as well as the calls from fixed phones to mobile phones both for corporate and individual clients. And, according to Mr. Svedberg, "Financial results of Tele2 operations on the Estonian market of fixed communications exceeded our expectations." The company primarily plans to acquire a license on fixed communications also in Latvia, intending to start with the provision of long distance communication services, calls to mobile phones and Internet services. And it intends to overcome all competitors, because "it has a strategy of the leadership in terms of prices" everywhere and in all categories.

Not fooling around

However, not only ambitious Scandinavians are there. There are a number of companies, which are ready to fight for their rights. First, these are state specialized networks, which have a well-developed infrastructure, in the formation of which millions have been invested. The most active in the market are Latvijas Dzelzcels and Latvenergo, the management of which does not deny that after revoking the monopoly of Lattelekom, they intend to claim the license of the fixed communication operator. Currently, changes in the structure of these companies are going on and it is thought that their affiliates, responsible for telecommunications, will become separate legal entities.

Alexander Rutman, president of the company Unistars Two years ago, our company acquired the right to operate in frequency ranges of 3.5 GHz, 3.6 GHz and 26 GHz. All of the frequency ranges, allocated to us, are used in building a high-speed data transfer radio network - the infrastructure, which Latvia, according to our surveys, lacks and which will have a high demand among both operator companies and separate large corporate clients. The infrastructure of the data transfer network, which we are creating, is such that on the basis of it, it is technically possible to provide practically all services, but during the first stage, we are concentrating on the services of access and data transfer - Internet access, high-speed data transfer, building of virtual private networks.

One of the main advantages of special networks are direct connections with foreign operators. One of the partners of Latvijas Dzelzcels is JSC TransTeleKom - the largest Russian operator of communications. Now TransTeleKom, the shares of which have been divided among 17 Russian railways, owns an optical fibre network with a total length of 45,000 km and has access to international operators of communications practically in all neighboring countries.

The situation with Latvenergo is more interesting. In principle, EES-Telekom - creation of the Russian JSC Unified Energy System of Russia (UES), oriented towards commercial activities, could become their partner. According to the press secretary of Latvenergo, Aigars Siksnis, the company negotiated with the UES the possible common use of telecommunication resources, but it never came to real projects.

However, another interesting alliance was formed. EES-Telekom signed an agreement on the common use of resources with the offshore company, registered in Cyprus, FTA, which intends to form an international optical fiber network for transit telecommunication traffic from Europe to Asia. According to the vice president of FTA in the Baltic States, Yevgeny Levin, this year, the company plans to complete the construction of the route "Moscow - Stockholm", including the Baltic rim, which includes Saint Petersburg, Stockholm, Kaliningrad, Ventspils, Riga and Vilnius. Moreover, FTA intends to build its own optic fiber cable from Ventspils to the border of Russia along the railway lines, the agreements on which have been already signed with the managers of Latvian railways.

Mikhail Zotov, president of IP Telekom Baltija The rules of the game in the telecommunication market are still not clear. But we are ready to fight for a license of the fixed communication operator and widen the range of our services. Many companies think about it, too, and currently, the possible players in the market are getting to know each other better. Now we are concentrating on the work with the suppliers of the equipment and fitting up Private Branch Exchanges in office centers. They will be connected in a common network in the future. After the revoking of the monopoly, also owners of other PBX's will be able to get access to the same network, thus obtaining a number of advantages - they will be able to receive significant discounts on calls both to mobile and fixed phones, because the common traffic will be taken into account. Besides, we also have networks outside the territory of Latvia, therefore we are ready to provide operators, providers and large corporate clients with services of international traffic transfer.

FTA would not mind to provide services to Latvian operators and providers as well. "If we have a license in Latvia for such kind of business and a local operator wants to buy capacity, we will sell."

Reaching clients

Along with the main networks, which will become the main body of the independent telecommunication infrastructure, there are also several dozens of companies in Latvia, whose priority is the access to the end consumers and already established base of clients.

For example, currently, there are 37 operators in the market of cable television services. The most important of them is Baltcom TV, which owns 30 percent of the market in Riga and 26 percent in the districts of Latvia. Already now the company offers its clients a complete set of "integrated services". In the telecommunication market, there are also 39 Internet providers of various levels and eight providers of IP-telephony. Some of them have already announced their readiness to compete with Lattelekom.

Also the company Unistars, which currently is building the largest high-speed data transfer network in Latvia, could compete with Lattelekom. The company intends to provide the services of data access and transfer to providers, operators and large corporate clients, and after the demonopolisation of the market, plans to expand the range of services. Also, we should not underestimate large corporate networks, which are ready to fight for their share as well.

Currently, the market players are negotiating on their future cooperation in order to unite efforts and use everyone's advantages to the full extent. Nevertheless, it is not clear, what the potential new operators could count with. For, not taking into account that before the "opening" of the market, there are only seven months left, there have not been set any strict rules of the game. Moreover, the drafting of the new "policy of telecommunication sector", in the framework of which the state should conceptually clear out what market it would like to see, has started only now.

Operators of fixed-line telecommunications in the Baltics, co-owned by Sonera and Telia

Company	Number of subscribers on December 31, 2001	Annual growth of subscriber numbers, %	Market share	Lowest possible market share, as of 31. 12. 2001, %
EMT, Estonia	383,000	17	54	52
Latvijas Mobilais Telefons	348,000	30	57	26
Omnitel, Lithuania	556,000	80	58	27

Data: annual report SONERA

Operators of mobile telecommunications in the Baltics, co-owned by Sonera and Telia

Company	Profits in 2001, million US dollars	Profits in 2000, million US dollars	Growth, %	Number of subscribers on December 31, 2001
Eesti Telefon	186	172	8	502,000
Lattelekom	262	248	6	722,000
Lietuvos Telekomas	295	281	5	1,152,000

Data: annual report SONERA